Recent rule changes on social security contributions grant some new relief to a small business, as they cap the level of social security contributions payable by a small business to a maximum percentage of turnover. This abolishes the previous rule, in which a minimum level of contributions were payable, irrespective of turnover (or profit or loss). In order to benefit from this rule, you need to elect to be taxed as a micro-entreprise, under which liability to tax is calculated after deduction of a fixed percentage allowance for business costs. The problem hitherto with micro status was that it penalised those with a very small turnover or profit, because a minimum level of social security contributions of around €1500-€1800 per annum was always payable. This was particularly difficult for start-ups, or those who simply ran a small business as a secondary activity, such as those seeking to supplement an early retirement retirement pension. Accordingly, the Government has changed the rules so that the social security contributions will be capped to a maximum percentage of turnover. The level of the cap depends on the type of business activity in which you are engaged:
As an alternative to taking out such insurance, it might well make sense to start a small business in France as a holding position until you reach the official age of retirement, when you become eligible for health cover under an E121. Thus, on the basis that health and social security contributions are only payable as a percentage of turnover, if your turnover is very small, then so will be your liability to social security payments. A new business must notify the authorities with 90 days of their estimated turnover in their first year, or an official provisional figure will be used. Clearly, the authorities are not going to tolerate abuse of the rule, and anyone hoping to register a business, and then sit back and do nothing, will soon find the heavy hand of the regulatory authorities upon them. Neither is the rule going to be to the ticket in all circumstances. Let us take the example of a start up service-based business, who, in their first year, achieves a turnover of €8600. Under the old rules, they would be entitled to an allowance of 50% against turnover for costs. This means that their liability to social security contributions would (broadly speaking) be:
If the business then grew to establish a sustainable turnover and profit, it might then be sensible to establish a limited company, in which it would probably then become fiscally attractive to be remunerated in part through dividend payments. We appreciate that those who are not familiar with the French system of business taxation in France are going to find some of this discussion difficult to follow. We repeat the advise we always give on business matters, which is to discuss your ideas and circumstances with a good commercially orientated accountant. A good starting point for getting a better understanding of the regulations, would be to read our Guide to Starting a Business in France.