Micro-Entrepreneur Business in France

1. What is a 'Micro-Entreprise'?

2. Micro-Entreprise or Auto-Entrepreneur?

3. Micro-Entreprise Tax Regimes

4. Should I elect for Micro-Entreprise Status?

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1. What is a 'Micro-Entreprise'?

One of the most popular approaches to setting up a business in France is as a 'micro-entreprise'. This is generally because the term is in common currency, the formalities of registration are easy to accomplish, and because of the simple tax and accounting rules.

What then is a micro-entreprise? We can distinguish a number of characteristics. These characteristics apply equally to the auto-entrepreneur business status, which is effectively a form of micro-entreprise:

i. Tax Status

First, and contrary to popular belief, a micro-entreprise is not a legal business structure – it is a specific tax status that benefits from simple tax and accounting rules.

It only available to someone who is self-employed as an Entreprise individuelle (EI). That is to say, someone running the business as a sole trader, not through a limited company.

Accordingly, it is not available if you propose to run your business through a private limited company - such as a EURL or SARL - or other form of French company structure.

So, if someone says to you they have micro-entreprise status, what they mean is they are actually an Entreprise individuelle (EI) that has chosen to be taxed as a micro-entreprise rather than being taxed under the other main form of business taxation, called the regime réel.

We examine the differences between the micro-entreprise tax regime and that of the regime réel in later pages.

ii. Accounting

A micro-entreprise is not required to keep any books of accounting, other than a daybook giving details of income received, although commercants (traders) are also required to keep a book registering their expenditure.

This simple accounting status is often cited as one of the main advantages of running the business as a micro-entreprsie, as there is no need to employ an accountant. That said, the use of an accountant is never compulsory. You can do it yourself if you feel you are competent enough to do so.

iii. Turnover Limits

The third important qualification is that micro-entreprise tax status is only available if the business does not exceed certain turnover (sales) limits.

These turnover limits depend on the type of business activity you pursue.

In this respect the rules make a (rather bizarre!) distinction between those whose business activity is 'service' or ‘professional’ based, and those main activity is 'sales'.

• In a service based business, or a 'professional' activity, the turnover cannot exceed €32,600 per year (2011).
• Those whose main activity is either commercial sales, bar/restaurant, or furnished accommodation, have a turnover limit of €81,500 per year (2011).

In the first year of business the turnover limits are applied pro-rata to the length of time the business has been in operation. Be careful on this point, as it is often overlooked by new business start-ups.

Nevertheless, some limited tolerance is permitted in exceeding the limits, even in a full year, which you are able to to so for two years.

If the business does both types of operations (service and sales) then the business can still be classified as a micro provided total revenues do not exceed €81,500, and the specific service based activity does not exceed €32,600 a year.

This is notably the case with those in the building trades, where the sale of building materials receives the upper limit, whilst the building construction activity itself is restricted to the lower rate.

iv. VAT

A business adopting the tax status of micro-entreprise cannot charge VAT on their goods or services, and neither can they recover VAT paid on purchases. If you wish to charge VAT, then you cannot adopt micro-entreprise tax status.

v. Exclusions

Finally, certain types of business are excluded from micro-entreprise status.

They include those who buy and sell property on a professional basis, estate agents, developers, finance companies and hire companies, with certain other limits on artists, writers, scientific and sports based activities.

You need to check with your accountant, or Chambres de Commerce/Metiers, on the full list.

In addition, the letting of unfurnished accommodation is taxed under rules of revenus fonciers, which you can read about in our pages on Letting Property in France.

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