In general, you must pay income tax at the same rate whether you’re employed, self-employed or an employee. This is known as personal or ‘physical person’s’ income tax. If your total assets are worth more than €732,000, you may also become liable for wealth tax ( impôt de la solidarité sur la fortune/ISF), but once you reach that stage, you know that your business is a success! French income tax rates are below average for EU countries, particularly for large families, and income tax accounts only for some 20 per cent of government revenue, and successive governments have been reducing income tax levels for the past decade.
If you operate a small business or are starting a business and your turnover is low, it can be to your advantage to operate as a micro-entreprise, which doesn’t mean ‘tiny business’, but is a specific tax regime that can be adopted by businesses whose turnover is below certain limits.
Income tax is calculated on earned income ( impôt sur le revenu) and unearned income ( impôt des revenus de capitaux). Certain types of income are exempt from income tax, including payments from a complementary insurance policy or a temporary accident and illness insurance policy and allowances for obligatory training courses. Social security contributions aren’t taxable (with the exception of the non-deductible part of CSG/CRDS ) and are deducted from gross income.
Salaried workers, including employers, qualify for two general deductions from gross salary: a 10 per cent allowance ( déduction forfaitaire) for ‘professional’ or ‘notional’ expenses, and a further general deduction ( abattement général) of 20 per cent. The self-employed don’t qualify for either of these, which means that they must pay considerably more income tax than employees. But, as so often in France, there’s a way around this problem. If you’re self-employed, you can obtain a 20 per cent reduction on your taxable income by joining a centre de gestion.
Whether you’re self-employed or have set up a company, you are liable for business taxes, but the two situations are different:
Corporate tax ( impôt sur la société/IS) is the main tax on most types of company. In effect, instead of the business owner declaring its income on his or her personal income tax form, as with the self-employed, the company is charged income tax as an ‘impersonal’ entity. The tax is levied at two rates: 15.45 per cent on the first €38,120 of taxable income (i.e. profit) and 34.33 per cent on the remainder.
As with income tax and VAT, there are different corporate tax regimes ( régimes), which may be referred to by various names. For example, you may have a choice between a régime simplifié ( d’imposition) – whereby certain figures (e.g. expenses) are ‘assumed’ and the declaration and payment procedures are simplified accordingly (usually to the benefit of small businesses) – and a régime réel ( normal), whereby you declare your actual figures and pay tax on those. Either way, you should receive IS forms by the beginning of March and must usually submit them by 30th April.You must declare your business results for the previous year, and make payments starting the following year, based on your declared results.
The amount of taxe professionelle (professional tax) you pay, and how it’s calculated, depends on whether you’re self-employed or a company. Professional tax is assessed as follows: in your first year of French residence, you pay nothing; in your second year, you pay according to your earnings in Year 1 (pro rata if you moved to France part way through the year); in Year 3, your tax is again based on your Year 1 earnings, in Year 4 on your Year 2 earnings, and so on. It’s normally payable by 15th December.
Self-employed: If you’re self-employed, taxe professionelle is payable on your business premises and is levied at between around 15 and 20 per cent (the exact percentage varies with the commune) of a ‘base’, which is currently 8 per cent of your annual income, including VAT.
Company: For a registered company, taxe professionelle is based on your turnover ( chiffres d’affaires), including VAT, categorised by sales and service revenue, the number of business locations you have and the number of employees, including apprentices and disabled workers. In addition to details of your turnover, business premises and employees, you must declare the value and details of any properties subject to taxe foncière.
The total value of each category of assets is multiplied by a set percentage. Rates are set by local governments – usually at town, regional and departmental level – and vary significantly. They’re generally highest in the Ile-de-France region, where they can be as high as 25 per cent; elsewhere, they can be as low as 7 per cent.
You should receive a form in early April, which must be returned by 1st May, declaring certain information about the business for the previous tax year. Your taxe professionnelle bill then arrives in November, to be paid by 15th December.
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