Micro-Entrepreneur Business in France

1. 1. What is a 'Micro-Entreprise'?
2. 2. Micro-Entreprise or Auto-Entrepreneur?
3. 3. Micro-Entreprise Tax Regimes
4. 4. Should I elect for 'Micro-Entreprise' Status?

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4. Should I elect for Micro-Entreprise or Auto-Entrepreneur Status?

As a general rule, if your actual business costs are lower than the allowances available as a 'micro' then you will benefit from having micro-entreprise general regime status.

Indeed, in general, a small business with a low cost structure would probably be better off as a 'micro', whether micro-entreprise or auto-entrepreneur tax status.

Similarly, anyone proposing to start a small business as a part-time supplementary business activity to support their pension, or use it to obtain access to the French health system, would generally be best advised to run it as a micro-entreprise/auto-entrepreneur business.

If you were concerned about having to pay even a minimal level of social charges before you have started earning revenues, then you would be better off as an auto-entrepreneur. As such, you would also be exempt from the taxe professionnelle for three years, provided you elected to pay the fixed income charge through the micro fiscal regime each payment period.

Exemption from the tax professionnelle is likely to be worth several hundred euros at least, but do remember that not all new professions pay this tax, eg building trades.

However, as a micro-entrepreneur you would need to be more prudent about also opting to pay a fixed charge for income tax under the micro fiscal, as you might not otherwise have had to pay income tax! Generating a profit does not necessarily mean you will also be liable for income tax on that profit.

Only if you had a profit on which you were also going to have to pay income tax, would it make sense to adopt the regime of micro-fiscal. If you have other income, you need to work out the impact of the rate of income tax on your business and other income before making your choice. Adopting the micro-fiscal might reduce your total liability.

If you have substantial business costs (including capital investment) then you would be better off not electing for micro-entrepreneur status at all, but instead to opt to be taxed under the regime réel.

There are also some disadvantages of micro-entreprise/auto-entrepreneur status that you need to consider:

• No depreciation of assets against revenues is possible
;
• Losses cannot be carried forward under the micro-entreprise/auto-entrepreneur regime, whereas this is possible under the regime réel
;
• You cannot make use of 'benefits in kind', such as a company car, which may offer you tax advantages. There are also quite generous provisions available for charging business expenses to those taxed under the regime réel, particularly if you are in one of the 'professional' activities
;
• A business pays a large proportion of net earnings in social security contributions, and many would pay less by being taxed under the regime réel rather than as a micro, although expect to incur higher accounting charges
;
• You do not charge VAT on sales (so may benefit from lower prices if you are selling to members of the public) but, by the same token, the business cannot recover VAT on expenditure. So, if you have a low level of value-added, and your purchases are high in relation to total turnover, you need to consider if micro-entreprise is the best route for you;
• If you are setting up a business in a development area there are a number of tax and social security concessions that may be granted. In some cases these concessions are not available to a micro-entreprise
;
• Although a micro-entreprise is relieved of the liability to present detailed accounts to the tax authority, maintenance of a daybook detailing receipts continues to be obligatory
;
• The net income of a micro is multiplied by 1.25 for the purposes of calculating liability to income tax, because they are not eligible to register with an authorised business accounting centre, called a Centre de Gestion for accounting purposes.

It all depends on the cost structure of your business and, particularly how you see it during the first few years.

As many businesses incur high costs in the early years, then you may be better off electing for the regime réel.

If you elect for micro-entreprise status, but find that you are going to be worse off by doing so, then you can approach the tax authority and adopt the system of regime réel.

You need to so before you submit your first tax declaration.

If a business elects for the regime réel then it is applicable for two years and automatically renewed every two years, unless you otherwise elect to revert to a fixed rate tax allowance at the end of two years.

A micro is given a longer period to submit their annual tax return. Normally the declaration should be made by the end of May each year, although the Government does tend to vary this date from year to year.

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