11. Social Security Contributions in France

1. 11.1. Structure of System
   11.2. Contribution Rates
   - 11.2.1. Regime Réel
   - 11.2.2. Micro-Entreprise
   11.3. Relief from Contributions
   11.4. Social Security Benefits

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11.2.2. Micro-Entreprise Social Security Contributions

1. 11.2.1. Regime Réel
2. 11.2.2. Micro-Entreprise

If you have already acquainted yourself with our pages on the Taxation of Business Profits, you will be aware that the tax liability of a micro-entreprise is calculated after deduction of a fixed rate allowance against annual turnover.

This means that liability to social security contributions also arises on a percentage of gross sales income, depending on the type of business activity. For example, someone running a business registered chambre d'hote would receive an allowance of 71% against revenues, meaning they would be charged social security contributions on 29% of their gross income.

Whilst, ostensibly, the social security contribution rates for a micro-entreprise are the same as those for a business operating under the regime reel, since 2008 the total amount payable has been capped at a maximum percentage of turnover. The new arrangements are called régime micro-social.

Hitherto, those in one of the professions libérales have not benefited from this concession, but with effect from January 2009 their own cap is 21.3%.

The payments can be made each month or quarterly, based on their turnover for the previous month or quarter, but you need to elect to opt to pay in this way.

With effect from 1st January 2009 it has also been possible for a micro-entreprise to opt for a fixed percentage charge for income tax, which they pay with their social security contributions. Those in a service based business pay 1%; those in a commercial activity 1.7% those in one of the professions libérales pay 2.2%.

The payments can be made each month or quarterly, based on their turnover for the previous month or quarter, but you need to opt to pay in this way.

Those who opt for a fixed percentage payment of income tax will be granted exemption from the payment of the business rates, the taxe professionnelle for the first three years following the creation of their business.

If you do not opt to pay your charges and taxes in this way, you will be charged social security contributions on the basis of provisional estimates, and regularise your income tax at the end of each year.

Whichever method of payment you are considering, you need to discuss with your accountant, or your Caisse, the mechanics of paying in either manner.

Moreover, whilst the cap on social security contributions is potentially very attractive for a business with a very small turnover, you need to do the sums to make sure it works for you on higher levels of turnover. You might be better off on the regime réel.

Neither can the rule apply where you are obtaining relief from social security contributions as someone formerly registered as unemployed, or relief gained as a start-up in a development area.

The Government has more recently introduced yet another new business status called auto-entrepreneur, in which the owner of a business will pay a fixed percentage of their turnover in social charges and, by option, French income tax. This occurs in the same manner as is now possible with a micro-entreprise with the system of fixed social charges also called micro-social.

In effect, an auto-entrepreneur pays the same tax and social security payments as a micro-entreprise who has opted for the regime of micro-social/fiscal.

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 to be 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 23.5%. However, we await publication of the final regulations for confirmation that the professions libérales can also obtain access to this status.

(The above rates are the same as the 'cap' set on social security contributions for a mainstream micro-entreprise.)

Those who opt for this status are also exempt from the payment of the taxe professionnelle for the first three years following the creation of their business.

The French business start-up agency APCE have placed an automatic calculator on their site, which you can use to very quickly work out your social security and tax payments as an auto-entrepreneur.

You can also read a more comprehensive Guide to Micro-Entrepreneur Business in France.

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If you are making no or little money in your first year or so as a business, then you may be better off being taxed on the basis of regime réel, although a minimum level of contributions is payable, even under this tax regime.

Although social security charges may seem high, it is important to understand the relationship in France between the tax system and the social security system.

Unlike the UK and many other European countries, liability to income tax occurs after deduction of social security contributions. The income tax system is also very progressive.

Whilst, therefore, the level of social contributions is comparatively high, the level of income tax payable is lower.

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Next: Relief from Contributions

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