9. Taxation of Business Profits in France

1. 9.1. Main Options
   9.2. Micro-Entreprise
   9.3. Regime Réel
   9.4. Company Tax
   9.5. Dividends

9.2. Micro-Entreprise Tax Status in France

• If your business is classified as a commercial, trade or industrial business, it will be taxed under rules called Bénéfices Industriels et Commerciaux (BIC);
• If it is a 'professional' activity (e.g. accountant, architect, artist, writer) it will be taxed under rules called Bénéfices Non Commerciaux (BNC).

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

The first point to note about micro-entreprise status is that it is not a legal status – it is a specific tax status that is only available to someone who is self-employed as an EI.

So it is not available if you propose to run your business through a private limited company (EURL or SARL).

The second important qualification is that it is only available if the business does not exceed certain turnover 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' based (or professional) and those main activity is 'sales'.

In the first year of business, these turnover limits are applied pro-rata to the length of time the business has been in operation.

If the business does both types of operations (as many do!) then the business can still be classified as a 'micro' provided total revenues do not exceed €80,000 and the professional, or service based, activity does not exceed €32,000 per year.

This is notably the case with a building business, where the sale of building materials etc receives the upper limit, whilst the building activity itself is restricted to the lower rate.

Those whose activity is commercial sales or the provision of furnished accommodation, and certain others, receive an allowance of 71%; those pursuing service based activities receive an allowance of 50%; whilst those in a 'professional' (BNC) activity receive an allowance of 34%.

This means that liability to income tax (and, more importantly, social security contributions) arises on either 29%, 50% or 66% of gross sales income, depending on the type of business activity.

Accordingly, the potential main benefit of having micro-entreprise status lies in the simple rules applicable for the submission of your income tax return.

You simply declare your turnover figure, and an automatic abatement is applied by the tax authority to determine how much income tax you will pay.

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 limits also on artists, writers, scientific and sports based activities.

You need to check with your accountant or Chambre de Commerce 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.

9.2.1. Should I elect for 'Micro-Entreprise' Status?

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

However, if your costs are greater than the allowance then you would be better of electing to be taxed under the regime réel, which is considered below.

There are some disadvantages of micro-entreprise status that you need to consider:

• No depreciation of assets against revenues is possible for a micro-entreprise
;
• Losses cannot be carried forward under the micro-entreprise 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 most would probably 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 numerated daybook detailing receipts and expenditure, bank statements and retention of invoices 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 a Centre de Gestion for accounting purposes
.

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 reel.

You need to to so by 1st Feb of the relevant tax year, but practice does seem to vary between regions, so discuss with your tax authority.

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.