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Income taxes, social charges and other costs as an auto-entrepreneur in France

If you are an expat and an auto-entrepreneur in France, navigating the tax landscape might feel like traversing a labyrinth. The micro-entrepreneur status, chosen by many new auto-entrepreneurs, offers a simplified approach. However, while it’s cost effective and straightforward, it’s essential to tread carefully. After all, we’re still in France, where bureaucracy adds its own layer of complexity. 

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Income taxes, social charges and other costs as an auto-entrepreneur in France

Social charges: Navigating URSSAF

As an auto-entrepreneur, you enjoy the advantage of a streamlined system for computing and remitting your social security contributions. These contributions are determined based on a fixed percentage applied to your total turnover. The specific percentage varies depending on the nature of your business activity. Social security contributions are assessed on a monthly or quarterly basis, taking into account the revenue generated in the preceding month or quarter. It is imperative to accurately report your turnover and promptly remit your contributions to URSSAF. This declaration process is conducted online, and the frequency is contingent on your chosen option. 

The exact percentage of social charges that an auto-entrepreneur pays is contingent upon their specific business activity: 

  • Commercial sales: A commercial sale business, including restaurants, hotels and chambres d’hôtes pay at the rate of 12.3% in social security. An holiday accommodation pays at a reduced rate of 6%. 
  • Services/trade: A ‘service’ based business pays 21.2% of their turnover in social contributions.
  • Professional services: If you are in one of the professions libérales, the rate applicable is 21.1%. 

It is imperative to understand that compliance with these social charges is the sole responsibility of the entrepreneur. Unlike other tax systems, no automatic reminders or notifications are dispatched. This places the onus on business owners to be diligent in fulfilling this financial obligation. Proactive management of social charge payments not only ensures adherence to legal requirements but also unlocks access to various financial aids, especially during times of economic uncertainty such as the COVID-19 pandemic. 

Furthermore, staying current with social charge payments is a testament to a business owner’s commitment to the welfare of their employees and the broader community. These contributions play a pivotal role in upholding the integrity of France’s social security system, safeguarding the health and well-being of all citizens.

What happens in the case of a 0€ turnover?

In the event that your turnover amounts to 0€, you are exempt from paying social security contributions. 

However, there’s an option available to ensure your social contributions don’t fall below the minimum threshold. This choice allows you to maintain the benefits associated with regular contribution payments, even if your turnover is nil. 

To exercise this option, you must submit a request via mail to URSSAF before one of the following deadlines, depending on your circumstances:

  • No later than December 31 of the year preceding the intended application year.
  • If you commence your business no later than the final day of the third month following its establishment.

> You might be interested in this article: Understanding URSSAF when working in France

Income tax for auto-entrepreneur

Starting a small business in France as an expat involves understanding the intricacies of income tax. The micro-enterprise regime applies if your turnover, excluding tax, falls below certain thresholds based on your specific business activity. 

Thresholds for the micro-enterprise regime:

  • Commercial activities and accommodation services: The threshold is 188,700 € excluding tax. This category includes services like hotels, guest houses, and rural lodgings classified as furnished tourist accommodation. 
  • Service provision activities and liberal professions: The threshold is 77,700 €. This encompasses various service-based professions and liberal activities. 

For businesses created during the year, thresholds are adjusted on a pro-rata temporis basis, considering the real-time operation, except in the case of seasonal businesses. 

Income tax options

Option 1: Final payment of income tax
Under this option, micro-entrepreneurs pay their income tax monthly or quarterly. This payment is determined as a percentage of their turnover. It’s handled in the same manner as social contributions, directly to the social security organisations. 
Micro-entrepreneurs in this category must declare their income using form no. 2042-C-PRO.

Option 2: Absence of option for final payment of income tax
For those who haven’t chosen the final payment of income tax, the micro-entrepreneur is taxed according to the micro-enterprise regime (micro-BIC or micro-BNC, depending on their activity). They declare their turnover or receipts, which are subject to a flat-rate deduction for expenses. This helps determine a taxable profit, which is then taxed according to the progressive income tax scale.

Reduction rates:
71% for sales activities
50% for BIC service provision activities
34% for BNC service provision activities and liberal activities

Minimum reduction amount: 305€

The declaration process is conducted using form no. 2042-C-PRO, which enables the reporting of income from self-employed professions and can be submitted online.

> You might be interested in this article: A guide to micro-enterprise in France

Value added tax (VAT)

Typically, micro-entrepreneurs do not charge VAT, provided their collections remain below 91,900 € (for sales or accommodation activities) or 36,800€ (for service activities or liberal professions).

However, it’s crucial to understand the thresholds for the VAT-based franchise system, as they differ from those of the micro-enterprise tax regime.

In case of exceeding the VAT-based franchise thresholds while still staying below the micro-enterprise thresholds, you’ll need to invoice VAT to your customers accordingly.

Before opting for the micro-enterprise regime, carefully consider these tax implications, as they have a significant impact on your business’s financial structure and operation.

Business property tax (CFE)

Every auto-entrepreneur, including micro-entrepreneurs, must pay the Contribution Foncière des Entreprises (CFE) annually from the second year of activity. This applies whether you have a dedicated office or work from home. Setting up your professional online tax account and paying your CFE on tome is your responsibility. 

However, you are automatically exempt from CFE if you are in one of the following situations:

  • artisan
  • farmer
  • fisherman
  • artist (painter, sculptor, engraver, designer, photographer, author, composer, etc.)
  • sporty
  • independent home seller
  • owner who rents a furnished part of this home. 

good to know: If you do not have any premises and your annual turnover does not exceed 5,000 €, you are exempt from the minimum contribution. 

How to request an exemption from CFE for the first year of activity?

You are exempt from paying the CFE for the first year of activity, regardless of the opening date of the creation exercise. You don’t have to pay anything. To benefit from it, you must make a 1447-C-SD declaration (known as the initial declaration) to the corporate tax service before December 31 of the year you start your activity. 

How is the CFE calculated?

The CFE is calculated differently depending on whether or not you have premises (or land) to carry out your activity:

If you have premises or land: The CFE is calculated in relation to the rental value of the real estate subject to property tax that you used for your professional activity during the penultimate year (year N-2). A variable rate depending on the municipality (where the company has its main establishment) is applied to the rental value to determine the amount of the CFE. On the other hand, if the rental value of the premises is too low, the company must pay a minimum contribution. In this case, the amount of the CFE is determined based on the turnover achieved over a period of 12 months (during year N-2).

If you work from home or from your clients: If you do not have any premises and carry out your activity at home (or with your clients), you are still liable for the CFE. In this case, the amount of the CFE is determined based on the turnover achieved over a period of 12 months (during year N-2).

'La prévoyance': A wise contingency for auto-entrepreneur

For expats venturing into the world of self-employment in France, considering a ‘prévoyance’ insurance is a strategic move. This insurance offers a crucial safety net, providing enhanced protection in cases of accidents or unexpected health issues. Unlike standard health insurance, this contract is tailored to offer comprehensive coverage, granting expat micro-entrepreneurs a more stable foundation for their activities.

In the unfortunate event of disability, this insurance steps in to ensure financial stability, allowing any auto-entrepreneur to navigate through challenging times. This is especially invaluable for professions like carpentry, where physical capability is paramount.

Moreover, these contracts often extend beyond mere financial coverage, encompassing a range of essential services such as childcare, household assistance, meal provision, and even psychological support. This holistic approach ensures that expat entrepreneurs have the necessary support network, addressing both professional and personal needs.

While every worker, including the self-employed, faces the uncertainties of work disruptions or illnesses, those who work for themselves bear the full weight of such challenges. The existing mandatory system often falls short in offering adequate protection against unforeseen circumstances. Opting for an auto-entrepreneur insurance contract is therefore not only a prudent business decision but also a responsible step towards safeguarding one’s livelihood.

These contracts typically consist of three key components:
Disability Guarantee: Provides a monthly annuity in case of an inability to continue working.
Salary Maintenance Guarantee: Offers daily allowances to bridge income gaps during work stoppages.
Death Benefit: Ensures financial security for beneficiaries (such as children or spouses) in the event of the self-employed person’s passing.

This multi-faceted approach allows self-employed individuals to receive daily allowances, mitigating the impact of income loss. Additionally, in cases of disability or death, they may also receive a lump sum or annuity. This adaptability empowers expat micro-entrepreneurs to tailor their insurance to their specific needs and the potential risks they face. By investing in ‘La Prévoyance’, expats not only fortify their business ventures but also provide a safety net for their loved ones, ensuring peace of mind in any eventuality.

Final notes

As an expat auto-entrepreneur in France, it’s crucial to not only understand but also meticulously manage your tax obligations. Navigating these intricacies with diligence ensures not just compliance, but also a strong foundation for your business’s financial health. So, embrace these guidelines and stride confidently toward your entrepreneurial success in France! 

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