Judging by your e-mails, many look to the new small business status as a way of generating a supplementary income, without the burden of heavy social security contributions, whilst others wish to do so primarily as a means of obtaining access to health care.

The new status also appears to be a hit amongst the French, for the French Government reports that 40,000 applications for registration have been received since the start of the year.

Regular readers of the Newsletter will be aware that the new auto-entrepreneur business status is a form of micro-entreprise, with fewer business registration formalities, and no minimum level of social security contributions payable.

As an auto-entrepreneur, you pay a fixed percentage of your turnover in social security contributions, but if you have no sales in a period, then no contributions are payable.

An official from the French Ministry of Finance has confirmed to us that, provided there are at least some sales in a year, they will be entitled to remain in the health system. Only those with no sales at all over a twelve-month period would be excluded from auto-entrepreneur status.

Whether this continues to remain the case, only time will tell. The new business status has been designed to spark a new entrepreneurial spirit in France. If it later becomes apparent that the scheme is being abused in order to get access to the health and social security system, then a review of the regulations could well take place.

Professions Libérales

Despite announcements from the French Government that those seeking to start one of the profession libérale business activities would be eligible for auto-entrepreneur status, the French social security insurance fund 'CIPAV' that is responsible for most professions within this group has yet to sign up to it.

Their reluctance to join in the party affects many potential business start-ups. The professions libérales includes such noble professions as architects, lawyers and accountants, but it also includes many equally honourable but lower order activities such as acupuncture, tourist guide, and trainer.

Given the obstinacy of CIPAV to participate, the French Government have pushed a new regulation through the French Parliament that enables those affected to register with the social security collection agency, called URSSAF.

You can read more about the structure of these social security organisations at Structure of French Social Security System.

Micro-Entreprise

The news is a better one for those who run an existing micro-entreprise and wish to transfer to auto-entrepreneur status. They now have until 31 March 09 to do so, although it is by no means evident that such a change of status is necessarily beneficial.

Whilst the new business status has been generally welcomed in France, there are many protectionist voices who claim auto-entrepreneurs are being given an unfair advantage over micro-entreprise and other more mainstream business structures.

In practice, we think that any such is advantage a minor and temporary one. The new status does not, for instance, remove any qualification or experience entry barriers to a business activity in France, which remain in place.

The main benefit is the ‘pay as you go’ form of payment for social charges, thereby helping with cash flow.

Nevertheless, potential applicants should not be misled into thinking that the status necessarily reduces the percentage charge on the business. If you want to use it as a route to health cover, or as a minor secondary source of income, then it probably makes sense to use it. However, those with serious aspirations to a business activity in France need to consider wider options.

We have prepared a comprehensive guide to Micro-Entrepreneur Business Status in France, and you can also read our broader Starting a Business in France.