Tax Treatment of Business Accounting in France
Tuesday 06 October 2020
The surcharge on taxable profits for business owners not using an accredited accountant is to be abolished.
A small business owner in France can choose to be taxed either on actual profits or through a fixed cost allowance against turnover.
Those who use the fixed cost allowance run the business as a micro-entreprise, whilst those who use profit and loss accounting are taxed using the system of régime réel.
One of the features of régime réel is that the tax authority make the assumption that you are fiddling the books and increase your notional taxable profit by 25%.
Thus, if you make a profit of €15,000 in the year, you will actually be taxed on the basis that your profits are €20,000!
This multiple is only used for income tax purposes; your social security contributions will be based on your actual profit. Neither, as we have stated, does it apply to those who run the business as a micro-entreprise.
To not be penalised in this way you would need to have your accounting undertaken by an accredited business accounting centre or accountant.
These registered accounting centres are called Centre/Association de Gestion Agréé (CGA). Suitably authorised accountants (comptable conventionné) can act in lieu of a CGA.
A tax break is available for using an accredited body/accountant, but it is not generous.
Not surprisingly, the issue is a highly controversial one, to which the French government has finally decided to respond, by proposing to phase out the income multiple.
In the draft Finance Bill 2021 that has been recently published, the government state that:
'This corrective measure is no longer justified today in view of companies' accounting practices. Its abolition is part of the simplification of the tax regime for professionals.
Moreover, in the context of the economic crisis linked to the Covid-19 pandemic, the abolition of this surcharge will enable the companies concerned to benefit from a reduction in the taxation of their profits, which will facilitate the resumption of their activity.'
Under the plans, the coefficient will be phased out over three years, reducing to 1.2 for 2020, 1.15 for 2021, and 1.1 for 2022. It will be abolished completely in 2023.
You can read about setting up a small business in our Guide to Micro-Entrepreneur Business in France.