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
7. Should You Elect for Micro-Entreprise Status?
As a general rule, micro-entrepreneur tax status is most suitable if:
Your business costs and/or level of investment are low.
You are proposing to start a small business as a part-time supplementary activity to support their pension.
You are concerned about having to pay even a minimal level of social insurance charges before you have started generating income.
Conversely, if you have substantial business costs and/or major capital investment, then you would be better off opting to be taxed under the regime réel.
The French accountancy professional body, the Conseil supérieur de l’Ordre des experts-comptables (CSOEC) offer a free on-line calculator for assessing your best option, although it is not suitable for landlords of furnished accommodation. You also need to be a little bit cautious about the results if you are not familiar with the French tax and social security system, and we cannot guarantee just how up-to-date with rates etc is the tool.
You can find the calculator at Micro-Entrepreneur or Regime Réel?
There are also some disadvantages of micro-entrepreneur status that you need to consider:
- No depreciation of assets against revenues is possible;
- Losses are not recognised whereas this is possible under the regime réel, when they can also be carried forward and often charged against other household income;
- 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 many would pay less by being taxed under the regime réel rather than as a micro, although expect to incur higher accounting charges; social security contributions under the regime réel are a deductible cost for income tax purposes;
- Those with a low turnover 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-entrepreneur tax status is the best route for you. Since 2018 the VAT exemption threshold has been disconnected from the maximum micro turnover limits. You need to read our section on VAT on this issue.
- You social security contributions are based on your turnover, which will include materials purchased, thereby increasing the level of social security contributions you will pay. It is, however, possible to mitigate this problem by using the system of 'frais de debours', which consists of realising the purchase of materials in the clients name.
- 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 many cases these concessions are not available to a micro-entrepreneur;
- Although a micro-entrepreneur is relieved of the liability to maintain detailed accounts, maintenance of a day-book detailing receipts continues to be obligatory;
Accordingly, do not be seduced by the simple taxation and accounting rules of micro-entrepreneur status.
It all depends on the cost structure of your business and, particularly how you see it during the first few years.
As many businesses incur high costs in the early years, then you may be better off electing for the regime réel.
Even though you may adopt micro-entrepreneur business tax status you would need to be more prudent about also opting to pay a fixed charge for income tax under the micro-fiscal, as you might not otherwise have had to pay income tax! Generating a profit does not necessarily mean you will also be liable for income tax on that profit.
Only if you had a profit on which you were also going to have to pay income tax, or you had other income that made you liable for income tax, might it make sense to adopt the regime of micro-fiscal.
If you have other income, you need to work out the impact of the rate of income tax on your business and other income before making your choice. Adopting the micro-fiscal might reduce your total liability.
If you elect for micro-entrepreneur 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 réel.
You need to so before you submit your first tax declaration.
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