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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3.1. Micro-Social & Micro-Fiscal

The basic principle under this regime is that you pay a fixed percentage of your total turnover in social security and tax payments.

In other words, there is no cost allowance available to you, as there is in the general régime de base. Instead, a lower fixed percentage charge applies. You simply declare your turnover each month or quarter and pay a percentage of that turnover in social security (and tax) payments.

It is more precise to state there are two regimes – micro-social and micro-fiscal. Whilst an auto-entrepreneur is obliged to adopt the former, the use of micro-fiscal is optional.

Both regimes are optional for a standard micro-entreprise business, which can instead choose to adopt the general régime de base that we reviewed in the previous page.

3.2. Micro-Social

Under the regime of micro-social you pay a fixed percentage of your turnover in social security payments.

The percentage that you pay will depend on the nature of your business activity.

A 'service' based micro business pays 21.3% of their turnover in social contributions, whilst the figure is 12% for a 'sales' based business.

If you are in one of the professions libérales, then the rate applicable will depend on the type of activity your persue, and thereby the insurance Caisse to which you are affiliated.

Those professions libérales affiliated to the Régime Sociale des Travailleurs Indépendants (RSI) pay at the rate of 21.3%, whilst those with the Caisse Nationale d'Assurance Vieillesse des Professions Libérales (CIPAV) pay at the rate of 18.3%. You do not get a choice of the insurance fund to which you are affiliated; it is determined by the acitivity you persue.

Accordingly, you pay your social security contributions as you go, and if you do not have any sales in a particular period (month or quarter) then you will pay no social security contributions for that period.

Only if you declare no turnover for a period of two years do you lose the status of micro-social. During this time you continue to maintain your social security rights, including affiliation to the French health system!

Professional Training Contribution

In addition to the above basic contributions, since 1st Jan 2011, any micro-entrepreneur using the micro-social tax regime is also required to pay a small statutory contribution towards professional training - la contribution de formation professionnelle.

The rate of this contribution depends on your business activity, as follows:

0.3% for artisanal activities, 0.1% for commerical activities, 0.2% for service activities, 0.2% for the professions libérales.

If your income from your business in the year is lower than €4740 (2012), then you are exempted from paying this contribution.

Micro-Fiscal

You can also opt for a fixed percentage charge for income tax, which you will pay with your social security contributions.

Those in a service based business pay 1.7%; those in a commercial activity 1%; those in the professions libérales pay 2.2%.

Example: A service based business has a turnover of €20,000 in the year. They have adopted the full micro social/fiscal regime, and so they will pay 23% of their turnover in tax and social security contributions ie €4,600.

Example: In a commercial registered business, if you buy a product for €100 and you sell it for €200, you will pay €26 in social charges and tax. This leaves €174, from which you then deduct the cost of the product of €100, giving you a gross profit of €74. From this sum you then need to deduct your other costs eg travel, office, advertising, which leaves you with your net profit.

So, unlike under the general regime, you know the amount you are paying each period in tax and social security contributions, although that does not necessarily mean you will be better off adopting this option.

You can only opt to pay a fixed percentage charge for income tax under micro-fiscal if your net global taxable income (your revenue fiscal de référence) does not exceed (around) €26,000 per quotient part of the household, a figure that will be updated each year. As a couple would have two quotient parts, then the figure increases to around €52,000.

The reference period for this figure is the current year, minus two years.

Thus, a couple could opt for a fixed charge for income tax on their micro business earnings for 2012, if their revenue fiscal de référence in 2010 (for earnings in 2009!) was not higher than circa €52,000.

Your ‘global’ net taxable income includes income from other sources eg pension, lettings.

Despite paying the fixed income charge on your micro-entreprise earnings, this income will be taken into consideration in calculating the applicable income tax rate that will apply to other income. You will not pay income tax twice on the same income, but the two incomes are added together to determine the rate that will apply to other sources of income eg rental income, early retirement pension.

Payments

Your social security payments can be made each month or quarterly, based on your turnover for the previous month or quarter. You have 30 days from the end of the accounting period to pay.

The first payment is not due until the business has been in existence for at least three months, although you will pay contributions on the turnover you achieved during this period.

If you have no turnover in a period, then no charges are payable.

Once you have registered and set up a direct payment from your bank account, you simply enter your turnover for the period, and the amount you pay is automatically calculated for you. You press 'Envoyer' and it is all done until the next time.

If you are late with the payment, then you will be charged a 10% penalty.

Ex-Unemployed

If you benefit from relief from social security contributions through one of the government development schemes, such as those for the unemployed, and you start as an auto-entrepreneur, you will pay a reduced rate of taxation over the first three years of the business, including the year in which the business is established.

Accordingly, those who benefit from relief from social security contributions through Accre will pay a rate equal to one quarter of the normal rate in the first year, one half of the normal rate in the second year, and three-quarters of the normal rate in the third year. From the fourth year onwards, you will pay the normal rate.

The reduced rates vary by profession, as shown in the following table:

	Contribution rates
Activity	1st Year	2nd Year	3rd Year
Commercial activity, including provision of furnished accommodation	3%	6%	9%
Trade activities	5.4%	10.7%	16%
Professions Libérales under RSI	5.4%	10.7%	16%
Professions Libérales under Cipav	5.3%	9.2%	13.8%

If you benefit from relief under one Accre, you need to opt for micro-social status no later than three months after you start your business.

Changing Tax Status

If you are already registered as a micro-entreprise under the general régime de base, you can choose to move to the micro-social/fiscal regime if you so wish. You need to do so by 31st Dec in the previous year. For 2012 you need to elect to do have done so by 31st Dec 2011, and so on for subsequent years. Whether it would benefit you to do so, only you and your accountant can judge.

Summary

It is quite a complex picture, which we have tried to summarise in the following table.

The table shows the various types of business activity and the maximum permitted turnover for such an activity to retain micro-entreprise/auto-entrepreneur status.

It then shows the rates of social security contribution payable and the percentage level of turnover on which it is applied.

Thus, a commericial business would pay social security contributions at the (approximate) rate of 45% on 29% of turnover under the general regime, and at the rate of 12% of 100% of turnover under micro-social.

Whilst micro-social/fiscal column also shows the total percentage social security and tax rates that will be applied, the tax rate cannot be shown under the general regime, as the level of tax payable (if at all) will depend on your total income and household circumstances.

If any readers have a better method of expressing the information, we would be pleased to hear from them!

The rates and thresholds are those for 2012.

Table: Micro-Entreprise Tax Regimes

	Business Activity
	Commercial/Trade/Industrial		Prof Liberale
Tax Regime	BIC Sales	BIC Services	BNC
Max Turnover	€82,200	€33,300	€33,300
General Regime	45% of 29%	45% of 50%	45% of 66%
Micro Social	12% of 100%	21.3% of 100%	21.3%/18.3% of 100%
Micro Social/Fiscal	13% of 100%	23% of 100%	23.5%/20.5% of 100%

As the government has stated that a micro-entreprise operating under the general regime should pay no more in the percentage level of social security contributions payable under the micro-fiscal regime, there is very little to choose between all of these different regimes, particularly insofar as social security contributions are concerned.

The more important question is whether you should adopt micro-entreprise/auto-entrpreneur status at all, something we consider in the next page.

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Next: Should I elect for 'Micro-Entreprise' Status?

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