A foreign company can begin selling to French customers without incorporating a French company. The position changes when the people acting for that company work habitually from France and perform the commercial decisions that generate the group’s revenue. A salesperson who only identifies prospects is not automatically a permanent establishment. An employee who negotiates the essential terms of contracts, selects customers, accepts orders or obtains only a formal signature from abroad can create a serious French tax exposure, even if the parent’s legal representative signs every document outside France.

The practical question is therefore not simply where the final signature appears. It is how the business operates day after day: who decides whether a customer is accepted, who fixes the price and commercial terms, who can commit the group, whether the French worker has a stable place at the company’s disposal, and whether the foreign parent genuinely reviews each transaction. The applicable tax treaty must also be read alongside French law. Different treaties use slightly different wording, and the answer depends on the real functions performed in France.

This guide explains the two principal permanent-establishment tests, the evidence that makes the risk stronger or weaker, and the tax, payroll and registration steps that may follow. It is aimed at founders and companies based outside France. It does not turn a fact-sensitive treaty analysis into a mechanical rule: before a launch, a reorganisation or the recruitment of a French commercial employee, the operating model should be documented and reviewed against the treaty that applies to the parent company.

I. Can a foreign parent’s employee create a French permanent establishment by negotiating contracts?

A. What the fixed-place and dependent-agent tests actually require

“Permanent establishment” is the English expression generally used for an établissement stable. It does not necessarily mean that a new French company has been incorporated. It is a taxable business presence through which a company established abroad carries on all or part of its activity in France. The concept is usually defined by the bilateral tax treaty between France and the country of the foreign company, while French domestic law determines the starting point for French taxation and compliance.

The first route is the fixed-place test. The foreign company may have an installation in France that is sufficiently stable and available to its business, such as an office, workshop, branch location or other premises from which core commercial activity is conducted. A desk used occasionally in a hotel or a shared workspace is not automatically a permanent establishment. The factual analysis asks whether the premises are genuinely available to the company, whether the presence is recurrent, and whether the activity carried out there is central to the enterprise rather than merely preparatory or auxiliary.

The second route is the dependent-agent test. A person in France may expose the foreign company when that person acts for it habitually and has, or effectively exercises, authority that binds the foreign company in its commercial relations. The word “authority” is not limited to a formal power of attorney. The way the employee conducts negotiations, accepts commercial commitments and obtains internal approval can show that the employee is making the decisive transaction choices in France.

Article 209 of the French General Tax Code, or Code général des impôts (CGI), sets the domestic territorial starting point for corporate income tax. It states that taxable profits are determined by taking into account, among other matters, uniquement des bénéfices réalisés dans les entreprises exploitées en France. The official text is available in Article 209 of the CGI. That wording does not replace the treaty test, but it explains why the location and substance of the business activity matter.

The French Council of State has applied the dependent-agent analysis to a foreign company whose French team played the decisive part in transactions. In Conseil d’État, 11 December 2020, no. 420174, the court referred to a person who habitually exercises in France powers allowing the foreign company to be engaged in a commercial relationship. The decision is especially important for sales organisations because it did not treat the signature alone as the decisive fact.

The court explained that the French company could fall within the test even though it did not formally sign contracts for the Irish company, where it décide de transactions que la société irlandaise se borne à entériner et qui, ainsi entérinées, l’engagent. In plain English, the risk arises where France decides the transactions and the parent merely ratifies them. A parent that performs a real review of each deal is in a different position from a parent that receives a completed commercial decision and applies an automatic signature workflow.

This distinction matters for an employee who “negotiates contracts”. Negotiation can mean different things. An employee may collect technical information, arrange meetings, translate documents or transmit a non-binding proposal prepared by the parent. Those activities usually present less risk than choosing the customer, agreeing the price, accepting liability terms, deciding the scope of services, promising delivery dates or treating the parent’s signature as a formality. The label in the employment contract is not decisive. The evidence should show what the employee actually does.

The French tax administration also looks at how an activity is divided between France and another country. The BOFiP, the official administrative tax doctrine database, discusses territoriality and the allocation of profits when an enterprise operates in France and abroad in BOI-IS-CHAMP-60-10-40. It describes the need to examine the conditions in which the enterprise functions and the functions performed by the French establishment or representative. The doctrine is not a substitute for the treaty or a court decision, but it is useful when preparing the factual file.

A French employee does not therefore create a permanent establishment merely by being physically present in France. The stronger combination is habitual presence, a business role that is part of the parent’s ordinary revenue-generating activity, and the power or effective ability to commit the parent. A fixed place at the employee’s disposal can create a separate route to the same result. A company should assess both routes instead of concentrating only on the signature block.

B. Why formal signature, corporate control and a French subsidiary are not enough by themselves

A foreign founder often focuses on three formal safeguards: the parent signs all customer contracts, the French subsidiary has its own legal personality, and the French employee has no written power of attorney. Each point may be relevant. None is conclusive when the commercial reality points in the opposite direction.

The 2020 decision no. 420174 shows why the place of signature is not a complete answer. If the French team determines which transactions are accepted and on what essential terms, an overseas signature can be evidence of a formal step rather than evidence of the real decision-maker. Email approval that is automatic, approval issued after the customer has already been promised the result, or a parent policy that leaves no realistic choice can all weaken the formal argument.

The opposite principle also matters. In Conseil d’État, 31 March 2010, no. 304715, Zimmer, the Council of State rejected an automatic finding based only on a French commercial structure and the relationship with a foreign principal. The decision is commonly used to explain that a controlled French company, a commissionnaire or an intermediary acting in its own name is not automatically a permanent establishment of the foreign company. The court examined whether the foreign principal was itself bound by the contracts with customers and whether the intermediary had the treaty power to engage it.

Zimmer is not a safe harbour for every group structure. It is a warning against the reverse shortcut: ownership, control or group integration alone does not prove a permanent establishment. The analysis still returns to the actual authority, the contractual chain, the independence of the intermediary and the business functions performed in France. A French subsidiary that genuinely contracts in its own name, bears its own commercial risk and does not commit the parent may be different from a subsidiary that presents the parent’s products, negotiates the parent’s customer contracts and forwards transactions for routine approval.

The more recent Conseil d’État, 3 February 2023, no. 456212 illustrates the importance of the factual combination. The case concerned a foreign company with a French presence and a person able to bind it, alongside other evidence of an installation and French operations. The decision is a reminder that tax authorities and courts may consider premises, accounts, management powers and the commercial activity together. A company should not isolate one favourable fact from the rest of the operating model.

The following distinctions are useful for a foreign parent’s sales process:

1. A marketing or lead-generation employee who cannot quote a binding price, accept an order or alter essential terms generally presents a lower dependent-agent risk. The parent must still check whether the employee has a stable workplace through which core activity is carried on.

2. A negotiator who can settle material terms within a pre-approved range presents more risk. The range may be so wide, or the parent’s approval so automatic, that the employee is effectively deciding the transaction in France.

3. A person who signs in the name of the parent, accepts orders, chooses customers or issues final confirmations has a stronger factual connection to the parent’s revenue-generating activity. A written delegation makes the evidence clearer, but the absence of a delegation does not eliminate the risk if the person acts with apparent or effective authority.

4. A French subsidiary employing the person may be a genuine separate employer and still perform functions that make the parent’s own business present in France. Separate legal personality and permanent-establishment analysis answer different questions.

5. A foreign company that sends an employee temporarily to France must assess both tax presence and employment rules. A worker can remain employed by the foreign company while French tax, social-security or posting formalities arise. The employment arrangement does not decide the tax treaty question.

Article 164 B of the CGI identifies French-source income, including Les revenus tirés d’activités professionnelles, salariées ou non, exercées en France. The provision is not a standalone permanent-establishment rule, but it reinforces the importance of separating the individual’s employment position from the company’s profit-allocation position. The official text is available in Article 164 B of the CGI.

The safest analysis is a transaction map. For each representative customer transaction, record who found the prospect, who selected the customer, who prepared the offer, who negotiated each material term, who could reject or change the deal, who approved it, who issued the final acceptance, who invoiced, and who bore the commercial risk. If the answer to most of those questions is “France”, the company should not rely on the fact that a director clicked the final signature button abroad.

II. How should a foreign company structure and document its French operations?

A. How to separate prospecting, negotiation, authority and contract execution

The first practical step is to design the commercial workflow before the employee starts negotiating. A policy that says “the French employee has no authority” is weak if the employee is measured on signed French contracts, can promise the customer a delivery date, and knows that the parent approves every proposal without a substantive review. The workflow must make the division of responsibility real and auditable.

A useful four-layer map is as follows.

1. Prospecting covers identifying possible customers, attending trade events, explaining the parent’s product at a high level and collecting information. The employee should make clear when statements are indicative and when an offer is non-binding. A CRM record should identify the source of the lead and preserve the parent-approved materials used.

2. Negotiation covers the exchange of commercial, technical and legal terms. The company should define which terms are fixed, which terms can be discussed, and which terms must return to a decision-maker outside France. A French employee can communicate a pre-approved position without necessarily deciding the parent’s transaction. That distinction becomes less credible when the employee can depart from the position and obtain only routine confirmation.

3. Authority covers the power to commit the parent. The company should identify the person who accepts the customer, approves discounts, assumes liability, agrees exclusivity, decides credit terms and authorises delivery. If that authority sits outside France, the decision should be made before the customer is told that the deal is accepted. Approval should contain reasons, not just an automated “approved” status.

4. Contract execution covers the final signature, invoicing, delivery and post-sale obligations. A signature outside France is useful evidence only when it represents a genuine decision. It is not a cure for a French process in which the essential negotiation and acceptance are already complete.

The company should maintain an authority matrix with names, countries, roles, approval limits and substitute approvers. It should retain offer versions, negotiation emails, meeting notes, pricing approvals, customer-acceptance records and signed contracts. Where the parent rejects a proposed transaction, the record should show the rejection and the reason. This evidence can demonstrate that the parent is not merely rubber-stamping a French decision.

The workspace should be documented as carefully as the contract process. A French office leased in the parent’s name and used continuously by its employee may support a fixed-place argument. A home office used by the employee does not lead to one automatic result, but recurring use for core business, signage, company equipment, stored documents and a right of access for the parent all increase the factual questions. A serviced office or coworking desk should be analysed according to the actual access and control arrangements, not by its commercial label.

The employment documents should match the operational documents. The job description should say whether the employee may negotiate, issue non-binding proposals, recommend customers, or accept orders. The compensation plan should not create a contradiction by giving the employee final control over the revenue that the policy reserves to the parent. Internal training should explain the difference between a proposal, a reservation of terms and a binding commitment.

The group should also distinguish three possible arrangements. A local French subsidiary may employ the salesperson and contract with customers in its own name. A branch or succursale is not a separate legal person from the foreign company and may make the parent’s French presence more direct. A foreign employer may keep its employee abroad or temporarily send the employee to France for a defined assignment. These choices affect tax, employment, social-security and registration duties in different ways.

For an overview of the structural choice, the existing guide on a French branch or subsidiary for a foreign company can be read alongside this permanent-establishment analysis. The two questions should not be merged: choosing a subsidiary does not automatically eliminate parent-company exposure, while a taxable permanent establishment does not automatically require the parent to incorporate a subsidiary.

Intercompany documents should describe the real functions. A service agreement may explain whether the French entity provides limited marketing support or performs the parent’s full sales function. A distribution agreement may allocate customer contracts and risk. A cost-plus arrangement may be appropriate for a limited service provider, but the pricing must correspond to the actual functions and risks. The agreement should not call a French sales team a “marketing assistant” if it can accept orders and negotiate the parent’s core customer terms.

This is also where transfer pricing enters the analysis. Article 57 of the CGI refers to profits transferred indirectly to an enterprise outside France and states that les bénéfices indirectement transférés à ces dernières may be added to the results shown in the accounts. The official provision is Article 57 of the CGI. The provision concerns profit transfers and does not itself establish a permanent establishment, but it shows why a group should align its contracts, invoices, staff functions and profit allocation.

If the French operation is intended to remain a limited support activity, the company should test the plan against the treaty’s preparatory or auxiliary wording before launch. “Support” is not a legal conclusion. A function that is essential to winning and retaining customers may be central even when the French entity does not sign the contract. The best documentation is therefore not a label but a consistent record of who makes the economically important decisions.

B. What tax, payroll and corporate filings follow when the risk becomes real

Once the facts indicate a French permanent establishment, the company should move from risk description to compliance planning. The precise sequence depends on the treaty, the type of presence, the residence of the employee, the duration of the activity and whether a French subsidiary or branch already exists. The following areas should be addressed together.

Tax registration and corporate income tax come first. The company should identify the responsible Service des impôts des entreprises (SIE), meaning the French business tax office, and determine which registration and declarations apply to the French activity. Article 209 of the CGI supports the taxation of profits attributable to an enterprise operated in France or allocated to France by a tax treaty. If a French taxable result must be declared, the company may have to prepare French accounts or profit schedules that allow the attributable profit to be calculated.

The filing calendar must not be confused with the date on which the first customer pays. A foreign company can have a filing duty even where the French operation has made a loss or has not yet collected revenue. For a company subject to French corporate income tax, Article 223 of the CGI governs the declaration of profit or loss and states that la déclaration du bénéfice ou du déficit est faite dans les trois mois de la clôture de l’exercice, subject to the statutory rules and electronic filing framework. The official text is available in Article 223 of the CGI. The company should obtain the applicable deadline from its SIE and tax adviser rather than infer it from the foreign parent’s calendar.

Article 206 of the CGI is the main corporate income tax provision that should be checked when determining whether the relevant company or French operation falls within French corporate tax. The current text is available in Article 206 of the CGI. The treaty may limit or allocate taxation, but it does not remove the need to establish the correct filing position. The company should also check whether advance corporate-tax instalments, VAT returns, payroll reporting or local business-tax declarations become relevant.

Late filing creates a separate risk. Article 1728 of the CGI provides the statutory framework for penalties attached to late or missing tax declarations; the current official text is Article 1728 of the CGI. A company that is still testing the French market should not treat the absence of revenue as a reason to ignore a notice, registration request or declaration. It should respond in writing, preserve evidence of its position and ask the SIE to confirm the correct obligations.

Profit attribution must follow functions and risks. Revenue booked by the foreign parent is not automatically the amount taxable in France, and a French cost base is not automatically the correct profit. The analysis should identify the activities performed in France, the assets and people used, the risks controlled in France and the value created by the French team. The applicable treaty and the French tax doctrine should then guide the attribution. If a French subsidiary pays or receives management, sales or support fees from the parent, the group should also support the pricing under Article 57 and preserve its transfer-pricing documentation.

VAT is a separate question. A permanent establishment, a French branch, a French subsidiary and a foreign company supplying French customers can trigger different VAT registration and invoicing consequences. The company should determine who contracts with the customer, where the supply is made, whether stock or services are located in France, and whether a French VAT number is required. The French tax administration’s business guidance on corporate income tax and business taxation should be checked together with the applicable VAT rules. A VAT registration does not by itself prove a permanent establishment, and the absence of a VAT number does not disprove one.

Payroll and social security must be analysed separately from corporate tax. URSSAF is the Union de recouvrement des cotisations de sécurité sociale et d’allocations familiales, the French network that collects most employer and employee social contributions. If the employee is hired by a French company, that employer normally has French payroll and reporting duties. If the employee remains employed by the foreign parent, the company must examine whether the employee is temporarily posted, habitually working in France, or subject to another coordination regime. The tax presence of the parent and the identity of the employee’s employer are related facts but not the same legal question.

Article L1221-10 of the French Labour Code states: L’embauche d’un salarié ne peut intervenir qu’après déclaration nominative accomplie par l’employeur auprès des organismes de protection sociale désignés à cet effet. This is the statutory basis for the déclaration préalable à l’embauche, or DPAE, the pre-employment declaration. The official text is Article L1221-10 of the Labour Code. A foreign group should not assume that keeping the employment contract under foreign law removes every French employment or social-security formality.

Temporary cross-border work also needs its own review. Article L1262-1 of the Labour Code states that a foreign employer may temporarily post employees in France where the employment relationship continues during the posting and the statutory conditions are met. The full provision is available in Article L1262-1 of the Labour Code. A posting, or détachement, may require a posting declaration, a French representative, documents available at the workplace, minimum French employment protections and social-security coordination evidence. The duration and reality of the assignment matter. Calling a continuing French sales role a “temporary visit” does not make it one.

If the company opens a branch, it must address corporate formalities as well as tax. The Guichet unique, the one-stop electronic business-formality portal operated through the French public system, is used for many registration events. INPI means the Institut national de la propriété industrielle, the National Institute of Industrial Property; it operates the formalities infrastructure and the Registre national des entreprises, or RNE. The company may receive a SIREN number for the legal entity and a SIRET number for an establishment. The Kbis is the official extract showing a company’s registration details; the greffe is the registry office attached to the commercial court; and the BODACC is the Bulletin officiel des annonces civiles et commerciales, the official bulletin that publishes certain corporate notices. These terms describe registration evidence; they do not decide whether a tax treaty permanent establishment exists.

The company should make a written launch decision based on a concrete file. That file should contain the applicable treaty, a legal map of the employee’s role, the fixed-place analysis, the authority matrix, representative negotiation examples, the intercompany agreement, the proposed profit allocation, the payroll position, the VAT position and the intended registration route. If the conclusion is that no permanent establishment exists, the file should explain the safeguards and the review date. If the conclusion is that the risk is material, the company should register and declare early enough to avoid turning a manageable launch issue into a late-filing dispute.

The following red flags justify an immediate review rather than a future clean-up:

1. The French employee can accept purchase orders, confirm price or promise delivery without a substantive overseas decision.

2. Customer negotiations are completed in France and the foreign director signs documents that are never rejected or materially changed.

3. The employee uses a dedicated French office, stores company records there, receives customers there or presents the space as the foreign company’s local office.

4. The parent’s website, business cards or customer emails describe the French employee as the local commercial representative with authority to close business.

5. The French team performs the parent’s central sales function while the intercompany agreement describes only low-value support.

6. Payroll, invoices, VAT filings and corporate tax treatment tell different stories about who employs the employee, who sells to the customer and where the business is conducted.

None of these facts is an automatic verdict in isolation. Together, they make a formal-signature defence increasingly difficult. Early documentation, a realistic operating model and a treaty-specific compliance decision are more reliable than trying to reconstruct the facts after a tax audit.

Conclusion

A foreign parent’s employee does not create a permanent establishment in France merely because the employee meets French customers or sends a draft contract. The risk becomes material when the employee habitually performs the parent’s core commercial activity in France, has authority to bind the parent, or makes the transaction decisions that the parent only ratifies. A French office or other place at the company’s disposal can create a separate fixed-place issue. A French subsidiary, a foreign employment contract and a signature made abroad may be relevant, but none is a complete answer to the factual and treaty analysis.

Foreign founders should map the real sales workflow before recruiting or expanding: prospecting, negotiation, customer selection, price approval, contract acceptance, invoicing, delivery and after-sales responsibility. They should preserve the decisions that occur outside France and align the job description, compensation, intercompany agreement, tax treatment and payroll position with the way the business actually operates. When the risk is real, the company should address corporate tax, VAT, profit attribution, DPAE or posting formalities, URSSAF and any branch or subsidiary registration through the appropriate French authorities.

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