You invoice French clients from your London, New York or Dubai company. A salesperson works from Lyon, stock sits in a warehouse near Lille, or a French agent signs deals in your name. No French company was ever created, no Kbis (the official registration certificate issued by the greffe, the clerk’s office of the commercial court) was ever obtained, and no French tax return was ever filed. Many foreign founders assume this means they owe nothing in France. French law often takes the opposite view: from the day your business activity on French soil becomes sufficiently stable and autonomous, France treats you as taxable in France, registrable in France, and liable for every year you ignored. This article explains how the French notion of etablissement stable (permanent establishment) is triggered, what the tax and criminal bill looks like, and how to regularize from abroad by choosing between a liaison office (bureau de liaison), a branch (succursale) and a subsidiary (filiale).

If you are starting from zero rather than regularizing an existing presence, read first our step-by-step guide to setting up a company in France as a foreign founder, which covers the bank account, the Kbis, VAT and the first hire.

I. Your Warehouse, Salesperson or Agent in France May Already Create a Taxable Permanent Establishment

A. How France Detects a Permanent Establishment: Fixed Premises, Stock and a Complete Commercial Cycle

French corporate income tax (impot sur les societes, IS) is territorial. Article 209 of the General Tax Code (Code general des impots, CGI) provides that taxable profits are determined “en tenant compte uniquement des bénéfices réalisés dans les entreprises exploitées en France”, meaning that only profits earned by businesses operated in France are taken into account. The decisive question for a foreign company is therefore whether it operates a business in France, and French courts answer it through the concept of etablissement stable, permanent establishment. Three paths lead there: a fixed place of business through which the activity is carried on (an office, a workshop, a warehouse, a building site beyond a certain duration), a dependent representative who habitually commits the foreign company, or a complete commercial cycle conducted on French territory even without shiny premises.

The warehouse near Lille is the classic trap. Storage alone can look preparatory, but the moment stock is combined with delivery, after-sales service, quality control or order-taking on French soil, the tax administration (direction générale des finances publiques, DGFiP) argues that a full commercial cycle exists in France. French courts have repeatedly accepted that reasoning: where the essential operations of the business — prospecting, negotiating, delivering, servicing — are performed in France by people or premises at the disposal of the foreign company, the profits attached to those operations are treated as earned by a business operated in France, even if invoices are issued from abroad and the foreign company has no French registration number (SIREN, the unique business identification number issued by INSEE, the national statistics institute). The SIREN, the Kbis extract and the entry in the Trade and Companies Register (registre du commerce et des sociétés, RCS) are evidence of visibility, not preconditions of taxability: operating invisibly makes the situation worse, not better.

The salesperson working from a flat in Lyon is the second trap, and it works through the dependent-agent path. An employee or agent who habitually negotiates and concludes contracts that bind the foreign company — even without a formal power of attorney, even working from home — can by itself constitute a permanent establishment. The administration examines who really decides: if the French-based person solicits clients, discusses prices, customises offers and the foreign head office merely rubber-stamps, the establishment is in France. Only a genuinely independent agent, acting in the ordinary course of its own business for several principals and bearing its own commercial risk, escapes this analysis — a single-client commission agent economically tied to one foreign principal does not. Founders who believe that keeping everyone as a contractor or keeping the premises off the books protects them confuse commercial discretion with legal invisibility: neither the tax inspector nor the criminal court treats them the same way.

The third path, the complete commercial cycle without fixed premises, catches digital and service businesses. A foreign consultancy whose teams spend most of the year on client sites in Paris, a foreign e-commerce operator whose French logistics chain handles warehousing, packing, returns and customer service, or a foreign construction group whose site supervision stretches for many months can each be found to operate a business in France. Double tax treaties (conventions fiscales) allocate taxing rights between France and the home state and must always be checked — a treaty may narrow or widen the domestic definition — but a treaty never exempts a company from declaring and proving its position in France. The company that never files anything in France cannot benefit from treaty protection in practice, because treaty relief is claimed through French filings, French accounting records and, where the treaty provides, a withholding-tax reclaim procedure. Silence forfeits the shield.

B. The Representative Who Signs for You Binds You: The Orefa Lesson on Hidden Establishments

The strongest recent warning comes from the Cour de cassation (the supreme court for civil, commercial and criminal matters), Commercial Chamber, 15 February 2023, appeal no. 21-13.288, concerning Orefa, a Luxembourg company suspected of operating in France without declaring anything. The tax administration, acting through the national tax-investigation directorate (DNEF), obtained judicial authorisation for dawn raids (visites et saisies) under Article L. 16 B of the Tax Procedures Book (Livre des procédures fiscales, LPF) in premises in France suspected of housing the real decision centre. The company challenged the raids, arguing in substance that a company properly keeping accounts in Luxembourg could not be presumed to hold a hidden establishment in France and that demanding French books was discriminatory under EU freedom of establishment. The Cour de cassation rejected the appeal in full: “REJETTE le pourvoi”, ordered Orefa to bear the costs, and refused any referral to the Court of Justice of the European Union, finding no reasonable doubt on EU law. Read the full decision on the official Cour de cassation website (15 February 2023, no. 21-13.288).

The holding every foreign founder should memorise is stated in paragraph 4 of the decision: a foreign company that carries on an activity in France through a permanent establishment bears the duties set by Articles 54, 209 and 286, I, 3° of the Tax Code. In plain terms, a foreign company operating in France through a permanent establishment owes France the same core duties as a French company: keep and produce accounting records capable of justifying transactions taxable in France (Article 54 CGI), pay corporate tax on the French share of profits (Article 209 CGI), and meet French VAT registration and invoicing duties (Article 286 CGI and Article 256 CGI). Where the company has breached its filing duties, the Court added, it may be presumed to have knowingly omitted entries or recorded inaccurate or fictitious entries in the books whose keeping is required by the Tax Code — a presumption that opens the door to search-and-seizure powers. A companion ruling the same day against a second company (Commercial Chamber, 15 February 2023, appeal no. 20-20.599, available on the Cour de cassation website) confirmed that Article L. 16 B requires only simple presumptions, not full proof, before a judge authorises the raids — the administration does not need to have already demonstrated the establishment to come looking for it.

The practical message is brutal and simple. Keeping proper books in London or Delaware does not satisfy French duties if the activity is in France; the Court expressly dismissed the argument that regular Luxembourg accounting was enough. The administration can obtain a judge’s permission to enter French premises on presumptions alone, seize documents, reconstruct the hidden French turnover, and then tax it. And every person in France who negotiated, signed, stored, delivered or decided for the account of the foreign company becomes a witness — or an exhibit — in that reconstruction. If your French operation depends on one key representative, ask today what that person signs, negotiates and decides, and whether emails, order forms and delivery slips point to France as the real place of business. That paper trail — contracts, delivery slips, signatures and login records — is exactly what the inspectors will read first.

II. Back Taxes, Surcharges and Criminal Exposure: What the Hidden Presence Costs and How to Regularize From Abroad

A. The Bill Reconstructed Year by Year: Corporate Tax, VAT, Penalties, Late Interest and the Loss of Procedure

Once a permanent establishment is characterised, the administration reconstructs each open year. The corporate-tax base is the profit attributable to the French activity, taxed at the standard IS rate (25% for recent years), and Article 206 CGI makes companies carrying on profit-making operations in France liable to that tax whatever their foreign form. VAT follows: Article 256 CGI subjects to French VAT supplies of goods and services made for consideration by a taxable person acting as such, and a hidden establishment that never registered for VAT, never charged it and never filed VAT returns (déclarations de TVA) faces reassessment of the VAT deemed included in its prices, with no deduction for VAT it forgot to collect. Payroll is the third layer: if people worked in France, the social-security collection body (URSSAF, the network that collects employer and employee social contributions) can reassess undeclared wages and contributions, with its own surcharges — a front our firm details in the guide to facing a URSSAF audit from abroad.

Surcharges then multiply the principal. Article 1729 CGI imposes an uplift of “40 % en cas de manquement délibéré” (40% for deliberate failure) and 80% for fraudulent manoeuvres, on top of late-payment interest currently running at 0.20% per month. An undisclosed establishment is routinely treated as deliberate at minimum, and the discovery of false invoices, concealed receipts or manipulated books pushes files into the 80% bracket. Procedure makes defence harder: normally the administration must send a formal notice (mise en demeure) and leave 30 days to regularize before imposing an ex officio assessment (taxation d’office), but Article L. 68 LPF removes that safeguard where the taxpayer “s’est livré à une activité occulte” (carried on a hidden activity) — the administration assesses first and the company must then prove the assessment wrong, a reversal of the burden of proof that undeclared operators consistently lose. Time limits stretch too: hidden activity extends the recovery period up to ten years, so five or six years of French turnover can be reassessed in a single procedure.

Beyond tax, operating without registration is a criminal matter under employment law. Article L. 8221-1 of the Labour Code (Code du travail) prohibits concealed work, and Article L. 8221-3 defines concealed activity by concealment of the business as the situation of a person who, deliberately evading its duties, “n’a pas demandé son immatriculation au registre national des entreprises en tant qu’entreprise du secteur des métiers et de l’artisanat ou au registre du commerce et des sociétés, lorsque celle-ci est obligatoire” — has not applied for registration where it is mandatory — or has not filed the required social-security and tax declarations. Article L. 8224-1 punishes breach of these prohibitions: “Le fait de méconnaître les interdictions définies à l’article L. 8221-1 est puni d’un emprisonnement de trois ans et d’une amende de 45 000 euros.” Three years’ imprisonment and a 45,000-euro fine apply to the individuals responsible, and the company itself faces fines multiplied for legal entities, exclusion from public contracts, and — decisive for founders — personal liability of the director for counterparts harmed by the concealment. Commercial registration is not optional paperwork either: Article L. 123-1 of the Commercial Code (Code de commerce) requires registration of foreign commercial companies that have an establishment in a French department, and trading through an unregistered establishment voids the protection founders expect from acting through a company.

B. Regularize From Abroad: Liaison Office, Branch or Subsidiary, and the Spontaneous-Disclosure File

Regularization starts with choosing the right vehicle, and the Ministry of the Economy’s official guide states the menu clearly. A liaison office (bureau de liaison) suits pure market prospection: it has no legal or tax personality of its own, and the guide states that it may only conduct prospecting, advertising, information, storage or other preparatory and auxiliary work, and it escapes French registration and taxation only while it stays within those walls. The moment the liaison office takes orders, negotiates prices or provides services, it crosses into permanent establishment and the protection evaporates — which is precisely the situation most hidden operators are already in, so the liaison office is a future-compliance tool, not a cover for past activity. The guide presents the branch as the next step into the French market: it manages its own business premises with its own material organisation but has no legal autonomy and no separate assets, operating as an agency of the head office while being fully subject to the French tax regime, with double taxation relieved by the applicable bilateral treaty. The subsidiary is the fullest step — described as the most complete way to enter the French market: a French company in its own right (typically a SAS, the simplified joint-stock company favoured by foreign investors, or a SARL, the limited-liability company), with its own assets, acting in its own name and subject to French company, tax and employment law like any French business. Read the administration’s own presentation on setting up a foreign business in France (economie.gouv.fr) before deciding.

Whichever vehicle fits, the filing goes through the online single counter (guichet unique des formalités des entreprises, run on formalites.entreprises.gouv.fr): the official guide lists as declarable online the registration of a foreign person starting an activity in France, the registration of a foreign company establishing premises in France (branch or subsidiary), the registration of a foreign company with no permanent establishment in France but employing staff, and even the registration of a company with neither establishment nor staff. The counter forwards the file to the social bodies including the national centre for foreign firms, the foreign-companies tax office (service des impôts des entreprises étrangères, SIEE), the INPI (the intellectual-property and business-registry institute) for the National Business Register (registre national des entreprises, RNE), the greffe for RCS entry where premises are established, and INSEE for the SIREN number. Foreign founders should also budget the related calendars from day one: VAT registration and returns, the annual approval and filing of accounts, and the employer’s duties for any French-based staff — our French company legal-calendar guide maps every deadline, and the first-employee overtime guide covers the 35-hour week before the first payslip goes out.

The past years must be dealt with alongside the new registration, and here spontaneity pays. A voluntary disclosure — filing the missing corporate-tax, VAT and payroll returns, paying the principal and interest, and requesting leniency on surcharges — is consistently treated better than the same file discovered through a dawn raid or a competitor’s report: deliberate-failure uplifts can sometimes be negotiated down where the administration has been spared the investigation, while discovered files attract the full 40% or 80% plus systematic criminal referral. The disclosure file should reconstruct French turnover year by year from bank statements, contracts, delivery notes and email archives, isolate the profit attributable to the French activity with a documented method (treaty-compliant where a convention applies), quantify deductible VAT properly instead of inventing it, and regularize the staff position with URSSAF in parallel, because a tax-only disclosure that leaves undeclared French wages visible to a second administration invites the second audit. Engage French counsel before any contact: the first letter frames the entire negotiation, and a file that arrives complete, quantified and already registered signals a taxpayer returning to compliance rather than a fraudster caught mid-act. Keep every filing receipt from the guichet unique, every SIEE acknowledgment and every publication in the official civil-and-commercial gazette (BODACC, where company registrations are published): they are the documentary proof that the hidden period has an end date.

Conclusion

France does not need your company to be French to tax it, register it or prosecute it: it needs your business to be in France. A warehouse that delivers, a salesperson who commits you, an agent who negotiates in your name or a team that performs a full commercial cycle on French soil can each create a permanent establishment, with corporate tax on the French profits, VAT on the French turnover, social contributions on the French wages, surcharges of 40% to 80% plus monthly interest, ex officio assessment without prior formal notice for hidden activity, recovery going back up to ten years, and criminal liability for concealed work carrying three years’ imprisonment and a 45,000-euro fine. The Orefa rulings of 15 February 2023 confirm that proper books abroad do not cure the absence of books in France, and that judges authorise searches on simple presumptions. Against that stands a workable way out: classify the activity honestly, choose the vehicle that matches it — liaison office for genuine prospection only, branch for an establishment without separate legal personality, subsidiary for a full French company — register through the guichet unique, obtain the SIREN, the RCS entry and the Kbis, and disclose the past years spontaneously with reconstructed accounts before the administration reconstructs them for you. The founders who sleep well in France are not those who stayed invisible the longest; they are those who picked a registration date and can prove everything after it. Paris and Île-de-France founders face the same rules with one practical twist: the Paris commercial court greffe, the SIEE and the Paris URSSAF office process the highest volume of foreign-company files in the country, so file early, keep every receipt, and expect experienced counterparts who have seen every variant of the hidden-establishment file.

Act before the registered letter arrives: once the inspector opens a file, every subsequent filing is examined as a reaction rather than a disclosure, surcharges harden, criminal referral becomes routine, and negotiation margins narrow for years.