If you are a young entrepreneur dreaming of launching your startup in France, it's crucial to understand taxes right away. Understanding the French tax system will help you avoid issues and unforeseen expenses, allowing you to focus on growing your business.
The taxation system in France may seem complicated at first glance, but understanding the key aspects will help you avoid unpleasant surprises in the future. This is especially important if you want to successfully grow your startup in the long term.
Sole Proprietor (auto-entrepreneur) is a recommended option for starting a business in France. This status allows you to pay minimal taxes and contributions, simplifying the beginning of your business journey and minimizing bureaucratic costs. A sole proprietor is responsible for the following primary taxes and contributions:
1. Social Contributions (Contributions Sociales)
These contributions cover social security (pension, medical insurance, etc.). The rate depends on the type of activity:
- Trade and sale of goods: approximately 12.3% of turnover.
- Services: approximately 21.2% of turnover.
- Liberal professions: approximately 21.1% of turnover.
2. Income Tax (Impôt sur le Revenu)
You can choose between:
- Micro-BIC/Micro-BNC: a simplified regime with a fixed tax rate that takes into account standard expenses.
- Real Regime: tax calculation based on actual income and expenses.
3. Business Property Tax (Cotisation Foncière des Entreprises, CFE)
All sole proprietors pay this tax starting from the second year of operation. The amount depends on the location and type of activity.
4. VAT (TVA) (depending on turnover)
Small entrepreneurs can receive a VAT exemption if they meet certain limits:
- €91,900 for trade.
- €36,800 for services.
Choosing a Tax Regime
You can choose your income tax regime when registering as an auto-entrepreneur through the URSSAF platform (or other platforms such as CFE). You can specify whether you prefer the simplified regime (Micro-BIC/Micro-BNC) or the real regime (Réel Simplifié/Réel Normal). If no preference is specified, the default is the simplified regime if your business meets the criteria, specifically if your turnover does not exceed the established thresholds (2024):
- €188,700 for trade and sales.
- €77,700 for services.
Every year, you have the option to change your tax regime. By February 1st, you can submit an application to the tax office (Service des Impôts des Entreprises, SIE) to switch regimes, for example, from Micro-BIC to Réel or vice versa, if your turnover is within the established limits.
If your turnover exceeds the thresholds, you will automatically be moved to the real taxation regime starting January 1st of the following year. This is important to consider when planning your finances and for effective tax planning.
Example Calculation
Let's calculate the taxes and net profit for a sole proprietor in France. Suppose you have launched a digital services startup and are using either the standard micro-BIC regime (simplified tax regime) or the real taxation regime, depending on your choice. This example will help you better understand how taxes affect your profit and choose the optimal tax regime for your startup.
Initial Data:
- Income (turnover): €70,000
- Expenses: €30,000
Scenario 1: Micro-BIC (Simplified Regime)
Tax and Contribution Calculation:
- Reduced Tax Base: €70,000 × 50% (50% considered as expenses) = €35,000
- Social Contributions (Contributions Sociales): 21.2% of turnover = €70,000 × 21.2% = €14,840
- Income Tax (IR):
- Taxable Base: €35,000
- Progressive Calculation (2024):
- Up to €10,777: 0% = €0
- From €10,778 to €27,478: 11% = (€27,478 - €10,778) × 11% = €1,839
- From €27,479 to €35,000: 30% = (€35,000 - €27,479) × 30% = €2,255
- Total Tax: €1,839 + €2,255 = €4,094
Summary (Services):
- Income: €70,000
- Social Contributions: €14,840
- Income Tax (IR): €4,094
- Net Profit: €70,000 - €14,840 - €4,094 = €51,066
Scenario 2: Real Regime (Régime Réel)
Tax and Contribution Calculation:
- Taxable Base: Income minus expenses = €70,000 - €30,000 = €40,000
- Social Contributions (Contributions Sociales): 21.2% of taxable base = €40,000 × 21.2% = €8,480
- Income Tax (IR):
- Taxable Base: €40,000
- Progressive Calculation (2024):
- Up to €10,777: 0% = €0
- From €10,778 to €27,478: 11% = (€27,478 - €10,778) × 11% = €1,839
- From €27,479 to €40,000: 30% = (€40,000 - €27,479) × 30% = €3,754
- Total Tax: €1,839 + €3,754 = €5,593
Summary (Services):
- Income: €70,000
- Social Contributions: €8,480
- Income Tax (IR): €5,593
- Net Profit: €70,000 - €8,480 - €5,593 = €55,927
Which One to Choose?
The choice between regimes depends on your income and expenses. The simplified regime Micro-BIC/Micro-BNC is suitable for those with low expenses, as it takes standard percentages into account, simplifying accounting. The real regime is more beneficial for entrepreneurs with high expenses, who can document these costs without exceeding the revenue thresholds.
It is essential to make well-informed decisions to choose the most suitable tax regime for your business. If you are just starting out and want to minimize bureaucracy, the simplified regime is an excellent choice. However, if your business requires significant investments, the real regime might provide more opportunities for tax optimization and increased net profit.
If your business is growing rapidly and turnover continues to exceed the established limits for sole proprietors, switching to other legal forms, such as SASU (Société par Actions Simplifiée Unipersonnelle) or EURL (Entreprise Unipersonnelle à Responsabilité Limitée), may become a logical step that provides more opportunities for tax optimization and business protection.
