Your French subsidiary needs money and the fastest lender is you. The bank asks for three years of French balance sheets you do not have, a capital increase means a notary-style paper chase through the Guichet unique, and leaving the subsidiary short of cash risks the very thing every foreign director fears: a company that cannot pay its suppliers on French soil. So the parent wires funds directly, books the transfer as an intra-group loan, and plans to take it back later with a little interest. In French practice this is called an advance on a shareholder current account (compte courant d’associé, the running loan account through which a shareholder lends to the company outside the share capital). It is the most common way foreign groups fund a French SAS (Société par actions simplifiée, the flexible joint-stock company) or SARL (Société à responsabilité limitée, the private limited company), and it is perfectly lawful when it is documented. If the French vehicle itself is still under discussion, start with our guide to setting up a company in France as a foreign founder. Done carelessly, the same wire becomes a tax trap: interest the subsidiary cannot deduct, interest taxed twice on the way out, a loan the tax office reclassifies as a hidden dividend, or an advance frozen for years because the subsidiary claims it cannot repay. French law treats a shareholder loan as three things at once: a banking-law exception that must stay inside the group, a related-party agreement the shareholders must approve, and a tax object with a capped deduction on one side and a withholding tax on the other. This guide follows the money in both directions. First, how the foreign parent puts cash in from abroad without breaching the banking monopoly or the related-party rules, and what interest rate and paperwork make the loan stand up. Then, how the money comes home: when the subsidiary must repay, what happens if it refuses or goes bust, and what French tax bites the interest on exit.

I. How a Foreign Parent Puts Money Into Its French Subsidiary Without Breaking French Law

A. Can the foreign parent lend directly to its French subsidiary from abroad?

Yes, provided the loan stays inside the group. French law starts from a strict principle: lending money for consideration is a banking monopoly. The Monetary and Financial Code defines the reserved act broadly: “Constitue une opération de crédit tout acte par lequel une personne agissant à titre onéreux met ou promet de mettre des fonds à la disposition d’une autre personne” (it is any act for consideration by which a person makes funds available to another), as worded on Article L313-1 of the Monetary and Financial Code on Légifrance. A foreign parent that routinely lent to unrelated French companies would be acting as an unauthorised bank. But the same Code immediately carves out group treasury: “Les interdictions définies à l’article L. 511-5 ne font pas obstacle à ce qu’une entreprise, quelle que soit sa nature, puisse” (the prohibitions are no obstacle to any business doing certain operations), and among them the right to “Procéder à des opérations de trésorerie avec des sociétés ayant avec elle, directement ou indirectement, des liens de capital conférant à l’une des entreprises liées un pouvoir de contrôle effectif sur les autres” (carry out treasury operations with companies linked by capital ties giving one of them effective control over the others), per Article L511-7 of the Monetary and Financial Code on Légifrance, in force on the publication date of this article. A foreign company that controls its French subsidiary may therefore advance treasury to it directly from abroad, without a banking licence and without routing the funds through a French bank loan. The condition is genuine control through capital links, which a parent-subsidiary shareholding satisfies by definition. Document that link in the loan file: group chart, shareholding percentage, and the board resolution of the parent authorising the advance. If the lender is a sister company rather than the direct parent, keep the full chain of control evidenced, because the exception requires the capital link at every step.

The second lock is company law, not banking law. A loan from the main shareholder is a related-party agreement (convention réglementée), subject to a disclosure and approval procedure whose shape depends on the company form. In a SARL, the manager or the auditor presents to the shareholders meeting “un rapport sur les conventions intervenues directement ou par personnes interposées entre la société et l’un de ses gérants ou associés” (a report on agreements entered into directly or through intermediaries between the company and one of its managers or shareholders), and “Le gérant ou l’associé intéressé ne peut prendre part au vote et ses parts ne sont pas prises en compte pour le calcul du quorum et de la majorité” (the interested manager or shareholder may not vote, and its shares count for neither quorum nor majority), under Article L223-19 of the Commercial Code on Légifrance. In a SAS, the auditor or the president presents “un rapport sur les conventions intervenues directement ou par personne interposée entre la société et son président, l’un de ses dirigeants, l’un de ses actionnaires disposant d’une fraction des droits de vote supérieure à 10 % ou, s’il s’agit d’une société actionnaire, la société la contrôlant au sens de l’article L. 233-3” (a report on agreements with the president, a director, a shareholder holding over ten percent of voting rights, or the controlling company), under Article L227-10 of the Commercial Code on Légifrance. For the classic foreign setup, a single shareholder owning one hundred percent, both articles provide the same simplification: in a SARL, “lorsque la société ne comprend qu’un seul associé et que la convention est conclue avec celui-ci, il en est seulement fait mention au registre des décisions” (with a sole shareholder dealing with the company, the agreement is simply recorded in the decisions register), and in a SAS, “il est seulement fait mention au registre des décisions” (it is simply recorded in the decisions register). No vote is needed where the parent is alone, but the written record is mandatory. An unrecorded advance remains valid between the parties yet becomes indefensible the day a minority investor arrives, a buyer audits the company, or the tax office asks who approved what.

One prohibition every foreign individual founder should know runs in the opposite direction. French law forbids the company from lending to its own individual managers and shareholders: “A peine de nullité du contrat, il est interdit aux gérants ou associés autres que les personnes morales de contracter, sous quelque forme que ce soit, des emprunts auprès de la société” (on pain of nullity, managers and shareholders other than legal entities may not borrow from the company in any form), per Article L223-21 of the Commercial Code on Légifrance. The words doing the work are “autres que les personnes morales” (other than legal entities): the ban targets natural persons, not companies. A foreign parent company may therefore both lend to and borrow from its French subsidiary, while a foreign individual who is gérant or shareholder may not take a personal loan out of the company, even short-term, even interest-free, even with every intention of repaying. Founders who mix personal and company money across borders trip on this article more than any other. Keep the flows strictly company-to-company, in the company’s books, under a signed agreement.

Practical setup from abroad takes one afternoon when the file is complete. Sign a dated intra-group loan agreement in English with a French exhibit or a bilingual version: amount, currency, purpose, term, interest rate and reference index, repayment mechanics, and the law and jurisdiction clause. Wire the funds with a reference matching the agreement number so the subsidiary’s bank does not flag an unexplained foreign inflow. Book the advance in the subsidiary’s compte courant d’associé ledger on day one and record the agreement in the decisions register the same week. The official English-language guide Current account of partner: operation and taxation confirms the framework the administration applies, and commercial guides such as the Hello bank! Pro overview (convention, current operations, recovery of the advance) and the Picovschi analysis (accounting and tax treatment of the remuneration) show where domestic practice focuses: the written agreement and the recovery mechanics. None of them addresses the foreign lender’s position, which is exactly what the rest of this article covers.

B. What interest can the foreign parent charge, and what paperwork proves the loan is real?

The interest rate is where foreign parents lose the most money without realising it, because France caps the deduction on the subsidiary’s side. The General Tax Code allows deduction of “Les intérêts servis aux associés à raison des sommes qu’ils laissent ou mettent à la disposition de la société, en sus de leur part du capital, quelle que soit la forme de la société, dans la limite de ceux calculés à un taux égal à la moyenne annuelle des taux effectifs moyens pratiqués par les établissements de crédit et les sociétés de financement pour des prêts à taux variable aux entreprises, d’une durée initiale supérieure à deux ans” (interest paid to shareholders on sums they leave at the company’s disposal, beyond their capital share, whatever the company form, capped at interest computed at a rate equal to the annual average of the average effective rates charged by banks for variable-rate business loans of over two years), under Article 39 of the General Tax Code on Légifrance. In plain terms, the subsidiary deducts interest only up to the official average bank rate published by the administration; any contractual excess stays in taxable profit. The same article adds a trap for hasty incorporations: “Cette déduction est subordonnée à la condition que le capital ait été entièrement libéré” (the deduction requires the share capital to be fully paid up). A subsidiary whose one-euro or partly-paid capital was never completed deducts nothing at all, whatever the rate. Before wiring a euro of interest-bearing advance, confirm the Kbis capital is fully paid, then set the contractual rate at or below the published average rate for the year, unless a documented arm’s-length analysis supports more.

A higher rate is not automatically forbidden; it is conditionally deductible. The Code provides that interest on sums made available by an associated enterprise is deductible “Dans la limite de ceux calculés d’après le taux prévu au premier alinéa du 3° du 1 du même article 39 ou, s’ils sont supérieurs, d’après le taux que cette entreprise emprunteuse aurait pu obtenir d’établissements ou d’organismes financiers indépendants dans des conditions analogues” (within the limit of interest computed at the Article 39 rate or, if higher, at the rate the borrowing company could have obtained from independent banks in similar conditions), per Article 212 of the General Tax Code on Légifrance, whose opening words frame the whole regime: “Les intérêts afférents aux sommes laissées ou mises à disposition d’une entreprise par une entreprise qui est son associée” (interest on sums left or made available to a company by its shareholder company). For a foreign parent this is the doorway to a market rate above the average: produce the evidence an independent bank would have charged this subsidiary, at this date, for this risk. That means a short transfer-pricing memo kept with the loan file: the subsidiary’s credit profile, comparable bank offers or declined applications, the parent’s own refinancing cost plus a reasoned margin, and the currency-risk allocation where the loan is denominated in dollars, pounds or francs. Groups that skip this memo routinely watch the excess interest added back to taxable profit in the first audit, with late-payment interest on top. On top of the rate cap sits a second ceiling the article does not detail here: the general interest-limitation regime of Article 212 bis, which caps net financial charges against a percentage of tax EBITDA for large borrowers. A subsidiary carrying several million euros of intra-group debt should model both caps together before fixing the rate, not discover the second one at year-end closing.

Paperwork is what separates a loan from a disguised contribution, and the tax office attacks undocumented advances first. Keep four documents together for the whole life of the loan. First, the signed loan agreement described above, with a rate clause referencing either the published average rate or the arm’s-length memo. Second, the decisions-register entry recording the related-party agreement under Article L223-19 or L227-10. Third, the accounting trail: the advance credited to the shareholder current account, interest accrued yearly, and bank statements matching every movement. Fourth, actual servicing: interest paid or formally capitalised on schedule, and partial repayments when cash allows. A current account that only ever grows, bears no interest, has no maturity and is never serviced looks less like a loan and more like permanent capital, and the administration may then treat repayments as dividends and forgiven balances as taxable profit. Interest-free loans deserve a special warning. French practice tolerates them between group companies, but the subsidiary deducts nothing (no interest paid), the parent may still be taxed on a deemed benefit at home, and a sudden interest-free advance just before year-end followed by repayment just after looks like window-dressing. If the group wants a zero rate for simplicity, write it expressly, keep the term short, and accept that the instrument brings no French tax benefit.

II. How Does the Money Come Back, and What Does France Tax on the Way Out?

A. When must the subsidiary repay, and what if it refuses or collapses?

Repayment is the parent’s ordinary right, but it is not unconditional. Under French practice, a shareholder current account is repayable on demand unless the agreement says otherwise, which is why groups lend through it: the parent can call the money when the subsidiary’s cash allows. The subsidiary may lawfully delay only where immediate repayment would endanger its survival, and even then the delay must be reasoned and temporary, not a silent freeze. This is where the written agreement earns its keep for the second time. A loan with a fixed maturity, scheduled instalments and a default-interest clause converts a vague expectation into an enforceable claim a French court understands in one reading. A bare ledger entry with no terms invites the subsidiary’s new manager, its bank, or a court-appointed administrator to argue the advance was really quasi-equity meant to stay. Foreign parents should therefore calendar two dates from day one: the contractual maturity and, well before it, a review point to extend or call the loan by board decision. Rolling an expired loan silently for years weakens every later demand.

Two boundary situations need anticipation, not improvisation. The first is the subsidiary in difficulty. If the company enters a court-led insolvency procedure, the parent’s current-account claim ranks as an ordinary unsecured claim, paid after employees, the Treasury and secured lenders, which in practice often means a steep haircut. Worse, advances injected while the subsidiary was already insolvent can be challenged as late rescue funding that misled other creditors, and a parent that kept a dying subsidiary alive through current-account drips may face liability for supporting an unlawful continuation of a loss-making business. The lesson is operational: monitor the subsidiary’s equity position every quarter, and the moment losses halve the share capital, trigger the formal recapitalisation-or-dissolution procedure rather than papering over the hole with another advance. The second situation is the profitable subsidiary that simply will not pay. The parent enforces like any lender: formal demand (mise en demeure), then proceedings before the commercial court of the registered office, which a foreign company can conduct through French counsel without relocating anyone. Before suing, check the set-off position: unpaid management fees, royalties or dividends owed by the subsidiary to the parent can often be netted against the loan by agreement, achieving the economic repatriation without a wire. And never dress a repayment as something else. A distribution labelled as a loan repayment but paid out of profits while the loan account shows no matching debit is, in substance, a dividend, with dividend tax treatment. The Commercial Code guards the border: “Hors le cas de réduction du capital, aucune distribution ne peut être faite aux actionnaires lorsque les capitaux propres sont ou deviendraient à la suite de celle-ci inférieurs au montant du capital augmenté des réserves que la loi ou les statuts ne permettent pas de distribuer” (apart from capital reductions, no distribution may leave equity below the capital plus undistributable reserves), per Article L232-11 of the Commercial Code on Légifrance. A repayment that respects this boundary and matches the loan ledger travels home as debt service. One that does not is recharacterised, with interest, penalties and, for a foreign parent, the wrong withholding regime.

B. What French tax hits the interest on its way out to the foreign parent?

Interest crossing the border is taxed twice unless the file is built for the treaty. On the French side, two levies stack. First, the corporate income tax (IS, impôt sur les sociétés) treatment inside the subsidiary: interest is deductible only within the Article 39 average-rate cap and the Article 212 arm’s-length alternative, themselves subject to the Article 212 bis general limitation for large borrowers. Every euro of interest above the applicable cap is added back to taxable profit, so excess interest is taxed at the full French corporate rate before it even leaves the country. Second, the withholding tax (retenue à la source) levied when the interest is paid to a non-resident lender. France applies a domestic withholding on outgoing interest under Article 125 A of the General Tax Code, at a rate that has moved over the years and must be checked for the payment date, while dividends to foreign parents fall under the separate Article 119 bis regime. The practical consequence is a classification cliff: interest that survives as interest bears the interest withholding; interest reclassified as a constructive dividend bears the dividend withholding and loses the deduction. The loan file described above, rate memo included, is what keeps the payment on the interest side of that cliff.

The double tax treaty between France and the parent’s home state is where the bill usually shrinks, but relief is claimed, never automatic. Most French treaties reduce the interest withholding to a low single-digit rate or zero for beneficial owners, often with a lighter procedure than the dividend article. To obtain it, the parent provides the subsidiary’s paying agent with a certificate of tax residence for the relevant year, a declaration of beneficial ownership, and, where the treaty requires it, the specific claim form of the French administration. The SIE (Service des impôts des entreprises, the local corporate tax office) guidance published on impots.gouv.fr sets out the current forms and filing calendar, which change often enough that last year’s successful claim is never a template for this year’s. Start the paperwork before the first interest payment, not during the audit three years later. Treaty relief refused at payment stage can sometimes be reclaimed afterwards, but the refund procedure runs in French, on French deadlines, and requires the same documents plus proof of the levy, which a dissolved paying agent can no longer produce. Groups with American, British or Swiss parents should also verify the limitation-on-benefits and principal-purpose clauses of their treaty: conduit structures with no substance at the parent level increasingly see relief denied.

Three endgame points complete the picture. First, coordinate the loan with the exit. If the group later closes the subsidiary, an outstanding parent loan repaid during the liquidation comes home as debt service, while a loan forgiven to clean the balance sheet before closure creates taxable income in the subsidiary and, across the border, a loss whose deductibility depends entirely on the parent’s home law. Repay before dissolving; forgive only with advice on both sides. Second, watch the currency. A euro loan from a dollar- or sterling-area parent generates exchange gains or losses that French tax treats separately from the interest itself, and an undocumented currency clause is a standing invitation to reassessment. Third, keep the whole file for the audit cycle. The French administration may review the deduction and the withholding years after payment, when the directors have moved on and the portal passwords are lost. A single folder holding the agreement, the decisions-register extract, the rate memo, the residence certificates, the withholding returns and the bank wires turns a frightening audit letter into a routine exchange. That folder is also what the next buyer, the next auditor or the next litigator asks for first.

Conclusion

A foreign parent funds its French subsidiary fastest through a documented shareholder current-account advance, lawful inside the group under the treasury exception, approved through the related-party procedure of the SARL or SAS, and priced within the Article 39 average-rate cap or a proven arm’s-length rate under Article 212. The advance must be a real loan on paper, in the books and in the cash movements, because everything undocumented drifts towards reclassification as a dividend, with the wrong deduction and the wrong withholding. On the way home, interest faces French corporate tax limits first and withholding at payment second, with the treaty reducing the bill only where residence and beneficial ownership are evidenced before payment. Build the file once, a loan agreement, a register entry, a rate memo and the treaty certificates, service it on schedule, and the same wire that saved the subsidiary in spring returns home in winter with its interest, legally and at the lowest lawful tax cost.

Need a quick opinion on your case

Planning a cash advance to your French subsidiary, or struggling to get a shareholder loan repaid from abroad? Our firm offers a telephone consultation within 48 hours with an avocat of the cabinet, to review your loan agreement, your interest rate evidence and your withholding position. Call Maître Reda Kohen on +33 6 46 60 58 22, or write to us through our contact page, and we will tell you quickly whether your funding file is safe to sign.