Tax and social aspects of the Micro Enterprise

Article of  31/01/2023 updated on 14/06/2024

The micro-enterprise, often praised for its administrative simplicity and flexibility, is subject to a specific tax and social regime in France. Whatever activity you wish to carry out, whether it is a secondary activity or your main activity, it is possible to set up a micro-enterprise quickly and at very low cost.

We already specify that this type of company only concerns very small companies subject to income tax with the possibility of opting however for corporate tax provided they waive the tax regime of the micro-enterprise.

I – Conditions of access to the micro-companies regime

1. 1. Registration with an administration

The registration of a micro-enterprise in France is now done via the one-stop shop, a centralized platform set up to simplify administrative procedures for entrepreneurs. This portal allows you to declare the creation of the activity, choose the tax and social regime, and register with the competent organizations such as URSSAF, the SIRENE directory, and the tax services. The key steps include creating a user account, entering personal and professional information, selecting tax and social security options, as well as submitting the necessary supporting documents. Once the declaration has been validated, the entrepreneur receives a SIRET number, essential to legally start his activity. This system aims to make formalities more accessible and reduce processing times for new businesses.

Accessible from https://procedures.inpi.fr, the one-stop shop allows companies to carry out their formalities in conjunction with the administrations concerned. Any formality carried out on this site follows a validation circuit with INSEE or the competent public institutions.

The main supporting documents to be provided in addition to the registration request are as follows:

• A sworn declaration of non-conviction and parentage (if the activity is commercial or artisanal);
• For micro-entrepreneurs of French nationality and nationals of a member state of the European Union or of a member state of the European Economic Area, (residing or not in France), a copy of both sides of the valid national identity card or passport;
• For micro-entrepreneurs of foreign nationality, a title or residence permit with a reason allowing them to carry out a self-employed activity in France.

It is also necessary, if the activity is regulated, to verify that the entrepreneur meets all the required conditions.

1. 2. The legal structure

The self-employed regime is applicable regardless of the activity of the entrepreneur and the tax category to which his income falls (Profits Industrial and Commercial, Liberal Professions or Farmers), whether taxed according to a real tax regime or according to a micro regime.

The entrepreneur automatically holds two assets upon registration:

• Professional assets made up of the property, rights, obligations and sureties he holds and which are useful for the activity or the plurality of independent professional activities he exercises;
• Personal assets made up of personal items such as the main residence or a vehicle not used for professional purposes, and liabilities such as the loan for the purchase of a personal vehicle not included in the professional assets.

Thus, the creditors of the professional assets cannot seize assets appearing in the private assets and conversely, the private creditors are not entitled to any guarantee on the professional assets.

However, this regime suffers from several exceptions, of which here are two examples:

• The individual entrepreneur may, for a specific commitment, the amount of which must be determined or determinable, waive the protection of his personal assets;
• The separation of assets is not opposable to the tax authorities for tax debts owed on a personal basis, but whose base includes the results of the professional activity.

The self-employed worker also benefits from two other prerogatives:

• Right to training: Self-employed people contribute to professional training and can thus access training to develop their skills.
• Recourse in the event of a dispute: Self-employed people can resort to commercial courts to resolve professional disputes. They can also call on the business mediator in the event of commercial conflicts.

1. 3. Excluded activities

The following activities are excluded from the “Micro” scheme:

• Stock market operations ;
• Associations and non-profit activities ;
• Real Estate Broker and Real Estate Agents;
• Building rental activities;
• Liberal activities that come under a pension fund other than Cipav or social security for the self-employed, ie: Notaries, bailiffs, judicial auctioneers, etc., lawyers. Doctors, dental surgeons, pharmacists, midwives, nurses, physiotherapists, pedicurists, speech therapists, orthoptists, veterinarians, etc. General insurance agents, Chartered Accountants and Statutory Auditors;
• Freelance journalists;
• Artistic activities remunerated by royalties.

Note: Since 2018, it has been possible to rent durable consumer goods (equipment rental for example) while being micro-entrepreneur.

1. 4. Turnover limits

Annual turnover must not exceed the following limits from 2023 to 2025 year:

• € 188 700 H.T. (without VAT) for the activities of selling goods or providing housing,
• € 77 700 H.T. for service providers and the liberal professions,
• € 91 900 H.T. (average turnover over three years) for farmers.

1. 5. Transition from a Micro scheme to a real scheme

The taxpayer subject to the Micro Enterprise tax regime can opt for a real regime. The main reasons are:

• The operator wishes to have a partner and therefore modify the legal structure of the company;
• The activity has changed;
• The actual charges are greater than the standard abatement;
• Option for corporation tax.

In the event of the taxpayer’s voluntary option for a real regime, he must inform his tax department before the deadline for filing the overall income statement (statement no. 2042) subscribed for the year preceding that under which this option applies.

The period of validity of the option exercised by entrepreneurs covered by the micro-BIC (or BNC or BA) for a real tax regime is set at one year and tacitly renewed each year for one year, as long as the taxpayers have not waived his option or this did not become null due to the increase in the turnover. The waiver of the option can be made until the deadline for filing the declaration subscribed in respect of the results (declaration no. 2031-SD or 2035) of the year preceding that for which the waiver applies.

The option for liability to corporation tax must be made before the end of the third month of the financial year for which the individual entrepreneur wishes to be subject to this tax.

On the other hand, as soon as the turnover of the company exceeds the thresholds, the transition to a real plan becomes compulsory under the following conditions:

• As soon as the company’s turnover exceeds the thresholds for two consecutive years, the transition to a real scheme becomes compulsory from the following year.
• In case of business creation, if the operator does not opt for a real scheme, the micro regime is automatically applied for the year of creation and the following.
• In principle, the year of creation or cessation of activity, the turnover must be adjusted in proportion to the operating time of the company during that year.

When the turnover of a company subject to the real regime falls below the limits of the micro regime, the real scheme remains applicable during the whole year during which the turnover fell below the threshold. Thus, the micro regime applies automatically for the following year, unless there is an option for a real tax regime.

It should also be noted that there is a mechanism for neutralizing the effects of the change in the tax regime for agricultural profits and non-commercial profits. This process makes it possible to avoid either double taxation or the absence of taxation on debts during the change of regime.

II – Functioning of the tax system of the Micro-enterprise

1. 1. Simplified formalities

Companies placed under this regime should only keep a journal with daily details of their receipts. Those engaged in the sale of goods must also keep a register detailing their purchases.

The entrepreneur only indicates the amount of his annual turnover in the appropriate frame of his general income tax return (model N ° 2042). His taxable profit and the amount of his tax will be determined by the tax office of his domicile.

In some case and under certain conditions, the entrepreneur may opt for a lump sum payment of his income tax. If this option is made, the tax will be paid monthly or quarterly at the rate of:

• 1% of turnover for the activities of selling goods or providing housing,
• 1,7% of turnover for service providers,
• 2,2% of turnover for non-commercial income holders (B.N.C).

This option is not applicable to farm incomes.

1. 2. Determination of taxable profit

The micro entrepreneur is exempt from filing a professional declaration of results for the purposes of “Industrial and Commercial Profits (B.I.C.)”, Non-Commercial Profits (B.N.C.) or Agricultural Profits (B.A.). As we wrote above, he only indicates the amount of his turnover on his annual tax declaration.

The net taxable profit is determined by the tax administration which applies a deduction on the amount declared. This allowance, which includes all operating expenses, amounts to:

• 71% of turnover for the sale of goods or supply of housing,
• 50% of turnover for service delivery activities,
• 34% of turnover for the liberal professions,
• 87% of the average turnover of the last 3 years for agricultural profits.

Companies subject to the “Micro” tax regime cannot deduct deficits.

1. 3. VAT franchise (VAT exemption)

Companies taxed under the “Micro” scheme automatically benefit from the VAT exemption scheme. Thus, the company does not charge VAT to its customers, but it cannot recover the VAT it pays to its suppliers on its purchases, expenses and investments. This regime can be penalizing for activities requiring expensive equipment.

The company must display on its invoices the following statement:“TVA NON APPLICABLE ARTICLE 293B DU C.G.I.”.

The thresholds of turnover allowing to benefit from the franchise are of:

• € 91 900 before tax (realized the year before) for the activities of sale or supply of housing or € 101 000 in the previous calendar year, when the turnover for the penultimate year (year n-2) was less than € 91 900.
• € 36 800 before tax (realized the year before) for the activities of service delivery and liberal professions or € 39 100 in the previous calendar year, when the turnover for the penultimate year (year n-2) was less than € 36 800.

Farmers are in principle subject to VAT under the flat-rate reimbursement scheme. But they may be subject to the simplified VAT system (where the amount of turnover calculated over two consecutive years exceeds € 46,000) or on option. In addition, the flat-rate reimbursement scheme is not applicable for certain agricultural professions.

The exemption ceases to apply to taxable persons whose turnover for the current year exceeds €101,000 for sales and similar operations or €39,100 for services. These taxable persons become liable for VAT for transactions carried out from the first day of the month during which these turnover limits are exceeded.

Note: From January 1^st 2025, taxable persons will be liable for VAT from the date of excess and no longer from the first day of the month of excess.

When the turnover of the business exceeds the thresholds above, the “Micro” regime remains applicable as long as the company has not reached the thresholds of maximum turnover for the application of the “Micro”.

1. 4. Contribution on value added (C.V.A.E.)

Companies subject to the “Micro” regime whose turnover is over € 152 500 are subject to the “C.V.A.E.”.

The amount of their added value for the calculation of “C.V.A.E.” is set at 80% of the difference between the amount of the receipts and the purchases made during the tax year.

However, these companies must declare their added value but are liable for the “C.V.A.E.” only when their turnover exceeds € 500 000.

Note: The CVAE rate is gradually reduced during the years 2024 to 2026, it will in principle be eliminated from 2027.

III – Functioning of the “Micro social” regime

The regime below automatically applies to all entrepreneurs subject to the tax regime of the company “Micro”.

This plan takes into account the following contributions:

• Maternity health insurance,
• Retirement insurance,
• Invalidity death,
• Family allowances (allocations familiales),
• S.G. and C.R.D.S.

The entrepreneur must declare his turnover on the website www.lautoentrepreneur.fr each quarter or month according to his option.

Contributions are paid on a lump sum basis as a percentage of turnover which is (in France):

• Purchase/resale of goods (BIC) 12.30%
• Provision of commercial and artisanal services (BIC) 21.20%
• Other services (BNC):
  • 23,10% from July 1st 2024
  • 24,60 % from January 1st 2025
  • 26,10% from January 2026
• Relevant regulated liberal professions of Cipav (BIC or BNC) 23,20% (from July 1st 2024)
• Rental of furnished tourist accommodation classified 6.00%

At these rates is added the contribution to training at the rate of 0.1 to 0.3% depending on the activity.

This scheme does not exist for agricultural activities which in any case continue to contribute on the basis of the net profit determined by the “Micro B.A.” method.

IV – CONCLUSION

The Micro tax system brings significant advantages, the main one being the simplicity of the system.

But we must draw your attention to the fact that in addition to the disadvantages that we have mentioned in this article, the operators subjected to a micro regime cannot benefit most of the time from certain fiscal advantages such as the tax exemptions for the creation of business in certain geographic areas.

You can help you to make your choice for a tax regime, don’t hesitate to contact us!