Continuing from our initial discussion on becoming a freelancer in France, this article delves deeper into the various tax regimes, offering insights and advice to help you make the best fiscal choices for your freelance journey.
TAX REGIMES IN DETAIL
Let’s recapitulate and see in more details the tax regimes applicable to the EI (Entreprise Individuelle) and EURL/SASU Limited Company options.
French EI – Entreprise Individuelle (Sole-proprietorship)
The income your Freelance Limited Company generates under an EI/Sole-Proprietorship or a EURL* Company subject to IR/Personal Income Tax falls under the category of BNC – Bénéfices Non Commerciaux.
There are 2 main Tax Regimes applicable:
- Micro-Entreprise (Auto-Entrepreneur)
- Régime Réel (Déclaration contrôlée)
1. Micro-Entreprise (annual income under 72.600€)
If your annual gross income is under 72.600 €, you can opt for the Micro-entreprise Tax Regime (Auto–Entrepreneur)* and benefit from a very simplified bookkeeping and fixed deduction of your expenses of 34%.
Please note that if your total annual gross income is below certain thresholds and subject to further conditions depending on your foyer**, as a Micro-Entreprise you may also opt for the Versement Libératoire at the rate of 24,2% (22% social contributions – cotisations sociales + 2,2% taxes – impôts) calculated on your gross income, without any fixed deduction nor any possibility to deduct any expenses or social charges whatsoever.
You may opt for the Micro-Entreprise Tax and Social Regime as long as the BNC of your Freelance Company are taxed directly in your hands and they are not subject to Corporate Tax, be it under a Sole-Proprietorship or under an EURL Company.
You will declare your Professional Income annually on your Personal Income Tax Return.
*As a Micro-Entreprise, you owe the CFE (Cotisation Foncière des Entreprises) as of the second year of activity and you do not owe the CVAE (Cotisation sur la Valeur Ajoutée) . Conversely, the CVAE is due if you firm’s annual turnover exceeds 500.000 €.
**See this link for more information
2. Régime Réel (Déclaration Contrôlée)
If your gross annual income is over 72.600 € or you have expressly opted for the Régime Réel Tax regime in particular to deduct your business expenses from your taxable income, your Freelance Business income will still be taxable in your hands.
However, you will no longer be eligible to the Micro-entreprise regime and you will have to work out your net taxable income by drawing up your enterprise’s financial statements under the Régime Réel – Déclaration Contrôlée Tax regime*.
Here are a few deductible Professional Expenses under the Régime Réel :
- Meal expenses
- Travelling expenses
- Office supplies
- Costs of collecting fees on invoices
- Postal, telephone and fax charges
- Legal fees and litigation costs
- Advertising costs
- Dues paid to professional bodies or unions
- Professional training costs: study costs, advanced courses or internships, etc…
These expenses shall be coherent with the activity carried out and accounted for (e.g. registered invoice).
Note: Long-Term assets (Immobilisations) like computers, cars and other supplies consistent with the professional activity cannot be deducted entirely at once and shall be amortised over a certain number of years according to French accounting rules.
Like with the Micro-enterprise regime, you are required to declare your Freelance Professional Income once a year in your Personal Income Tax return (Déclaration des revenus).
You will declare your Professional Income using Form 2042 C Pro (Section Régime de la déclaration contrôlée) after having filled out Form 2035 (Liasse fiscale des professions libérales).
Under the Régime Réel – Déclaration Contrôlée you will have the following bookkeeping and accounting obligations:
- keeping of a complete accounting records: daybook, inventory book, general ledger, annual inventory;
- preparation of annual accounts at the end of the year;
- invoices including VAT (if applicable);
- Professional Income Tax and VAT returns.
* If you are under the Régime Réel, it is worth hiring a Centre de Gestion Agrée (CGA) in order to avoid an increase of 10% (2022) of your taxable income. This 10% increase will disappear as of 2023. In any case, hiring an accountant is recommended for accounting under the Régime Réel.
3. French Limited Company – EURL (Entreprise unipersonnelle à responsabilité limitée) or SASU (Société par Actions Simplifiée à associé unique)
As we saw in our previous article, the EURL Limited Company is naturally subject to Personal Income Tax (IR – Impot sur le revenu).
You may opt for paying French Corporate Tax (IS – Impôt sur les Sociétés – 25% ordinary rate and 15% reduced rate on the first 38,120 € in 2022) instead of Income Tax (IR – Impôt sur le revenu).
Also, in your capacity of director (gérant) of your EURL Freelance Company, you may opt for the Micro-Entreprise Tax and Social Regime.
In case your Freelance Company is subject to Corporate Tax, you may remunerate yourself by having your Company paying out to you a Salary and/or Dividends.
You will then pay taxes and social contributions on your Salary and taxes on your Dividends* (30% flat rate or progressive rates).
As opposed to the EURL Limited Company, the SASU Limited Company is naturally subject to Corporate Tax.
*Dividends paid out to the gérant of an EURL are also subject of the Cotisations Sociales of the Travailleur indépendant when the amount of the dividends distributed over a year exceeds 10% of the total amount of share capital + share premiums + average balance of the current account of the sole partner.
The SASU Company will then be subject to the Impôt sur les Sociétés – IS with application of the ordinary rate of 25% and/or the reduced rate of 15% on the first 38,120 € of profits.
As a Président of the SASU, you can pay yourself a Salary on which you will pay Cotisations Sociales as any salaried worker in France.
The salary of the Président is a deductible expense for the Company as well as the Cotisations sociales (or: charges), that are paid by the Company.
Under the SASU, you may also pay out to yourself Dividends and you can choose to have them taxed at a 30% flat rate or have them subject to Personal Income Tax Progressive rates (Barème de l’impot sur le revenu).
The SASU may also opt for having its Company’s profits taxed at Personal Income Tax (IR – Impot sur le revenu).
In this case, the SASU Company’s profits are taxed in your hands and the remuneration you take for yourself is not a deductible expense in your Company’s financial statements. However, unlike the case where you paid yourself a Salary, on the SASU Company’s profits subject to IR you will not pay any Social Security Charges (Cotisations Sociales), only CSG/CRDS taxes (9,25%) (See infra – Tax regimes).
Our next and final article on this matter will delve into the specifics of Social Security Contributions in France, providing a more detailed information to prospective French freelancers.
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The opinion expressed in this article is for informational purposes only.
This article does not constitute legal advice.
In addition, it is important to remind that each client’s tax issue is different because each client’s personal situation is different.
Should you have a similar tax issue, please contact us for an initial discussion of your case.
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