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?

---

3. Micro-Entreprise Tax Regimes

Since January 2009 there have been two types of micro-entreprise tax regimes:

1. i. Régime de Base - Your liability to tax and social security contributions is calculated on your annual turnover, after deduction of a fixed rate cost allowance.
2. ii. Micro-Social/Micro Fiscal – No fixed allowance for costs is granted. Instead, you pay a lower fixed percentage of your total turnover in social security and tax payments.

Do not be fooled by the hype surrounding the new auto-entrepreneur business status. In terms of social security contributions the end result is much the same as the existing micro-entreprise tax status. Indeed, we have seen calculations from reliable sources that suggest the new micro-social regime may sometimes be marginally less advantageous than the existing régime de base.

In some measure it is going to depend on the nature of your business, as the percentage allowances under the régime de base do vary quite considerably, but then they also only reflect the likely different cost structures for each type of business activity!

Whilst the régime de base is available to a business registered as a micro-entreprise, it is not available to those registered as an auto-entrepreneur, who can only adopt the micro social/micro fiscal options.

i. Régime de Base

Under the general regime (régime de base), your liability to tax and social security contributions is calculated after deduction of a fixed rate allowance against annual turnover.

The level of the allowance depends on the type of business activity in which you are engaged:

• If your business is classified as a ‘commercial sales’ you will receive an allowance of 71%, under the tax rules called Micro Bénéfices Industriels et Commerciaux (Micro-BIC). This means liability to income tax and social security contributions arises on 29% of your turnover.
• If your business is classified as a ‘service’ based, you will be taxed under the same Micro-BIC rules, but with a lower allowance of 50%. Accordingly, your liability to income tax and social security contributions arises on 50% of gross income.
• If it is a 'professional' activity (e.g. accountant, architect, artist, writer) you will receive an allowance of 34%, under rules called Micro Bénéfices Non Commerciaux (Micro-BNC). This means liability to income tax and social security contributions arises on 66% of gross income.

(There is a status for agricultural professions, which we do not consider in these notes.)

In terms of your income tax return, you simply declare your turnover figure, and an automatic abatement is applied by the tax authority to determine your taxable income. You will pay your income tax once a year, unless you have opted with the tax authority to pay by instalment.

The actual rate of taxation will be that applicable under the normal rules for personal income tax and will depend on total income and the composition of the household. No flat rate tax applies.

In terms of social security contributions, the amount you will be charged will depend on your turnover and business activity, but broadly speaking they amount to around 45% of your turnover, after deduction of the fixed allowance.

Nevertheless, there is an important caveat to this equation because there is a double rule, under which the level of social security contributions payable by a micro-entreprise is capped at a maximum percentage of total turnover.

Under this second rule, a service based business operating under the general regime would not pay any more than 21.3% of their turnover in social security contributions, whilst the figure is 12% for a sales based business.

Any reduction in your social security payments to take account of this second rule is carried out automatically by relevant social security body.

These capped limits are also the same for the fixed charges for auto-entrepreneurs operating under the micro-social regime set out below, although the payment arrangements differ.

As a new micro-entreprise in their first and second year of operation has no previous track record on which to base social security payments, a new business has the option to elect to pay their social security contributions on the basis of provisional estimates of profit determined by the authorities, or based on your own estimate of your profit.

The difference between the provisional estimate and the actual profit is regularised when your final declared figures have been assessed, either by way of a refund of overpaid contributions, or the payment of additional contributions.

Those seeking to pay on the basis of their own estimates need to elect to do so within 60 days of establishing the business.

We can, therefore, define the different types of micro-entreprise and their allowances under the régime de base, as follows:

Table: Types of Micro-Entreprise

	Business Activity
	Commercial/Trade/Industrial		Profession Liberale
Tax Regime	BIC Sales	BIC Services	BNC
Max Turnover	€80K	€32K	€32K
Cost Allowance	71%	50%	34%

In the following page we consider the social security and tax regimes of micro social/fiscal.

---

Next: Micro Social - Micro Fiscal Tax Regime

Back: Micro-Entreprise or Auto-Entrepreneur?