How to complete your French income tax return this year if you run a micro-entreprise business in France.
The declaration of micro-entreprise earnings depends on the
method of taxation you have chosen and the nature of your business
As part of their annual income tax declaration micro-entrepreneurs need to complete Form 2042C-Pro, an annex to the main Form 2042.
Completion of the forms depends on the method of taxation you have chosen and the nature of your business activity, as there are two forms of taxation and three business categories.
If you are making the declaration on-line, then before you start on F2042C-Pro you need to ensure that on the page of F2042 headed 'Selectionnez ci-dessous les rubriques que vous souhaitez faire apparaitre' you tick either the box 'Revenus industriels et commerciaux professionnels' or 'Revenus non commerciaux professionnels', depending on your business category (or both if you have both types of income).
Alternatively, if you are a registered micro-entrepreneur who has opted to pay income tax under the system of 'micro-fiscal', you need to tick 'Micro-entrepreneur (auto-entrepreneur) ayant opté pour le versement libératoire de l’impôt sur le revenu '.
This will ensure that the relevant pages open out for you as you proceed with your tax declaration.
We do not consider in this note those who let out furnished property as a registered micro-entrepreneur, which is considered separately in our article Taxation of Furnished Rental Income.
The two methods of taxation are Régime de Base and Micro-Fiscal.
i. Régime de Base
The default method for assessment is using the standard tax rates, on the information you provide in your income tax declaration, including your other income and household circumstances.
Under this option, a standard cost allowance against turnover is granted, the level of which depends on your business category – either 71%, 50% or 34%.
Clearly, this is the preferred option if you pay little or no income tax.
For trade, commercial and service based activities the relevant section of the form headed ‘Revenus Industriels et Commerciaux Professionnels’(BIC).
For those who are a profession libérale (CIPAV) it is the section headed ‘Revenus Non Commerciaux Professionnels’ (BNC).
The relevant boxes on Form 2042-Pro are:
- 5KO : for commercial activities (BIC);
- 5KP : for trade and service based activities (BIC);
- 5HQ : for the liberal professions (BNC).
You declare your turnover for the year.
ii. Micro- Fiscal
Alternatively, a micro-entrepreneur has the option to pay a flat-rate monthly/quarterly percentage figure of their turnover, which they pay alongside their similarly flat-rate social security contribution. With this option no cost allowance is granted.
The option for periodic payment of income tax is called micro-fiscal, but is also formally called the prélèvement libératoire.
The rates of income tax for micro-fiscal vary by nature of business activity :
- 1 % for commercial sales;
- 1,7 % for trade and service based activities ;
- 2,2 % for the professions libérales who are BNC.
In terms of the income tax declaration the section to complete is 'Micro-Entrepreneur (auto-entrepreneur) ayant opte pour le versement de liberatoire de l'impot'
You need to select the relevant box, depending on your business category:
- 5TA : for commercial activities (BIC);
- 5TB : for trade and services based activities (BIC);
- 5TE : for liberal professions (BNC).
In the relevant box you declare your turnover.
If your household income (as assessed in 2016) was greater than €26,818, (or €54,172 for a couple, and higher if you have children) then you cannot use this option and you are obliged to use standard bands and rates.
If you are unsure which tax system you are using, when you make the on-line declaration of your turnover, the declaration form will indicate at the top if you have opted for the prélèvement libératoire.
Tax Exemption - 2018 Income
This year, the government has introduced deduction at source, as a result of which most income in 2018 is exempt from tax, as we set out in our Taxation of Income in 2019.
There is also a page on the payment of social insurance charges and income tax for microentrepreneurs in our Guide to Micro-Entreprise Business in France.
Unfortunately, the exemption does not apply to those who have opted for micro-fiscal, so this section does not concern you.
For those who use the default system of taxation some additional boxes need to be ticked this year, in order to obtain tax exemption.
i. BIC Business
Those who are BIC (commercial sales, trade and services) need to trawl to section 'Pour Eviter en 2019 un Double Prélèvement sur vos Revenus Industriel et Commerciaux' and complete the relevant boxes:
- If your turnover in 2018 was not greater than the three-year average of 2015-2017, then tick box BIA;
- If your turnover in 2018 was greater than your previous three-year average then declare the turnover for each year in boxes 5TJ, 5UV, and 5UW, as necessary;
- If you only started the business in 2018 then tick box 5HN.
ii. BNC Business
If you are a BNC (Bénéfices Non Commerciaux) business (go to section 'Pour Eviter en 2019 un Double Prélèvement sur vos Revenus Non Commerciaux' and complete the relevant boxes:
- If your income is lower than the average of the three previous years you tick box BNA;
- If it is greater complete boxes 5QS, 5QR and 5QT, as necessary;
- If you started the business in 2018 tick box 5KG.
The above advice is given on a general basis only; you need to seek professional advice on your individual circumstances. In particular, see our article French Income Tax Return 2019 on the various forms.