In France, there is a scheme in place to encourage entrepreneurs starting from scratch: being an auto entrepreneur. You must initially register with the social and tax administrations, then pay the social contributions on a quarterly basis at a rate of approximately 25%, additionally paying income tax at the end of the year. (Alternatively, you can pay income tax on a quarterly basis, should you wish).
For example, if your turnover amounts to €25,000, the amount payable would be €6,000. You can opt to pay this on a quarterly basis, as well as submitting the 2042 C-Pro form at the end of the year. It is worth noting that this amount is mainly social contributions, with income tax only contributing to roughly 2% of the total.
In short, it’s a friendly and relaxed scheme. This 25% rate covers both the social and tax aspects (these would normally have to be reported separately).
With this auto entrepreneurial scheme, there is no bookkeeping, no VAT declarations, no social insurance, no separate social contributions; all you need to do is set aside roughly 25% of the profit collected to pay the contributions.
We can take care of this tax regime on your behalf quite easily.
However, there are several things to consider beforehand:
- Your turnover should not exceed €70,000 (in 2018).
- The 25% rate is applied to the gross turnover and not to profit: if the “auto entrepreneur” incurs expenses, such as travel expenses, registration at fairs, rental of offices, invitations, these expenses are not deductible from turnover taxable at 25%. Indeed, when the law was passed, the administration insisted that it should be to simplify the lives of the self-employed by avoiding onerous bookkeeping and refused to allow the 25% rate to be applied to the economic profit. Otherwise, the applicable rate would be the rate at which any other business is taxed at (Corporate Tax rate (33.33%)).
- As a result, this scheme is perfect for people working alone, at home, without transportation costs. For example, translators, craftsmen, journalists, consultants, developers, coaches or event organisers. What all these people have in common is that they can work at home with their personal computer without investing in technical equipment.
- On the other hand, for fast-growing entrepreneurs, this regime can become a trap. Indeed, in the euphoria of success, the entrepreneur, under pressure from customer service, may have to use subcontractors and thus forget that these costs are not tax deductible…
- The same problem occurs for talented event consultants, who find their first customers and accept larger budgets which involve significant catering, equipment rental, etc.
- Thus, for a turnover of 100, if subcontractors represent 70% of the turnover, the surface rate of 25% becomes a real rate of 66% of the profit!
- In addition, if the turnover exceeds € 33,200 during the year, you must register VAT. Hence the need to make an initial choice based on reliable forecasts.
Our experienced team will help you to assess whether this regime is the right choice for you. Additionally, it is important to know how to get out of the regime at the right time.
We charge €300 excl. VAT, in 2 instalments:
I. First instalment (€150 excl. VAT) at the beginning
- Understanding your business model
- Explaining the taxation principle to you, weaknesses & advantages
- Evaluating if your plan will stay under the €33,200 threshold
- Completing the registration formality at the beginning
II. Final (€150 excl. VAT) at the year-end
- Year-end declaration of the revenue of the civil year
- Online closing meeting about whether your business is to be converted into regular taxation