Kate Brehaut takes an in-depth look at how setting up as an auto-entrepreneur could get your small business off to a strong start
The auto-entrepreneur status is a very simplified regime that was introduced in order to promote small businesses and try to minimise the crippling effect that French social security contributions used to have on cashflow during start-up.
Eligible businesses can be categorised as follows:
BIC (commercial and industrial) activities, such as selling merchandise, registered tourist lets (meubl� de tourisme and g�te rural) and B&Bs, whose turnover is less than €81,500.
BIC service’ activities, such as furnished residential letting activities (other than those previously mentioned) and artisans, whose turnover is less than €32,600.
BNC (non-commercial) activities and services such as illustrators, whose turnover is less than €32,600.
Professions lib�rales (who would be affiliated to the CIPAV (Caisse Interprofessionnelle de Pr�voyance et d’Assurance Vieillesse) with respect to certain French social security contributions), such as translators and architects, whose turnover is less than €32,600.
Registration can be done either online or by paper through form P0-auto-entrepreneur. If applying on paper, the completed form needs to be sent to your local CFE (Centre de Formalit�s des Entreprises). Once the form is filed, you are allocated a SIRET number (business registration number) which should appear on all the literature and invoices of the business.
Of course, you should always check whether your activity is a profession r�glement�e i.e. a regulated profession, which may require other formalities, and entry into which is usually dependent on holding certain qualifications.
Under the auto-entrepreneur regime, you would make quarterly returns and would pay French social security contributions quarterly when submitting the return.
On each return, the gross turnover for the quarter will be declared and the French social security rate applicable to the business would be shown on the form to allow you to calculate the contributions due for the quarter. No deduction of any expenses pertaining to the activity is allowed.
Level of turnover
The social security rate depends on the type of activity. For category 1 activities the rate would be 12%. For category 2 and 3 activities, the rate would be 21.3% and for category 4 activities, the rate would be 18.3%.
Depending on the level of turnover, there may be an additional charge known as contribution � la formation professionnelle of 0.1% (for category 1 activities) and 0.2% (for category 3 and 4 activities). For category 2 activities, this contribution will be 0.2% for services and 0.3% for artisans (reduced to 0.17% for artisans living in the Alsace region).
It should be noted that if turnover is nil during a quarter, a return for that quarter still needs to be submitted, albeit showing a nil turnover and nil payable. You would, however, still be covered for social security purposes even though no contributions had been made. However, you can only submit nil declarations for a limited amount of time (eight returns – 24 months) and after that you will lose your auto-entrepreneur status.
In terms of French income tax, you can opt to have your French tax paid quarterly at a fixed rate. You take this option when registering, through the P0-auto-entrepreneur form, but it should be noted that the eligibility for this fixed rate taxation is dependent on your revenu fiscal de r�f�rence as shown on your French income tax demand. For example, for married couples with no dependants, eligibility is only possible if the revenu fiscal de r�f�rence for the couple in the previous year was less than €52,060.
The fixed rate of tax, which is applied to the gross turnover, would be 1% for category 1 activities, 1.7% for category 2 activities and 2.2% for category 3 and 4 activities.
If you opt for this fixed rate, quarterly taxation, the gross turnover for the year would still need to be declared on your annual French tax return, but would only be used to calculate the appropriate rate of tax to be applied to your other sources of income (this is known as the taux effectif method).
Although the tax rate sounds attractive, if you do not opt for the fixed rate, quarterly taxation, you may in some cases end up paying less tax on the auto-entrepreneur income.
Instead, your auto-entrepreneur income would be taxed under one of the micro regimes (micro-BIC or micro-BNC). For category 1 activities, the micro-BIC regime would apply and the gross turnover would be reduced by an abatement of 71% to leave a net taxable amount of 29%. For category 2 activities, the micro-BIC would again apply but with a 50% abatement. For category 3 and 4 activities, the micro-BNC would apply and the gross turnover would benefit from an abatement of 34%. It should be noted that no expenses pertaining to the business would be deductible separately. The abatements are deemed to cover all expenses.
The net taxable figure thereby calculated would be added to net taxable income from your other sources and subject to French tax scale rates (the bar�me) which currently start at 5.5% and rise to 41% after an effective nil rate band of €5,963.
It is not possible to opt out of the micro-BIC to realise a loss through deducting the various expenses pertaining to the activity, as this would remove you from the scope of the auto-entrepreneur and the way you calculate and pay your French social security contributions.
The local business tax (cotisation fonci�re des entreprises) does not apply to auto-entrepreneurs for the year of creation of the activity or for the two years following that. After this initial period, the activity may be exposed to this charge depending on the type of activity and, for certain activities, whether the local collectivit� decide to apply the tax or not.
Finally, as an auto-entrepreneur, you would fall below the TVA threshold (franchise de base) and as such, you would not charge TVA to your clients and would not be able to claim TVA on your inputs.
Kate Brehaut runs La Belle Vie (Guernsey) Limited