Micro-Company tax
Throughout this document, we will explain the specifics of the micro-company tax regime that concerns sole proprietorships (learn about what these are here).
As far as the Social System is concerned, micro-entrepreneurs are part of the Social Security of the self-employed.
Since 1 January 2016, their social contributions are automatically calculated and paid according to the micro-social system.
Depending on their sector of activity, micro-entrepreneurs must register with:
- the Chamber of Commerce and Industry (CCI) if they are traders,
- the Chamber of Trades and Crafts (CMA) if they are craftsmen,
- the special register of commercial agents if they are commercial agents,
- declare their activity with Urssaf if they are professional liberals.
Summary
- Concerned companies
- The Taxation of profits
- The Territorial Economic Contribution (CET)
- The VAT
- Accounting requirements
1- Concerned companies
This regime concerns any Sole Proprietorship that achieved a level of turnover the previous year that does not exceed:
- 170,000 € for operators whose main business is to sell goods, objects, supplies and goods to be taken away or consumed locally, or to provide accommodation.
- 70,000 € for other service providers for industrial and commercial profits (BIC) and liberal workers for non-commercial benefits(BNC).
Additional details: furnished rentals come under the second ceiling of turnover, or 70,000 €, while furnished tourism and guest rooms are subject to the first ceiling of turnover, or 170,000 €.
These rules apply whether the activity is subject to VAT or not.
Companies that exercise “mixed” activities:
This refers to companies with two linked activities.
In this case, the micro-company Tax regime is can only apply if the total annual turnover realized the year before or the penultimate year does not exceed 170 000 € and if the turnover provision of services does not exceed € 70,000.
Something to keep in mind: Companies in the building sector and some craftsmen fall into this category when they supply the materials that are primarily used in the work to be done: masons, carpenters, painters, cabinet-makers, etc.
However, when the contractor only supplies accessory products (shoemakers, dyers, launderers, printers not supplying paper, etc.), the turnover must not exceed 70 000€
Companies that exercise distinct activities:
This refers to companies that exercise two completely separate activities. In that case, depending on the activities carried out, the turnover thresholds can be different.
- Case 1: the entrepreneur carries on a business of selling goods, objects, supplies and goods to take away or consume on the spot, or to provide a dwelling, as well as a service provision activity or a liberal activity.
In this case, the micro-enterprise scheme is only applicable if its total annual turnover does not exceed 170 000 € and if the annual turnover for the provision of services does not exceed 70 000 €. - Case 2: the entrepreneur has two separate activities with the same threshold. The total turnover realized the previous year or year before must not then exceed the threshold of:
170 000 € if both activities consist of selling goods, goods, supplies and goods to be taken away or consumed locally, or to provide accommodation,
70 000 € if the entrepreneur carries out service activities or a liberal activity.
In both cases, the contractor will have to keep separate accounts for each activity.
Which businesses and activities are excluded from this regime?
- companies,
- non-profit organizations,
- real estate dealers, developers, and real estate agents,
- some builders,
- financial market transactions,
- public and ministerial officers.
How are these thresholds of € 70,000 and € 170,000 assessed?
BNC: revenues collected during a year.
BIC: They are assessed in relation to the total receipts corresponding to the debt obligation acquired. However, it is also possible to only take into account the revenue actually collected (as in the case of NLC), provided that they proceed in the same way every year.
If the activity starts or ends during the year (with the exception of seasonal businesses), the turnover threshold must be adjusted in proportion to the exercise time of the activity.
Examples of assessments of thresholds for Start-Up Companies:
For a consultant who starts his liberal activity on 1 September 2018 as a sole proprietorship and who achieves a turnover of 30 000 € in 2018, the amount of revenue adjusted to the year will be 90 000 € (30 000 x 12 / 4). If in 2019 the realized turnover is higher than 70 000 €, the micro-enterprise scheme will be applicable the year 2018 and the year 2019, because one considers that the receipts of the year 2017 are equal to 0.
On the other hand, in 2020, the actual regime of the controlled declaration will apply regardless of the amount of revenue collected, with the CA limits being exceeded in 2018 and 2020.
What happens if one goes over these thresholds?
The Company will remain in the tax regime of the micro-enterprise if its annual turnover of the previous year or the year before does not exceed:
- 170 000 € for the deliveries of goods, sales to take away or to consume on the spot or the services of lodging,
- 70 000 €for other services.
As such, the micro-company regime will apply in year N in two situations:
- when the turnover in year N-1 is less than 70 000 or 170 000 € depending on the activity,
- when the turnover in year N-1 is greater than these limits, and that of N-2 is below these limits.
If the company declares during 2 consecutive years a turnover of more than 170 000 € for a business of deliveries of goods, sales to take away or to consume on the spot or of services of lodging or superior to 70 000 € for the other activities, it will be in the real tax regime as of January 1 following these 2 years.
For example:
A sole proprietorship who carries out a commercial activity generates a turnover of 140 000 € in 2017 will be under the tax regime of the micro-enterprise in 2018 regardless of the turnover achieved in 2016 and 2018.
If it achieves a turnover of 190 000 € in 2017, it will be subject to the micro-enterprise regime in 2018 only if the turnover for the year 2016 is less than 170 000 €.
If this trader makes a turnover of 150 000 € in year N and a turnover of 185 000 in year N-1, in, year N, he will be in the regime of the micro-company regardless of its turnover achieved during this year. But its turnover in the year N exceeds the thresholds of € 170,000, in the year N+1, he will be subject to the real tax regime.
2- The Taxation of profits
The micro-entrepreneur has the choice between two methods of calculating and paying the income tax:
- the classic micro-company regime,
- discharge tax payment (optional).
Note: Even if the entrepreneur’s turnover is lower than the thresholds, he can still be subject to the real tax regime if he so wishes (or the controlled statement regime for liberal activities).
The classic micro-company regime
Unless one chooses the real tax regime, this is the one that applies by default.
In this case, the contractor doesn’t have to file a tax report for the BNC and BIC.
All he has to do is to note down the amount of the turnover (BIC) or the income (BNC), as well as any possible capital gains or losses, realized or incurred during the year in question in his supplementary income declaration (no. 2042 C PRO) in the section titled ” Revenues and capital gains of self-employed professions”.
He is only required to indicate a certain number of elements on his tax return in the “General information” section, in order to for the property assessment of the companies to be established. The pieces of information he must give are: his civil status, the SIRET number, the address of the principal place of business, the number of employees and the nature of the income earned (BIC or BNC).
Taxable profit is then calculated by the tax administration, which deducts from the turnover the standard rates of:
- 71% of sales for purchase/resale activities, and housing supply activities,
- 50% of turnover for other BIC activities,
- 34% of turnover for the BNCs,
- with a minimum of 305 €.
To determine the income tax, the taxable profit and any other income of the tax household is then subject to the progressive scale of the income tax.
The “discharge tax payment” option
The micro-entrepreneur is allowed to instead opt for this method of calculations if the following conditions are met:
his or her reference tax income for the year before is less than the upper limit of the second portion of the previous year’s income tax schedule. In other words, it has to be less than 26,818 € for a business created in 2018.
This limit is increased by 25% per quarter tax-share.
The option of the discharge tax payment must be made to the Social Security of the self-employed (formerly RSI) or from the dedicated website :
- before December 31st of the previous year,
- or, for new micro-entrepreneurs, before the last day of the third month following the month of creation.
Each month or quarter, depending on the deadline chosen for the micro-social scheme, the micro-entrepreneur declares the turnover achieved over this period, and sends the payment corresponding to the income tax related to his activity.
The payment will be equal to:
- 1% of the monthly or quarterly turnover for operators whose main activity is to sell goods, objects, supplies and food to take away or consume on-site or to provide accommodation (hotels, hosts, furnished with tourism),
- 7% of monthly or quarterly turnover for other BIC service providers,
- 2% of monthly or quarterly turnover for professionals belonging to the NBCs.
Returns and payments can be made in paper form or on the internet.
The income tax is paid when revenue is collected: unlike the traditional micro-enterprise regime, income from self-employment is not subject to the progressive scale of the income tax. The micro-entrepreneur has to indicate the amount of the turnover or revenue on his complementary declaration of income, though. Of course, the revenues of microentrepreneur will not be taxed twice, but they will be considered when calculating the tax rate of other income of the tax household.
As a Reminder: the withholding tax (PAS) of the income tax will come into effect on January 1, 2019.
For micro-entrepreneurs, this levy will take the form of a deposit calculated by applying the rate of the household levy to the amount of the flat-rate profit. The tax administration has specified that micro-entrepreneurs who opted for the tax-free payment (VFL) of income tax will not be subject to a withholding tax.
The “real tax regime” option
Again, even if a company is eligible to the micro-company tax regime, it can still opt for the real tax regime. The demand has to be made:
- Before February 1st of the first year for which it wishes to benefit from this scheme if it belongs to the BIC,
- Before the 2nd business day following May 1 of the following year if it falls under the BNC(option for the regime of the controlled return).
Additional details: New companies can opt for a real tax regime until the date of filing their first income statement.
The option is valid for 1 year as long as the company remains continuously within the scope of the micro regime. It is renewed tacitly by the period of 1 year.
As such, a taxpayer under the micro regime in 2018, given the amount of his turnover achieved in 2017 and in 2016, must opt for the actual plan before 1 February 2018 for the taxation of his profits under this regime in 2018.
This option will be valid for the year 2018.
If he wishes to return under the micro-enterprise regime for 2019, he will have to give up his option for the real regime before February 1st, 2019. Otherwise, his option for the real plan will be tacitly renewed for 2019.
Taxpayers wishing to waive their option must notify the tax office of their choice before February 1 of the year following the period for which the option was tacitly exercised or renewed.
Be careful! The new turnover limits from the 2018 Finance Law of 70 000 €and 170 000 € only apply from the revenues of the year 2017.
Thus, a commercial entrepreneur who, under the old turnover thresholds, had a real tax regime for his 2017 income (if, for example, the turnover achieved in 2015 and 2016 was between € 82,800 and € 91,000), can become eligible to the micro-BIC regime for his 2017 revenue under the new limits.
As a transitional measure, the Finance Act for 2018 allows it to opt for a real tax regime before May 3, 2018 (and not before February 1, 2017) to remain in the real tax regime.
If you want to learn more about the real tax regime, you can read all about it here.
3- The Territorial Economic Contribution (CET)
The territorial economic contribution (CET) is composed of:
- the company land subscription (CFE),
- the added-value contribution of companies (CVAE).
The micro-entrepreneur only has to pay the company land subscription (CFE). However, he is not liable for this tax in the year of creation of his business.
He may also be exempted from payment of this tax if he benefits from an exemption measure in because of his activity or the geographical area.
4- The VAT
Since 2018, the VAT-based franchise system and the micro-enterprise tax system are disconnected.
The thresholds of the VAT-based franchise remain set at € 33,200 and € 82,800 and the tolerance thresholds at € 35,200 and € 91,000.
For example, let’s take an entrepreneur with an artisanal activity that has a revenue of 20 000 € in 2017, 34 000 € in 2018 and 35 000€ in 2019. January 1, 2020, he could be subject to the real regime VAT regime (turnover in the tolerance zone between € 33,200 and € 35,200 for 2 consecutive years),but continues to benefit from the micro-company tax regime for the taxation of profits.
He will also be subject to the real VAT regime as soon as the turnover of the current year exceeds the limits of 91 000 € or 35 200 €. In this case, the entrepreneur will become liable for VAT for transactions made from the first day of the month in which these limits are exceeded.
5- Accounting requirements
- One must keep a record of all revenue collected.
- This record must chronologically mention the amount and origin of revenue collected, distinguishing cash settlements from other regulations. It must also indicate the references of the supporting documents.
Something to keep in mind: Companies can record transactions either on the date of the bank statement or on the one of the postal statement.
- Revenues corresponding to retail sales or services rendered to private individuals can be recorded overall at the end of the day as long as they represent less than 76€.
- One must keep a summary register by year showing the details of purchases for the activities of selling goods, objects, supplies and goods to take away or consume on site, or provide housing.
- This register must distinguish the cash payments from the other payments, and indicate the references of the supporting documents.
- Preservation of all invoices and supporting documents relating to purchases, sales and services provided.
Invoices must be kept in their original form for 6 years.
Since 1 January 2016, the other supporting documents can be kept in paper or digital format. - Taxable persons benefiting from the VAT-based exemption must issue invoices with the mention “VAT not applicable, article 293 B of the CGI”.
If you want to know more about company types and which tax regime they are eligible to, you can find all that out in these comprehensive tables.
