Substance & Establishment France 2025 | FRPS Requirements, Anti-abuse
Economic substance compliance in France. FRPS requirements, permanent establishment, anti-abuse rules. Secure your structure with our tax attorneys.
In summary: In the post-FRPS context, economic substance requirements have become essential in France. A structure must demonstrate real presence with physical premises, qualified personnel, and effective local management to avoid tax requalification and benefit from favorable regimes like DBI.
Economic Substance: Critical Issue
In the post-FRPS context, economic substance requirements have become essential. A structure without real substance risks tax requalification, loss of treaty benefits, and penalties.
What is Economic Substance?
Economic substance demonstrates that a company has real presence and conducts effective activity. Key elements:
- Physical premises: Office adapted to activity, not just a mailbox
- Qualified personnel: Competent employees on site
- Effective management: Strategic decisions made in France
- Operational capacity: Means to actually conduct the activity
French Anti-abuse Rules
France has transposed EU ATAD directives:
- CFC rules: Taxation of profits from low-tax subsidiaries
- Interest limitation: Deduction limited to 30% of EBITDA
- Hybrid mismatches: Neutralization of asymmetries
- Exit tax: Taxation on asset transfers
- General anti-abuse clause: Requalification of artificial arrangements
Substance for Holdings
Holdings must demonstrate specific substance to benefit from favorable tax regimes (DBI, capital gains exemption):
- Dedicated premises in France
- Qualified staff (CFO, managers)
- Board meetings in France (documented minutes)
- Active involvement in participation management
- Investment decisions made locally
Frequently Asked Questions
Economic substance means real presence of economic activity: physical offices, qualified personnel, local decision-making, operational capacity. It is required to benefit from tax advantages and avoid requalification of artificial structures.
Requirements vary by activity but generally include: effective management seat in France, qualified local staff, adequate premises, board meetings held in France, ability to make strategic decisions locally.
A permanent establishment is a fixed place of business through which a foreign company conducts its activity. It may be an office, branch, construction site, or dependent agent. It creates tax obligations in the country of location.
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