New Measures to Reduce Small Business Charges in France

The French Government have introduced new measures aimed at reducing the taxes and financial costs of running a small business in France.

The plan creates a new legal business status of ‘auto-entrepreneur’, under which the owner of a business in France will pay a fixed percentage of their turnover in social charges and French income tax. There are also easier and quicker business registration formalities. Whilst under existing arrangements a micro-entreprise (small business) pays a maximum fixed percentage of turnover in social charges, it is the inclusion of income tax in the total fixed charge that is the particular innovation of this change for prospective auto-entrepreneurs. The level of the percentage charge will vary according to the nature of the business activity in which you are engaged. Those whose business activity is mainly 'service' based will pay 23% of their turnover in charges and taxes, whilst those whose main activity is 'commercial' in nature (sales, bar/restaurant, or the provision of furnished accommodation) will pay 13% in charges and taxes. The status is also available to those setting themselves up in one of the professions libérales, such as health professionals, legal professionals, surveyors, journalists, accountants and architects, who will pay a combined rate of 20.5%. No charges or taxes will be payable until the business starts generating sales, when they will then make a monthly or quarterly payment to the French social security authorities. These charges will include a payment for affiliation to the French health system, as well as pension, invalidity, family benefits, and the social welfare levy (CSG/CRDS). In addition, all new auto-entrepreneurs will be exempt from the French business tax, the taxe professionnelle for three years. The French Government have also agreed that the level of turnover permitted for a micro-entreprise will be increased, from €27,000 to €32,000 for those in the service sector, and from €76,000 to €80,000 for those in the commercial sector. These same turnover limits will apply for an auto-entrepreneur. The turnover threshold for a micro-entreprise has been the same for over ten years, so however small the change, it is certainly a move in the right direction for the small business owners, who would otherwise be required to prepare and maintain more detailed accountancy records if they exceeded the turnover thresholds. These new limits apply from 1st January 2009. The Government have stated that, in future, the figure will be indexed to the annual rate of inflation. Whilst the proposals are aimed at encouraging the formation of new business, they also seek to bring into the tax net those, for instance, who buy and sell on eBay on a habitual basis, but are neither registered with the authorities, nor declare their income. In a related move, eBay France recently tightened up their rules, requiring that regular sellers on the site produce a business registration certificate before they would be allowed to sell on the site.

More Confusion

The changes add further confusion to the already complex picture in relation to the legal and fiscal structures for setting up and running a business in France. There are now three main choices - auto-entrepreneur, micro-entreprise, or limited company (EURL/SARL). They also create a certain inequality in the system, for those who formally register as a micro-entreprise are charged on a slightly different basis, although the French Government appears to be in the process of creating greater alignment between the two tax regimes. On the face of it, you would probably be better off as a auto-entrepreneur than as a micro, but then you might also be better off becoming a registered company! You can read more about social security contributions for business owners in France here. Whatever may be the case, it will not be possible for an existing micro-entreprise to transfer to auto-entrepreneur status. It is only available to new start-ups. The legislation is yet to complete its final passage through the French Parliament, and we also await the publication of detailed regulations that will provide more information on how it will all operate. One issue that remains unclear is whether those without any turnover will be affiliated to the French health system, as no social charges are payable until actual sales occur. What is clear, however, is that the new business status does provide another route for early retirees to affiliate to the French health system, and pay a relatively modest level of health insurance contributions. We shall be updating our Guide to Starting a Business in France in due course. If you would like to make any comments on the article you can e-mail [email protected]

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