Business Owners and Social Security Contributions
Tuesday 16 November 2010
Different business structures have different implications for the level of your French social security contributions.
Social security contributions for a business in France are often cited to be around 45% of net profits.
That is true, but there are so many different legal and tax structures you can use it is becomingly increasingly difficult to generalise about this figure.
Micro-Entreprise or Auto-Entrepreneur
For a business in France that adopts the tax status of micro-entreprise or auto-entrepreneur the level of your social security contributions bears no relation to the actual level of your profits.
This is because the contributions are at a fixed percentage single rate of your turnover.
This rate will depend on the nature of your business and tax status, and there are slightly different permutations that can be adopted.
Thus, a standard micro-entreprise pays social security contributions at a fixed rate on their turnover after deduction of a standard cost allowance (régime de base), while an auto-entrepreneur pays at a lower fixed rate, but on the totality of their turnover (régime micro-social/fiscal).
In practice, there is little to choose between them, and those with micro-entreprise tax status can in fact opt to be taxed on the same basis as an auto-entrepreneur.
Using either of these structures, there is really nothing legally that you can do to reduce the level of your social security contributions.
You can read more at Micro-Entrepreneur Business in France.
Limited Company Status
However, the lack of choice is less true if you establish a limited company through which to run the business, when it is possible to adopt different types of remuneration to optimise your fiscal circumstances.
The most important of these is the use of dividends as a method of remuneration, as dividends are not subject to the whole gamut of social security contributions.
The only social security contributions payable are the social charges CSG/CRDS, at the rate of 12.1% of the gross dividend.
There also happens to be a tax allowance of 40% on all dividends, irrespective of amount, with any tax payable against your personal income, not company profits.
However, the government has become alert to the extent to which many of the professions libérales business occupations (in particular) use dividends as a way of reducing their social security bill, and there are now severe restrictions on the use of dividends by those in one of the professions libérales.
At the moment these restrictions do not apply to other types of business professions, ie artisans,industriels-commerçants, agriculteurs.
Where you are not a majority shareholder (i.e. where for instance half the business is held by your spouse or children) then the use of dividends is of particular interest, if only because of the circa 70% level of (employee and employer) social security contributions that you will effectively pay on your salary as a non-majority shareholder.
If you are a majority shareholder, there is still interest in doing so, at least certainly if you pay income tax at the higher rates.
In addition of course, if you run the business through a company, there are all sorts of quite legitimate tunes that can be played with expenses and benefits in kind.
You can read more at Starting a Business in France.
Status of Spouse
If your spouse also runs the business with you then it is not possible for you to run a single micro-entreprise/auto-entrepreneur business on a joint basis.
Ordinarily, you would need to form a company with you both as directors.
Alternatively, it would be possible for your spouse to separately register as a micro-entreprise/auto-entrepreneur and pay social security contributions on the sales of their ‘business’. This might be difficult to accomplish unless you had cooperative clients who were prepared to invoice you separately for different services, or your partner handled different clients.
This may make the level of social contributions rather high, although there are social security contributions payable by the working spouse even under a company structure.