Want to set your­self up in France as a sole trader or small busi­ness? Tracy Leonetti takes a closer look at the ‘mi­cro-en­tre­pre­neur’ sys­tem

French Property News - - Expert Advice -

It’s widely known that ac­cess to the health­care sys­tem in France is eas­ier if you have a salaried po­si­tion or a busi­ness ac­tiv­ity, but there are so many ques­tions around what op­tions ex­ist for small busi­nesses that many peo­ple tend to spend hours on the in­ter­net, only to find that they are back to square one.

Over the years, I have found there are many rea­sons why peo­ple don’t ac­tu­ally take that next step into cre­at­ing their small busi­ness, but lack of good in­for­ma­tion shouldn’t be one.

Ask the right ques­tions Be­fore de­cid­ing which is the right busi­ness struc­ture for you, it’s im­por­tant to ask the right ques­tions and this is a process I go through with ev­ery client. Some (but there are more) of the key ques­tions should be: What are your es­ti­mated earn­ings for the first year? What are your es­ti­mated costs of run­ning the busi­ness for the first year? Will you work alone or do you have an as­so­ciate? Are you look­ing for fi­nan­cial in­vest­ment for your project? Do you have any as­sets that you need to pro­tect? Do you need ac­cess to health­care in France?

The re­sponses to these ques­tions will help de­ter­mine which di­rec­tion to go with your busi­ness struc­ture. Most peo­ple start off by think­ing of the auto-en­tre­pre­neur op­tion as it’s known for be­ing the eas­i­est form of busi­ness. This is true; how­ever, bear in mind it is a busi­ness and as such there are le­gal im­pli­ca­tions to re­spect.

With over one mil­lion au­toen­trepreneurs in 2016 ac­cord­ing to France’s na­tional sta­tis­tics agency INSEE, it is ob­vi­ously a pop­u­lar op­tion. Let’s take a look at some of the key ques­tions I re­ceive ev­ery day con­cern­ing the au­toen­trepreneur sys­tem.

Let’s start by un­der­stand­ing the lan­guage which can be con­fus­ing at times. What is an ‘en­treprise in­di­vidu­elle’? This is a sole trader busi­ness struc­ture i.e. one run by a sin­gle in­di­vid­ual. The le­gal struc­ture of an en­treprise in­di­vidu­elle means the owner has full li­a­bil­ity for their busi­ness trans­ac­tions.

There is no dis­tinc­tion be­tween your busi­ness as­sets and your per­sonal as­sets. The busi­ness is set up in your name and no busi­ness en­tity is cre­ated. Pro­fes­sional in­sur­ance is a ne­ces­sity to en­sure that your li­a­bil­ity is cov­ered.

The sim­plest and eas­i­est form of an en­treprise in­di­vidu­elle is what is com­monly known as an auto-en­tre­pre­neur. What is a ‘mi­croen­trepreneur’? The auto-en­tre­pre­neur was re­placed by the mi­cro-en­tre­pre­neur on 1 Jan­uary 2016. This en­abled two sim­i­lar sys­tems to merge and ben­e­fit from a sim­pli­fied so­cial and fis­cal struc­ture still un­der the le­gal um­brella of an en­treprise in­di­vidu­elle. Peo­ple of­ten still re­fer to it as auto-en­tre­pre­neur.

So let’s look at the key points of the mi­cro-en­tre­pre­neur struc­ture: You have lim­ited earn­ings lim­its (in­di­cated be­low) You do not charge (or re­cu­per­ate VAT) up to cer­tain lev­els. You can­not deduct any run­ning costs from your busi­ness, such as ma­te­ri­als. This means you are charged a fixed amount of so­cial charges on your gross in­come. For in­come tax pur­poses you are given a fixed re­duc­tion per­cent­age be­fore the tax brack­ets are ap­plied. Monthly or quar­terly so­cial charges are based on what you in­voice.

Mi­cro-en­tre­pre­neur ad­van­tages A good struc­ture for test­ing your idea for a cer­tain pe­riod. Sim­pli­fied book-keep­ing. Quick to set up. Easy to close down or mod­ify. Ac­cess to health­care in France. Fixed so­cial charges. Fixed re­duc­tions for taxes You do not need to pay an ac­coun­tant.

Dis­ad­van­tages Lim­ited earn­ings! No re­duc­tion of run­ning costs (very im­por­tant for a com­mer­cial or ar­ti­sanal busi­ness where ma­te­ri­als or prod­ucts are bought to be trans­formed or sold on). Dif­fi­cult to get in­vest­ment from banks. No VAT (TVA) charge, which can be a dis­ad­van­tage if deal­ing with cor­po­rates and/or buy­ing prod­ucts. You are solely re­spon­si­ble for your busi­ness. From 1 Jan­uary 2018, the earn­ings limit for mi­croen­trepreneurs have gone up, how­ever, the VAT lev­els have not, so you could find your­self hav­ing to charge VAT half­way through the year.

What are the earn­ings lim­its? When Pres­i­dent Macron an­nounced the new higher earn­ings lim­its from 2018 for the mi­cro-en­tre­pre­neur regime, there were shouts of joy from many cor­ners. How­ever, do be aware that the VAT lim­its did not fol­low.

This means that many mi­croen­trepreneurs, orig­i­nally part of a sim­pli­fied sys­tem, find them­selves in a hy­brid sit­u­a­tion of hav­ing to de­clare VAT half­way through the year but pay­ing so­cial charges as a mi­cro-en­tre­pre­neur. This is of­ten the time to start think­ing of other busi­ness struc­tures that bet­ter suit your sit­u­a­tion.

To ben­e­fit from the fixed rate of so­cial charges, your earn­ings lim­its (since 1 Jan­uary 2018) must stay within the mi­cro-en­tre­pre­neur lim­its: €70,000 for ar­ti­sanal (man­ual) ac­tiv­i­ties and ser­vices; €170,000 for trad­ing com­pa­nies, buy­ing and sell­ing prod­ucts.

Where do I reg­is­ter as a mi­cro-en­tre­pre­neur? You can reg­is­ter on­line at lau­toen­trepreneur.fr or di­rectly with the ap­pro­pri­ate CFE (Cen­tre de For­mal­ités d’en­treprises):

What do my so­cial charges cover? The so­cial charges cover sick­ness, ma­ter­nity, in­va­lid­ity and death, base re­tire­ment pen­sion, sup­ple­men­tary pen­sion en­ti­tle­ment and fam­ily ben­e­fits.

Since 1 Jan­uary 2018, ac­cess to ma­ter­nity ben­e­fits has been al­lo­cated af­ter an ini­tial pe­riod of 10 months’ af­fil­i­a­tion with the SSI (Se­cu­rité Sociale des In­de­pen­dents).

How much will I pay in so­cial charges? The sim­pli­fied mi­cro-en­tre­pre­neur sys­tem means that you only pay your so­cial charges on what you in­voice, a key ad­van­tage for many

As an en­treprise in­di­vidu­elle, there is no dis­tinc­tion be­tween busi­ness and per­sonal as­sets – as the owner, you have full li­a­bil­ity for your busi­ness trans­ac­tions

Al­though the auto-en­tre­pre­neur sys­tem was re­placed in Jan­uary 2016 by the mi­croen­trepreneur scheme, it's of­ten still re­ferred to as auto-en­tre­pre­neur

peo­ple set­ting out into busi­ness. So you would just need to ap­ply the be­low per­cent­ages, based on your ac­tiv­ity, to the amount that you have in­voiced. I have rounded them up to take into ac­count the ad­di­tional taxes for train­ing and CFE costs. Com­mer­cial ac­tiv­i­ties (i.e. trad­ing, sales, gites, B&B): 12.9%. Man­ual ac­tivites (i.e. elec­tri­cians, hair­dressers etc): 12.9%. Lib­eral ac­tiv­i­ties (i.e. sales reps, con­sul­tants, architects): 22.2%. Will I pay in­come tax? That de­pends on your dec­la­ra­tion and other house­hold in­come. You would cer­tainly need to de­clare your auto-en­tre­pre­neur earn­ings, along with your other sources of rev­enue for your house­hold.

As a mi­cro-en­tre­pre­neur un­der the sim­pli­fied sys­tem, you would ben­e­fit from a fixed re­duc­tion against your busi­ness earn­ings. The gov­ern­ment recog­nises that you can’t re­duce your busi­ness ex­penses as a mi­cro-en­tre­pre­neur and there­fore they give a big tax re­duc­tion to com­pen­sate for this: Com­mer­cial ac­tiv­i­ties (eg trad­ing, sales, gites, B&B): re­duc­tion of 74%. Man­ual ac­tivites (eg elec­tri­cians, hair­dressers etc): re­duc­tion of 50%. Lib­eral ac­tiv­i­ties (eg con­sul­tants, sales reps, architects, doc­tors): re­duc­tion of 34%.

Do I get health­care cover in France? Yes, ac­cess to health­care is from the first day the busi­ness is set up. How­ever, the pa­per­work can take a while longer to come through. As a mi­cro-en­treprise you would be classed as a non-salaried worker and af­fil­i­ated with the SSI. You can add your de­pen­dent chil­dren to your health­care cover but your spouse/part­ner would need to make a re­quest in their own right via the PUMA.

En­treprise in­di­vidu­elle au réel/nor­male If you find your­self lim­ited by the mi­cro-en­tre­pre­neur sys­tem, there are other op­tions. Again the right ques­tions need to be an­swered to eval­u­ate whether your project would be bet­ter as a sole trader busi­ness or not.

Maybe you want to bring in an as­so­ciate or pro­tect your as­sets? How­ever, one of the most log­i­cal next steps from a mi­cro-en­ter­prise is to stay an en­treprise in­di­vidu­elle but un­der a dif­fer­ent so­cial and fis­cal struc­ture.

As an ex­am­ple, you could choose to be un­der a so­cial and fis­cal struc­ture that al­lows you to take into ac­count the run­ning costs of your busi­ness while still stay­ing the sole owner of your busi­ness, known as the réel sys­tem. For this, it’s im­por­tant to have a full un­der­stand­ing of your profit and loss for the busi­ness so that a com­par­i­son can be made.

Un­der the réel sys­tem, you would see your so­cial charges and tax li­a­bil­ity ad­justed to fit your real net profit, so you would have the pos­si­bil­ity to re­duce the run­ning costs of your busi­ness.

The so­cial charges are higher (ap­prox­i­mately 46%) but, of course, they are set against your net profit! Hence why you need to have good profit and loss records to make the com­par­i­son.

I cer­tainly hope that this has thrown some light on your project but feel free to come back to me if you would like a more de­tailed look at your sit­u­a­tion.

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