Small business owners affiliated to the Régime Social des Indépendants (RSI) pay a substantial part of their earnings in social security contributions.
We report regularly in these pages on the law and practice concerning those who run their business in France as an micro-entrepreneur ; it is the business status of choice for most expatriates who take self-employment in France.
As a micro-entrepreneur (auto-entrepreneur or micro-entreprise) you pay your a single percentage figure social insurance contribution to the social insurance agency, the Régime Social des Indépendants (RSI). This social contribution is based on the level of your sales.
However, if you do not run your business as an micro-entrepreneur, but instead use the régime réel tax status because you consider it is more advantageous to you, or you are obliged by the regulations to do so, you pay multiple percentage social contributions to the RSI, based on the level of your profit.
There are additional complications for those who are one of the professions libérales affiliated to CIPAV, who have the involvement of URSSAF, the social security collections agency, in the process.
The RSI was created in January 2008 by the amalgamation of a three social insurance ‘caisses’ that were previously responsible for the administration of social security payments and benefits to self-employed persons.
Since this time the agency has been plagued with huge administrative problems for the 6 million business owners who use it, causing the French Ombudsman to declare in 2010 that he considered it to be in a 'state of paralysis'.
Although there appears to have been some improvement, there still remain substantial difficulties, with delays and errors occurring in cases, and difficulties in communicating by phone or mail with officials in the RSI. The agency will not infrequently take months to reply to a letter, and best you send it recorded delivery, or they will invariably claim they have never received it!
However, the issue of an incompetent bureaucracy has disguised a deeper problem about the level of the social security contributions self-employed persons required to pay.
Whereas a micro-entrepreneur pays social contributions as a fixed percentage of their turnover, and only pays social contributions if they generate sales, régime réel small business owners pay at least one-third of of net profits in charges. The percentage figure varies slightly depending on the level of profit and nature of the business. Salaried employees pay under 30%.
The worst effects are felt by those on a small income and by new start-ups, who can pay up to around half their net profits in social contributions.
Thus, a self-employed person earning a net profit in the year of a meagre €10,000 is required to pay no less than €4,662 in social insurance payments. At €15,000 they will be obliged to pay €6,940.
Even higher up the scale it only gets a little better. With a net profit of €28,000 they will pay €12,950, and at €40,000 the sum due rises to €18,166.
Unlike micro-entrepreneurs, who pay social contributions on a 'pay-as-you-earn' basis, régime réel affiliates pay on a provisional basis. The actual amounts payable are regularised when the net profit in the year has been determined.
As start-ups have no track record on which to make a provisional estimate their social contributions are determined by the RSI, using an assumed profit called the 'base forfaitaire'.
Using this formula, for the first two years of the business the amount payable in 2015 is €3,173 in Year 1 and €4,458 in Year 2, irrespective of the actual level of turnover or profit. The sums are similar for those in one of the professions libérales.
In recent years, in an attempt to provide some relief to start-ups concessions have become available for those who have no turnover or are making a loss, but they are not widely broadcast by the agency.
Thus, it is possible to make application to the RSI that cotisation payments reflect more closely your actual on-going profit.
However, some care is needed in doing this, as a difference of at least +30% between your estimated revenues and the actual revenue results in an increase in 10% in the level of the social contributions that are payable.
It is also possible to request postponement of the payment of the social contributions for the first year, but it must be made no later than the date when the first contributions become due, and certainly before any are paid. When the first year figures are then known you can request that the contributions due for this period are paid over 5 years, including 20% payable in the first year.
Once established, and if you are making a small profit or a loss, you are entitled to pay only a minimum level of contributions, which, for artisans and commerçants is €1,100 a year in 2015, whilst for one of the professions libérales it is €547.
Despite these concessions, what the RSI have given out with one hand they have taken away with another, for the exemption from some social contributions that was previously available to those businesses with a low profit (below €4,881 in 2014) was abolished this year, as were other minor concessions.
There are signs that resistance is growing against the agency, with the creation of a number of protest groups, several legal cases against the agency, and last month in Paris a demonstration by around 10,000 small business owners against what they have termed the 'Racket social des indépendants'.