Setting up your own business in France might seem like a good idea but Kate McNally discovers that being an auto-entrepreneur can be harder than you think.
Finding work in France is not as easy as you may think, even for those who speak the language almost fluently. Not only do many areas of work require an exacting standard of written and spoken language, but they also require very specific qualifications as well as experience. In effect, this makes it difficult even for French people thinking of changing careers once they have begun to follow a chosen path and still more difficult for foreigners from outside the French pedagogical system to prove they have the relevant experience and knowledge. In short, the French workplace is less flexible than the Anglophone model and harder to penetrate for a non-native, so the best (sometimes only) option for many people moving from the UK to France is to work for themselves. However this doesn’t necessarily mean it’s the easy option!
Setting up as self-employed in the UK is a relatively straightforward process. Small businesses have long been the backbone of the UK economy and consequently a flexible business creation environment has developed. In France, however, a large proportion of the workforce
are fonctionnaires; that is, civil servants working for State-owned bodies or companies. Only in recent years has the French government sought to encourage a more entrepreneurial environment. The effort is on-going and evolving all the time but many people continue to be put off by restrictive legislation coupled with sizeable taxes and social charges – both for themselves and any employees.
There is, however, a shining light in the relative darkness of French business start-ups in the form of legislation, introduced in 2009, favouring the auto-entrepreneur or sole trader.
The scheme was introduced because taxes and social charges in France are high for businesses as well as individuals (around 40% of profits) and taxes are collected at the end of the financial year. This can make it particularly difficult for new businesses to get up and running. The French government recognised the need to encourage business creation for future growth, so legislation was introduced to simplify the accounting process and assist start-ups. A key part of this scheme was the auto-entrepreneur status. The auto-entrepreneur structure was set up principally as a vehicle for small businesses and start-ups, so there are revenue thresholds in place. For those in sales (of goods or accommodation services), the turnover limit is currently €81,500. For those providing services, whether commercial or non-commercial, the ceiling is €32,600.
The auto-entrepreneur option is also available to people who are employed but want to start their own business. This gives them the chance to see if their business idea can work without having to take the risk initially of giving up their job.
However, it is not possible to become an auto-entrepreneur if your work is subordinate to a third party, in which case you are considered to be their employee. Certain trades are also ineligible for auto-entrepreneur status, for example estate agents where property taxes apply.
The principal advantage of being an auto-entrepreneur is that you pay lower taxes and social charges.
The latter are calculated as a fixed percentage of turnover: 12% of sales if in commerce, 21.3% of earnings if providing a service such as a hairdresser or translator, and 18.3% if an independent professional, for example an architect or lawyer.
You pay the charges as you go along, either every month or every three months, which makes it easier to track earnings and have a clearer picture of how you are doing.
Taxes in France are calculated according to total household earnings and number of children and are usually paid at the end of the financial year, but as an auto-entrepreneur you can opt to pay a set percentage of revenues monthly or quarterly, known as the versement lib�ratoire, at a rate of 1% of product sales, and around 2% of earnings for service providers. Be sure to check that this is the best option, however, as your single or combined earnings may fall below the tax threshold at the outset, for example.
It is worth noting that as an auto-entrepreneur you are operating outside the VAT system, which must be indicated on invoices. This also means it is not possible to claim back work-related expenses (petrol, telephone etc) so, depending on your type of business, you might be better off opting for the normal fiscal regime.
Auto-entrepreneurs also benefit from a greatly simplified accounting process. You simply have to keep a record of all purchases and monies received, and declare your revenues online yourself, either monthly or quarterly, as chosen. Failure to declare revenues on time incurs a fine and even zero earnings need to be declared. There is no need, at present, to produce an end-of-year report or to have your declaration ratified by an accountant, although there is talk of new changes that will require this in future.
Another advantage is that the auto-entrepreneur is exempt from paying business tax for the first three years and is not required to pay a business registration fee for at least two years.
If you are unemployed at the time of setting up a new business or taking over an existing business, you can benefit from lower fixed percentage payments for social charges in the first three years, known as ACCRE (l’Aide aux Ch�meurs Cr�ateurs ou Repreneurs d’Entreprise). These start at 3% of sales revenues, rising to 10% in the third year, and 5.4% of earnings for service providers rising to around 18%. After three years, the usual fixed percentages apply. Certain other categories of people may also apply for this benefit, so it is worth checking your eligibility. If eligible, you should apply for the ACCRE benefit at the same time as registering as an auto-entrepreneur, or within 45 days of registering at the latest, otherwise it is too late. This is a significant benefit, especially while building up a business, although psychologically it can be demotivating as the payments increase each year.
Anyone who is unemployed when they register as an auto-entrepreneur is also entitled to l’ARCE (l’Aide � la Reprise ou la Cr�ation d’Enterprise) – a financial security incentive from the unemployment office. This can be distributed in two ways.
Firstly, you can choose to maintain your unemployment benefits (minus any earnings) for as long as you are entitled to them. So if you receive €800 in benefits a month, and in the first month as an auto-entrepreneur you earn €500, the local employment office or p�le emploi will pay €300, guaranteeing that you are not out-of-pocket.
However, for the first three months, the p�le emploi uses a complex calculation based on your entitlement to estimate initial revenues, which it then deducts automatically from your benefits irrespective of what you actually earn. This is then rectified in the second quarter once actual revenues are known. It means, however, that you may need a minimum financial cushion at the outset.
The second option is that the p�le emploi will hand over half the total of your benefits entitlement (daily quota x length of entitlement period) as a lump sum – half of this amount at the outset and the other half six months later. This favours those setting up a business that requires initial investment.
In theory it is very simple to register as an auto-entrepreneur. There is a dedicated government website www.lautoentrepreneur.fr and you can register online for free. Avoid other websites or companies that may charge a fee. Or you can register at the Centre de Formalit�s des Entreprises, or via chambres de commerce, chambres des m�tiers, or URSAFF centres. It is well worth seeking advice, however, from an accountant or from the local chamber of commerce because there are different ways to set up a business which may better suit your needs, plus the auto-entrepreneur registration form can be difficult for an expat to follow. The chambers of commerce also run three to five-day courses at reasonable rates which help to assess if being an auto-entrepreneur is the right choice for you. Similarly you can opt out of the auto-entrepreneur regime relatively easily at any time, either if you stop your business activity or if you want to move into a different fiscal regime. All you have to do is declare your intention online or direct to URSSAF. Again, seek advice beforehand to check there aren’t any anomalies. Registrations are automatically cancelled if there is no declared activity for two years. And if your business exceeds the set revenue limits, it will automatically be subject to a different regime.