Lex in IT

France – Germany: brothers, cousins or enemies?

Last June, we were pleasantly surprised to come across one of our quotes in the newspaper, L’Enterprise:  “Stop comparing ourselves to Germany.  Do things our own way.”  This citation, quoted from our blog and featured in a monthly business journal of several thousand copies, demonstrates the interest, tainted with jealousy and a hint of annoyance that German enterprises (acknowledged by all governments as good models) have for French companies.

To the same extent, the same newspaper decided to devote several articles to Germany and its developed records.

At the same time, a journalist from the newspaper Der Spiegel published an article titled, “France’s Obsession with the Past Hinders Reform,” giving a very condescending and ironic criticism in regard to France’s attachment to the past and the difficulties we are going to have in taking part in a globalized economy.

Our intense trade relations explain this disdainful relationship between France and Germany: our neighbor is indeed our first customer and our first supplier as well as the fourth world power and the third largest importer.

Regarding global attractiveness and following the recently published world economic forum, these figures only highlight the gap between our two countries:  Germany takes sixth place in terms of attractiveness, while France is now in 21st place.

It’s hard to explain such a variance in our economic performance rankings in regard to that of our neighbor, sometimes enemy, sometimes brother and friend.  With a strong common history, a visit to the German history museum in Berlin is enough to remind us of the intensity and the endurance of this relationship, intact since the reign of Louis XIV, even since the Reformation, and to this day.

 Our legal systems are the best example demonstrating this relationship: the German Civil Law was codified after the France’s Napoleonic Codes (civil and commercial) of 1804 has been adopted.

 Regarding flexibility, did you know that France is one of the countries, where it is short and easy to incorporate companies? The two most popular forms of companies (the “SARL” and the “SAS”) can be established within a matter of days, with a shareholder and no minimum capital. They are both a form of company where the liability of the shareholders is limited to their contribution. Is this and asset or a problem knowing the fragility of an under-capitalized company starting out with a single shareholder?

It is true that the SAS is a particularly flexible form, tailored to the entrepreneurs who wish to modulate their company’s activity as there are very few mandatory provisions in this regard.  Contractual freedom of the founding partners is very high.

In addition to individual entrepreneurship systems, from the EURL to self-entrepreneurship in France, that allows for “getting the knack of things” and tests (with a few drawbacks concerning the effectiveness of the test) the economic model of the new activity imagined before passing any company setting.

As for Germany, the SARL (Gmbh) is the way often implemented by foreign PMEs.  These large companies starting out business in Germany would prefer SA (AF) with a 50,000€ minimum shared capital when the SA is starting from 37,000€.  Share disposal facilities from the French and German SA are pretty similar in the fact that the governance is that of natural and moral characters.  Entrepreneurs are creating less and less SA in France and restrict themselves more frequently to practice in listed companies.

And as for Germany, SARL is the most popular form chosen by the French in creating a PME. According to the INSEE, in 2011, the SARL created 79% of French companies and the SAS 16%.

In terms of taxation, Chancellor Angela Merkel and President Nicolas Sarkozy agreed in August of 2011, to help merge an allowable amount of tax rates on the part of each country.

Germany has a corporation tax rate of 15%.  However, German companies pay a commercial tax affecting municipalities (Gewerbesteuer, from 13.65%) and a solidarity contribution (from 5.5%) driving it to an acceptable rate of 29.5%.  The IS has a different limit from that of France because of the importance of partnerships that don’t abide by the IS like other capital companies.

In France, the standard rate of corporation tax is 33.3% and there’s a tax reduction of 15% for PMEs, which applies to the 38,120 first euros of profit.  For large companies, we add to the IS a 3.3% social contribution, plus the exception contribution of 5% to the amount of tax due (applicable until 2013) and other special temporary taxes, which results in a total tax rate of 42.4% or 44.1%.

Other key differences between Germany and France regarding commercial law and competition law will be discussed in the next post.

Written by Cecile Dekeuwer – Attorney at law (

Translated by Marisa Delchert





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