5. Business Structures in France
5.2. Sole Trader Business – Entreprise Individuelle (EI)
Most people who start up a business in France do so without actually establishing a separate legal or capital structure through which to run the business. If so, then you would operate as an Entreprise Individuelle.
Running the business as an EI is most appropriate when the investment requirements of the business are small and the risks are low.
Nevertheless, one disadvantage of this approach is that the owner of the business has unlimited liability for the debts of the business, although since 2015 the main home is now protected from business debtors.
If limited liability remains a concern, then it is possible to secure protection of the family home and other non-business property, from creditors through a declaration d’insaisissabilité, which you can get through a notaire.
Alternatively, you can establish an EIRL - Entreprise individuelle à responsabilité limitée, a status which gives limited liability, but without the need to establish a company.
As a sole trader you will pay a progressive rate of personal income tax rather than company tax, so no distinction is made between the income of the business and the income of the owner.
If the business is commercial, industrial or trade based, then the profits of the business are taxed in a tax regime called Benefice Industrial Commercial (BIC); if it is one of a professional nature then the applicable tax regime is Benefice Non Commercial (BNC).
There are some differences in the allowances available under two tax regimes, but the operating principles of both are broadly similar and, in practice, serve no major purpose other than to confuse! Both are part of the system of personal (as opposed to company) taxation.
In relation to social security contributions, you will pay into the system for self-employed persons as a travailleur non salariés (TNS).
The TNS system has a lower rate of contributions than the system for salaried persons mainly because, in the latter, you will pay both employer and employee contributions.
It is also possible to pay tax and social security contributions on the basis of a fixed percentage of your turnover payable on a monthly or quarterly basis. This option is available to those registered and taxed as a Micro-Entrepreneur.
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