The right direction
If you are thinking of starting a business in France, Peter-Danton de Rouffignac has some essential advice to get you off to a great start
Setting up a business or becoming self-employed is never easy, and gets increasingly complicated in a foreign country such as France. You will encounter a different language and culture, an all-embracing bureaucracy, complex social security and tax regimes, endless rules and regulations, all of which will take their toll on your enthusiasm and powers of persistence. Yet many British expatriates succeed in joining the 300,000 or more new business creators annually and find satisfaction and an income in their new role as entrepreneurs in France. In this article I offer a few pointers.
Is it right for me?
A recent analysis of new business start-ups in France found that the average entrepreneur was in his early thirties, had worked as an employee for around 10 years, and was educated to certificate or diploma level in his chosen occupation, and generally opted to continue in the same line of work. The exceptions included those entering farming (from sheep rearing to wine growing), many of whom entered at a younger age, had fewer paper qualifications and generally had taken over a family business.
However, over half those entering agriculture do so without previous experience, typically in the wine industry, olive growing or market gardening. The highest qualified, to undergraduate and postgraduate level, were those entering the professions, many of which require attendance at one of the colleges devoted to specific sectors such as the law, medicine or teaching.
In light of the above survey, among the first questions the budding entrepreneur should ask himself are: Am I ready? What am I good at or best qualified to do? Does this fit in with my (and my family’s) aspirations of living in France?
Many service and professional businesses require a large local market, and need to be within or near major centres of population while others, such as those oriented towards leisure and holidays, might do better in the southern half of France and within a tourist area. Such enterprises may be seasonal. Some businesses can in theory work anywhere where there is a need and your research identifies a gap in the market.
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However, virtually every business, even those aimed at fellow expats, requires a level of fluency in French to enable you to cope with the formalities of setting up, dealing with artisans, suppliers and service providers, and extending your customer base to include native French residents.
More than 100 occupations – from hairdressing to the building trade – are controlled by French law, and require evidence of formal qualifications and/or prior experience. The local chamber of commerce (or trade or agriculture) can advise you and there are European organisations that can help with the problem of having foreign’ degrees and diplomas recognised in France.
Growth and decline
Business sectors that are experiencing growth in France include services to businesses (from office cleaning to computing, as large companies continue to outsource services); construction and maintenance; property; education; health; and personal services (as a result of Europe’s increasingly ageing population). Sectors in decline include hotels and restaurants; manufacturing; wholesale suppliers; and retail (partly as a result of online purchasing).
You also need to take a hard look at your available capital to finance the start-up, perhaps acquire a home and business premises, and enable you to survive during the first two or three years. Many of the French tax and social regimes (aside from the auto-entrepreneur and other micro regimes discussed below) require regular payment of social charges for healthcare, retirement etc even during the early years when income from the business may be minimal. And do not get carried away with the idea that there is a ready-made supply of grants and loans to new businesses, or that traditionally cautious French banks are eager to invest in your new enterprise.
Looking around a typical French high street, it is easy to spot the businesses that have a continual flow of customers, and among the highest earners are pharmacies, boulangeries/p�tisseries, butchers and other food outlets.
Among the lowest earners are fashion and shoe shops, and small specialist outlets (crafts, china etc). Among the artisan type of occupations, around 40% are family-run affairs, and among the most popular (and high earners) are painters and decorators, and florists.
Within the tertiary sectors, the growing sectors and highest earners are individuals and firms supplying professional services to business (consulting, computing), followed by those addressed to individuals (sport and recreation, audiovisual, property, cleaning and maintenance, and homecare services). These examples show that there is a wide choice, in some cases regardless of your qualifications, outside the recognised liberal professions’ such as doctors, dentists, and lawyers, for which special training is required.
Having done your personal and market research and with a clear idea of the kind of business you wish to create, as a budding entrepreneur you have a choice both of business formats – from self-employment to limited company – and of tax and social security regimes. Many of these are similar to their Anglo-Saxon counterparts and your choice will be influenced by the size and type of business – e.g. whether you intend to charge VAT or not – and the degree of risk involved.
Almost all the regimes offer a measure of protection of your personal assets, such as your home, including self-employment, which is the simplest starter option, particularly since the creation of the auto-entrepreneur regime.
The success of the auto-entrepreneur format, with over half a million new business creations, gives an idea of the unsatisfied desire among the French to set up a small, full- or part-time business. It can be combined with other employment, can include one or more different activities, and provides basic social cover at minimal cost, with contributions (and income tax) based on a fixed percentage of business turnover. Two broad categories are recognised: those involving manufacturing, buying and selling (commerces) with a maximum annual turnover of just over €80,000, without VAT registration, and around 13% contributions for tax and social security. Businesses recognised as service providers have a lower allowable limit of around €34,000 and fixed percentage contributions of around 23% of turnover.
The auto-entrepreneur enters the special social regime for independents (known as RSI) and pays contributions (and tax) quarterly based on actual income (turnover) declared, with no additional allowances for costs. There is also an option to pay the tax element annually.
The business can include a mix of commerce and services subject to certain limits, and can include more than one occupation carried out by the individual entrepreneur. Husband and wife may register independently as auto-entrepreneurs or two or more individuals could agree to work together but remain independent – for example, a graphic designer alongside an editor, who might together seek contracts requiring both their separate skills. It is not necessary to have business premises and working from home is generally allowed if it does not create a nuisance to neighbours from noise, frequent visitors or multiple deliveries.
As an added refinement, the French government has introduced the option of limited liability protection for the auto-entrepreneur, similar to that provided by the limited company, the most popular versions of which are the SARL (soci�t� � responsabilit� limit�) and the EURL (single person limited company). These are similar to British equivalents, and there are special versions for liberal professions and agricultural enterprises (which come under the Chamber of Agriculture and the special social regimes for farmers).
An interesting spin-off (since January 2011) both from the EURL and the auto-entrepreneur is the new EIRL which is a sort of auto-entrepreneur with limited liability, but without the need to create a separate company, as in the case of the EURL. Nonetheless the auto-entrepreneur can opt to pay corporation tax like a company, and social charges on his income from the business. Part of the registration process includes preparing a statement of assets which are designated as strictly belonging to the business, and those which are classed as personal – and as a result, protected.
Set-up costs in all cases are not excessive, with the auto-entrepreneur requiring a single (online) registration. Various standard company statutes are available for purchase online (around €100) or you can ask a notaire to help set up the company and complete the registration formalities (around €1,500). Tax regimes for small companies are flexible, allowing tax to be paid either as corporation tax and/or personal tax, and there is no requirement for a professional auditor. If you already run a business back home, you can – with few formalities – set up a French liaison office, which can research the market and make the business known; and then convert this into a branch office (succursale) once the business starts trading in France.
A going concern
An alternative means of getting into business in France is to buy an existing enterprise as a going concern. Thousands of businesses change hands every year, due to retirement or other circumstances, and are widely advertised through (specialist) agencies or in business magazines. Many come within the category of caf�s, bars and restaurants: hotels, B&Bs, g�tes, caravan parks; retailing across all sectors; and specialist enterprises like bike hire, pony trekking and the leisure sectors.
Typically, businesses for sale are offered either as fonds de commerce, which comprises the business, stock and goodwill, with rented premises if applicable; or as murs et fonds representing the foregoing plus freehold property, such as a caf�/bar with perhaps an apartment above. While experts are readily available to value stock and real estate, it is more difficult to assess the value of goodwill associated with the business. Goodwill may in fact be negative – for example, a restaurant that has failed for whatever reason. There are standard formulas used to value businesses, based on annual audited revenues, but careful observation and your own experience in a particular trade may be the best guides to ensure you are not paying too much for goodwill.
Where premises are not sold outright as part of the package, the business lease – usually running for three, six, nine or more years – is regarded as reasonably secure, with known rent reviews, and again is valued using standard formulas.
In choosing a regime, it is advisable to seek guidance, particularly on the best method of calculating and paying social charges, depending on the personal situation of the entrepreneur, spouse and family. French social contributions are higher than British equivalents but benefits are more generous, including healthcare, unemployment, maternity, schooling and retirement. How much you pay into and profit from the system will depend on your age, family status and number of children.
However, one of the frustrating aspects of the French system that affects retired people – for example those receiving a British pension and who also wish to work – is that social charges (cotisations) are invariably levied on income, including pension contributions, but which offer little more benefit than the retired person would receive (via the British system) if he did not work. There are ways to reduce contributions by, for example, using a company as the business vehicle and paying yourself dividends, but expert advice is recommended.
Note that there are special social regimes for different occupations, from artists, craftsmen or authors through to farmers and members of the liberal professions. A change of occupation can mean moving from one social regime to another, or indeed paying social charges to more than one caisse (collection organisation).
While there are many books on starting and running a business in France and learning how to pay fewer taxes, no-one appears to have had the stamina to write the definitive guide to the French social security system!
Ten Golden Rules for business success in France
1 Stick with what you know best rather than try to start a business without experience. You will have enough problems coping with a foreign language and of course the famous French bureaucracy.
2 Make sure your spouse and family are behind you and your decision to establish a business in France. Starting a new venture can put additional strains on even the best of relationships.
3 Choose the area you want to live in together and what sort of lifestyle you desire then try and adapt your business plan to suit.
4 Remember that some skills are not easily transferable. Many occupations are tightly controlled and you may have to provide evidence of qualifications and experience.
5 Take advice from your local chamber of commerce (or trade) about the best business format for your enterprise, from self-employment to limited company.
6 Take advice about how best to provide health and social security cover for yourself and your family and review all the options.
7 Choose a regime that protects your personal assets (your home etc) in case of failure. Keep personal and business finances separate.
8 Remember that not every business is an instant success from day one. Ensure you have enough survival capital to get by until the enterprise moves into profit.
9 Try and have a plan B just in case it does not work out and be resilient enough to learn from experience and start again.10 Remember that despite the horror stories, thousands of new enterprises are created every year in France and with careful research and planning you too can enjoy every chance of success.
Peter-Danton de Rouffignac MA LLM is a property adviser based near Perpignan