The real tax regime: what does it mean for your company?

Understanding the tax regime

If the turnover of a company has exceeded a certain threshold, the company will be subject to the real tax regime. This regime is divided into two categories:

• the simplified real profit regime,
• the normal real profit regime.

In these regimes, companies are taxed on the basis of their actual profits (as opposed to the rules applicable in the micro-company regime). As such, they must comply with a number of accounting and reporting requirements.

These real regimes are applicable for:

• the profits made by the company,
• the VAT.

Summary:

1. The companies concerned by these regimes
2. The Taxable profit
3. Declaring the results
4. The advantages of these tax plans
5. Accounting requirements
6. The VAT

 The companies concerned by these regimes

 The Simplified Real tax regime

Some companies are automatically subject to the simplified real regime. They are:

• Companies subject to income tax whose turnover for the previous year and the year prior is between:
  • 170 000€ before tax and 789 000€ before tax (companies whose main business is to sell goods, objects, supplies and goods to be taken away or consumed locally or to provide accommodation),
  • 70 000€ before tax and 238 000€ before tax (other service activities).
• Companies subject to corporate tax whose turnover for the previous year is less than € 789,000 before tax (goods) or € 238,000 before tax (services).

Other companies can choose to be subject to the simplified real regime. They are:

• Sole proprietorships with a turnover inferior to 170 000€ or 70 000€ for the last year or the year prior who are automatically under the Micro-company regime, or who opted for it.

Exceeding thresholds:

• If the turnover exceeds the thresholds of 789 000 € or 238 000 €, the simplified tax regime remains applicable the first year following that of exceeding the threshold.
  Thus, an increase in turnover above the thresholds of € 238,000 or € 789,000 in 2017 keeps the company under the simplified regime in 2017 and 2018.
• If the turnover ever exceeds € 869,000 or € 269,000, the company becomes subject to the normal tax regime from the first day of the current financial year. It ceases to benefit from the simplified VAT system from the first month of overrun.

The Normal Real tax regime

Some companies are automatically subject to the normal real regime. They are Companies subject to income tax whose turnover for the previous year and the year prior is superior to:

• 789 000€ before tax (companies whose main business is to sell goods, objects, supplies, and goods to be taken away or consumed locally or to provide accommodation),
• 238 000€ before tax (other service activities).

Other companies can also choose to be subjected to the normal real tax regime. Any company who is subject to another tax regime can instead choose this one.
The tax authorities must be told of this option before February 1st of the year in which the company wishes to benefit from this regime.
When this option is chosen, it becomes valid for two years. It is automatically renewed, unless a demand is formulated to the tax authorities before February 1st.

Something to keep in mind: For options exercised or tacitly renewed starting from 1 January 2016, the period of validity is reduced from 2 years to 1 year.

Additional details: For new businesses, the option for the simplified regime can be formulated until the filing date of the first income statement. The option for the regime of the normal real must be formulated within 3 months from the beginning of activity.

 Taxable profit

Taxable profit is the difference between the revenue earned and the expenses incurred during the year.

The types of revenue that must be taken into account are:

• operating revenue (goods sold, services provided),
• financial revenue (movable income),
• exceptional revenue (subsidies, capital gains realized from the sale of goods).

The expenses that must be taken into account are those with a real and justifiable amount:

• installation or first establishment fees,
• purchases of supplies,
• business premises expenses: rent (1), lease-management fees,
• maintenance and repair costs,
• staff costs (salaries, social charges),
• retroceded fees, commissions and vacations (special declaration to be completed),
• purchases of materials and furniture,
• equipment rental fees,
• professional taxes,
• financial expenses (loan interest),
• exceptional expenses (bad debts, donations),
• travel expenses, automobile,
• meals (2), reception, insurance, etc.

(1) If the premises are part of the private property of the contractor, the latter may grant a lease to the enterprise. Its rental value can then be included in the deductible expenses of the company. This value is a real estate income for the entrepreneur who must carry it in his income statement.

(2) The cost of meals taken at the place of exercise of the activity, because of the distance from the home of the entrepreneur, may be deducted for tax purposes. The deductible amount corresponds to the difference between the price of the meal (within the limit of € 18.40 for 2017) and the fixed value of a meal taken at home (valued at € 4.75 for 2017).

Additional details: the potential deficits generated by the BICs are deducted from the other income taxed on the income tax. If a surplus remains, it can be carried forward for the next 6 years.

Declaring the results

Companies are required to write a 2031 declaration with annexes for the income tax, on top of the overall declaration of income, and a 2065 declaration with annexes for the corporate tax.
These declarations must be filed before 2nd working day following the 1st of May for the companies who:

• are subject to income tax in the BIC category,
• are subject to corporation tax ending their financial year at 31 December, or if no financial year is closed during a year.

The advantages of these tax plans

These advantages concern, both the companies subjected to the normal tax regime, and those subject to the simplified tax regime.

• Adherence to a management center or an approved association allows companies subject to income tax to enjoy tax benefits.
• Companies created in priority geographical areas can benefit from tax breaks as soon as they are taxable under a real regime.
• Furthermore, only the companies subject to a real regime can benefit from tax credits, such as the research tax credit (CIR) and the competitiveness and employment tax credit (CICE).

Accounting requirements

A company under these tax regimes is required to regularly keep detailed accounts in order to be able to justify the result submitted to the tax authorities.

Companies under the simplified real tax regime:

Companies subject to this tax regime have to keep the following accounting documents: a balance sheet, an income statement and appendices.

Individual entrepreneurs and civil societies can adopt a “super-simplified ” accounting that allows them to:

• to keep, during the year, only cash accounts (revenues collected and expenses paid),
• to deduct the fuel costs on a specific scale,
• to register the debt obligations and debts only at the end of the financial year and not to draw up an annex,
• to enter in the profit and loss account, according to their date of payment, charges whose periodicity does not exceed one year, excluding purchases,
• to carry out a simplified evaluation of stocks and productions in progress, according to a flat-rate method,
• establish a balance sheet and a simplified profit and loss account (balance sheet exemption if the turnover from sales does not exceed € 158,000 before tax or € 55,000 excluding tax for the turnover resulting from the provision of services) .

Commercial companies under the real regime, whether it was by option or not, may also keep cash accounts and only record receivables and debts at the end of the financial year, with only cash inflows and payments recorded daily.

The option is established for each year on the income statement.

Companies under the normal real tax regime:

They must:

• proceed with the chronological accounting of movements affecting the company’s assets,
• make an inventory at least once every 12 months,
• draw up annual accounts including: a balance sheet, an income statement and annexes.

Finally, a journal and a general ledger must be kept.

 VAT

Companies under the simplified real tax regime:

Companies with an annual turnover of between 82 800 € and 789 000 € or 33 200 € and 238 000 € in the previous year or the year before prior are automatically subject to the simplified VAT regime.
This regime allows them to only make one annual declaration of turnover.

Since January 2015, an additional condition is necessary: the amount of VAT payable during the previous year must not exceed 15 000 €.
Staying under the simplified VAT regime is subject to the condition that the turnover for the current year does not exceed 869 000 € or 269 000 €.
If these limits are exceeded, the company is entitled to a normal VAT regime from the first day of the current financial year.

In order to combat VAT fraud, the law temporarily excludes from the simplified VAT regime companies when they:

• are new,
• resume an activity after a period of temporary cessation,
• opt for the payment of VAT.

These companies are subject to the normal real VAT tax regime, the year in which the company has either:

• started its activity,
• resumed its activity,
• exercised the option for payment of VAT, and during the next year.

From January 1st of the second year of activity following the start of activity under this normal VAT regime, the company may be subject to the simplified VAT regime if it applies for it before 31 January of the year in which it wishes to benefit.

During the year, companies make two payments. The first, paid in July, is equal to 55% of the tax due for the previous fiscal year, while the second, paid in December, is equal to 40%.

They file a single “CA 12” declaration by the second business day following 1 May of the following year, which will determine the tax due for the period, as well as the amount of the half-yearly payments for the subsequent period.

Companies that fall under the simplified scheme have the option to opt out of this scheme, but only for VAT: this is the mini-real regime.
In this case, their BIC is determined according to the terms of the simplified plan.
On the other hand, VAT is determined according to the normal regime (quarterly or monthly declarations).

Note: If the decision to opt for the mini-real regime is made before April 30, it takes effect on January 1 of the current year. If it is exercised after April 30, it takes effect on January 1 of the following year.

Companies under the normal real tax regime:

Taxpayers subject to the normal real tax system must submit a monthly return (form CA3) together with the payment of VAT.

If the annual amount of VAT to be paid is less than 4 000 €, they are allowed to make quarterly declarations.

Companies that meet or have encountered difficulties in filing their VAT returns within the statutory deadlines may, upon request, benefit from an additional period of one month to submit their declaration. They must then pay, within the normal period, a payment of VAT, the regularization being carried out the following month when filing the declaration.

Refund of the VAT credit

The company can:

• request the refund of the VAT credit on the declaration of adjustment (beginning of the following year),
• ask for the monthly or quarterly repayment (form 3519) if certain conditions are met.

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.