Social Security Contributions for the Self Employed

Recent rule changes on social security contributions grant some new relief to a small business, as they cap the level of social security contributions payable by a small business to a maximum percentage of turnover. This abolishes the previous rule, in which a minimum level of contributions were payable, irrespective of turnover (or profit or loss). In order to benefit from this rule, you need to elect to be taxed as a micro-entreprise, under which liability to tax is calculated after deduction of a fixed percentage allowance for business costs. The problem hitherto with micro status was that it penalised those with a very small turnover or profit, because a minimum level of social security contributions of around €1500-€1800 per annum was always payable. This was particularly difficult for start-ups, or those who simply ran a small business as a secondary activity, such as those seeking to supplement an early retirement retirement pension. Accordingly, the Government has changed the rules so that the social security contributions will be capped to a maximum percentage of turnover. The level of the cap depends on the type of business activity in which you are engaged:

Those who are engaged in the purchase and re-sale of products, the provision of furnished accommodation, or the sale of takeaway foodstuffs are capped at 14% of turnover.
Those engaged in the provision of other services are capped at 24.6% of turnover.

The concession is not available to those who have a ‘professional’ activity, and who, therefore, would be registered as one of the profession libérale. These include accountants, architects, artists, writers, surveyors. There is some discussion about extending the rule to include these professions, but there appear to be technical difficulties in achieving this objective.

This change of rule is going to be of particular interest for EU early retirees who relocate to France, and find they need to take out private health insurance at the expiry of their E106.

As an alternative to taking out such insurance, it might well make sense to start a small business in France as a holding position until you reach the official age of retirement, when you become eligible for health cover under an E121. Thus, on the basis that health and social security contributions are only payable as a percentage of turnover, if your turnover is very small, then so will be your liability to social security payments. A new business must notify the authorities with 90 days of their estimated turnover in their first year, or an official provisional figure will be used. Clearly, the authorities are not going to tolerate abuse of the rule, and anyone hoping to register a business, and then sit back and do nothing, will soon find the heavy hand of the regulatory authorities upon them. Neither is the rule going to be to the ticket in all circumstances. Let us take the example of a start up service-based business, who, in their first year, achieves a turnover of €8600. Under the old rules, they would be entitled to an allowance of 50% against turnover for costs. This means that their liability to social security contributions would (broadly speaking) be:

€8600/2 = €4300 x 45% = €1935

If we then calculate the level of social security charges that would be incurred under the new rule, we arrive at:

€8600 x 24.6% = €2115

Accordingly, it is clear from this example that the new rule does not benefit the business.

Depending on the level of profit of the business and other factors, then it might be better not to adopt micro status at all, but to be taxed on the basis of their actual costs. This tax status is called the regime reel.

If the business then grew to establish a sustainable turnover and profit, it might then be sensible to establish a limited company, in which it would probably then become fiscally attractive to be remunerated in part through dividend payments. We appreciate that those who are not familiar with the French system of business taxation in France are going to find some of this discussion difficult to follow. We repeat the advise we always give on business matters, which is to discuss your ideas and circumstances with a good commercially orientated accountant. A good starting point for getting a better understanding of the regulations, would be to read our Guide to Starting a Business in France.

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