Guide to Micro-Entrepreneur Business in France
- What is a Micro-Entrepreneur?
- Business Registration
- Social Security
- Income Tax
- Business Rates
- Status of Spouse
- Should You Elect for Micro-Entreprise Status?
- Payment of Taxes and Social Insurance
- Business Accounting
- Running a Chambre d'Hôte
- Multiple Business Activities
- Professional Insurance
- Second-Hand Sales
Details of the financial assistance available to small business owners as a result of Covid-19 can be found at Hardship Grants for Small Business Owners.
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 cash receipts), not your profit or loss. So you do not declare a profit or a loss for the purposes of your liability to income tax.
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. You can of course later change to the régime réel. From 2022 a business that wishes to do so can do so up to May of the following year for the previous year.
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, the refore, summarise the income tax cost allowances under the régime de base for different types of business activities, as follows:
Table: Allowances Under General Regime 2023
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.
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 also called le versement libératoire or prélèvement libératoire.
The rates (2022/23) are as follows:
- 1.0% for commercial activities (including furnished lettings);
- 1.70% for trade and service activities (including meublé de tourisme classée);
- 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 2022 the amount is €27,510 per quotient part of the household. A couple would have two quotient parts, when the figure increases to €51,420, with further increases for children - €64,275 for one child, and €77,130 with two children.
The reference period for this quotient figure is the current year minus two years. So for 2022 income the assessment of eligibility is based on your 2020 income, declared in 2021. So for 2020 your income must not have been higher than the figures above.
Your ‘global’ net taxable income includes income from other sources, eg pension, lettings.
If you elect from 'micro-fiscal' but your income turns out to be outside of the maximum thresholds above, then the tax office will recalculate your tax and you will be taxed using standard scale rates. when you will almost inevitably pay more in income tax.
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'.
The choice of whether to opt for therégime de base or micro-fiscal is easy to make if you only have business income.
It is more a difficult for those who have income other than their business income.
The general rule would be that the higher the level of your income the more likely it will be that micro-fiscal would be beneficial to you, provided your business income is within the limits above.
You have until 31st Dec of the preceding year to opt for the micro-fiscal, so you cannot opt for it during the current year of activity. Start-ups must opt for it within three months of activity for the current year.
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 2023, excluding the minor chambre and professional training contributions:
Next: Micro-Entrepreneur Business Rates
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