Guide to Micro-Entrepreneur Business in France

  1. What is a Micro-Entrepreneur?
  2. Business Registration
  3. Social Security
  4. Income Tax
  5. Business Rates
  6. Status of Spouse
  7. Should You Elect for Micro-Entreprise Status?
  8. VAT
  9. Payment of Taxes and Social Insurance
  10. Business Accounting
  11. Running a Chambre d'Hôte
  12. Multiple Business Activities

4. Income Tax

There are distinct tax and social security rules for those who run a business as a micro-entrepreneur.

Broadly speaking, under these rules your liability to social security contributions and income tax is based on your turnover (defined as 'receipts'), not your profit or loss.

If you wish to be taxed on the basis of your actual profit or loss, you cannot adopt micro-entrepreneur tax status. You will need to register your business on a different basis, called the régime réel.

A micro-entrepreneur has the choice of being liable for income tax under either the régime de base or micro-fiscal.

4.1. Régime de Base

By default you are assessed for income tax under the régime de base.

You are liable for income tax on a progressive basis using the standard personal rates and bands according to the level of your income.

You are granted a fixed cost allowance against sales, and 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 arises on 29% of your turnover.
  • If your business is ‘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 arises on 50% of gross income.
  • If it is a 'professional' activity (e.g. accountant, architect, lawyer) you will receive an allowance of 34%, under rules called Micro Bénéfices Non Commerciaux (Micro-BNC). This means liability to income tax arises on 66% of gross income.

Example: A service based business has sales (cash received) in the year of €25,000. They have an allowance for costs against this figure of 50%, equivalent to €12,500. This means they will be liable for income tax on €12,500 of their total revenue.

We can, therefore, summarise the income tax cost allowances under the régime de base for different types of business activities, as follows:

Table: Allowances Under General Regime 2019

Activity: Commercial Trade Profession Liberale
Max Turnover: €170,000 €70,000 €70,000
Cost Allowance: 71% 50% 34%
Tax Base: 29% 50% 66%

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.

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.

4.3. Micro-Fiscal

As an alternative to the régime de base you can opt for a fixed percentage charge for income tax, which you will pay with your social security contributions.

This fixed charge is called le versement libératoire. It is also sometimes referred to as the prélèvement libératoire.

The rates are as follows:

  • 1.0% for commercial activities;
  • 1.70% for trade and service activities;
  • 2.20% for the professions libérales (CIPAV).

It is charged on your turnover (cash received), so there is no cost allowance as there is with the régime de base.

Your business income will still be taken into account in determining the rate of taxation (taux effectif) that applies on your other income.

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 household income (revenue fiscal de référence) does not exceed a maximum sum. For 2019 the amount is €27,806 per quotient part of the household. A couple would have two quotient parts, when the figure increases to €54,172, and to €81,258 for a couple with two children.

The reference period for this quotient figure is the current year minus two years. So for 2019 the assessment of eligibility is based on your 2017 income, declared in 2018.

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

You have until 31st Dec of the preceding year to opt for the fixed rate, so you cannot opt for it during the current year of activity, although for 2018 the authorities have agreed 30th April 2018, instead of 31st Dec 2017. In 2019 that date moves forward to 30th September of the preceding year. Start-ups must opt for it within three months of activity for the current year.

If you do choose to opt for the versement libératoire then you need to take care in the completion of your annual income tax return, by ensuring your enter your turnover figure in the section 'Auto-entrepreneur ayant opté pour le versement libératoire de l'impôt sur le revenu'.

Commencing 2019 taxation at source was introduced, the implications of which are set out in Payment of Income Tax and Social Insurance Contributions.

4.5. Summary - Social Security and Income Tax

The following is a basic summary of the social insurance system of micro-social and the income tax system of micro-fiscal for 2018, excluding the minor chambre and professional training contributions:

Business Activity Micro-Social Micro-Fiscal Total
Commercial Sales 12.80% 1% 13.80%
Service 22.00% 1.70% 23.70%
Professional RSI 22.00% 1.70% 23.70%
Professional CIPAV 22.00% 2.20% 24.20%

Next: Micro-Entrepreneur Business Rates

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