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Starting a business in France

STARTING A BUSINESS when moving into PROPERTY FOR SALE in FRANCE

Introduction

The French government plays an active role in the business sector and surveys consistently shows that most students would rather work in a public sector than set up there own business.

Government business charges are high and the tax and social system is complex. Indeed, in a recent international survey France was rated the third most attractive country in the developed world to start a business!

France itself offers good business prospects, or you do not speak French, then you can use the internet to run an international business from France.

Advice

We think you are the best person to decide those questions, in collaboration with your professional advisors! One thing we are certain about is the importance of getting good advice, and to get plenty of it, from different people. 

The stories are never ending of those who have jumped in recklessly, only to later regret it.
We appreciate language is going to be a barrier for some people, but many of the advisors speak English and, if they do not, take someone to translate for you.
Business Classification
Business professions
The registration process, laws and tax regime that apply will depend on the type of business you enter. For the purposes of business registration and taxation all business activities are classified into five main professions.
Trade-Artisan: This group of business activities includes what is generally understood as one of building trades and a wide variety or other manual based professions, e.g. mechanic, hairdresser. 

Strictly speaking, you can only call yourself an artisan if you have a requisite level of qualifications and/or experience. So a mason is not necessarily also an artisan.
There are four main categories of profession libérale, otherwise also known as 'freelance' occupations:

The list includes health professionals, legal professionals, surveyors, accountants, architects and insurance agents.
Commercial and Industrial: Within this category sits most other business activities of a commercial or industrial nature. Thus, running a shop, café, hotel, restaurant, factory, or otherwise engaged in an occupation that is predominantly commercial or industrial. 

This list includes within it the letting of furnished accommodation, although not unfurnished accommodation, which is not considered to be a business profession
Commercial agent: Acting as a representative for another company in the negotiation for the sale, purchase or letting of contracts for goods or services.
Agriculture: Farming related occupations.
The French business start-up agency 'APCE' has a range of useful guides to business creation by type of activity.

Regulated Activities

There is very little regulation on setting up in one of the building professions. This does not necessarily mean you are allowed to do all aspects of work within that profession. Thus, a plumber could not legally fit gas appliances without appropriate French certification. You also need to ensure that an insurer would be willing to offer you professional indemnity insurance.


Legal Structures

You would do well to consider a company structure at the outset if you are concerned about the absence of any limited liability, if the business needs start up capital or loan finance, if your business costs are high, or you are starting a business with others.
Self Employment
Most people who start up a business in France do so without actually establishing a separate legal or capital structure through which to run the business. If so, then you would operate as an individual enterprise 
running the business as an enterprise is most appropriate when the investment requirements of the business are small and the risks are low. 

One disadvantage of this approach is that the owner of the business has unlimited liability for the debts of the business.

Sole Trader
A 'EURL' is a limited company in single ownership. 

Under a EURL the business is owned by the sole trader and managed through a separate limited company. 

The company can be established with as little capital as €1 and the owner is afforded limited liability from debts to the amount of the initial capital. 

Capital can be entered by way of cash or assets and for a small business. Limited liability has its attractions, but if you are going to need loan finance to fund the business, there is the risk that the bank will demand collateral against the loan. In this case, you may need to pledge your home or other personal assets!

Limited Company
If the business has more than one owner then it becomes a 'SARL', where the same basic rules apply as those for a sole trader discussed previously, but in a more complicated way, as more than one person is involved! 

The minimum amount of capital required to set up the company is €1 and there is no maximum. Capital is entered in the same way as a EURL, that is, by way of cash or assets. 

The profits of the SARL will be assessed for income tax through the system of company taxation.
There is also a particular kind of family business where owners can elect for form of partnership taxation, effectively the system of personal income tax. In this case the legal structure for the company will need to be that of SARL de famille. 

Directors of a SARL taxed through the system of company taxation will be liable for personal income tax on the salary paid to them by the company. The salary is a deductible expense from company profits.

Status of Spouse
If your spouse participates in the running of the business, then they are obliged to have some kind of legal status. 

There are three choices:

Registering a Business
Business Registration

Registration with the authorities must be carried out before you begin trade.
Registration Number
As a new business you will be given a business registration number comprising 14 digits in total, known as your siret. 

The first 9 numbers are your sirene, which is your registration number on the national business register. 

The last 5 digits are your nic, which identifies the business geographically.

Cessation of Business Activities

If you decide to end a business then you need to go along to the centre of formality enterprises. The CFE will then tell the social security agencies. Within 60 days of ceasing trading you should also tell you're Centre d'Impôts.

Business Premises

Running Business from Home

You don't need to get any change of use from the planning authority if you want to run a business from home, provided you are not employing staff on the property.

If you are making changes to the property, or constructing additional buildings that require prior approval, then you will need to make application for planning consent to the mairie in the normal manner.

If you live above the ground floor, and you receive goods or clients at the property, you are required to make application to the local mairie for joint use of the property for residential activity.

If your property is located on the ground floor, even if you intend to receive visitors and goods, no such consent for change of use to mixed domestic and business is required. 

If authorization is required, it will normally be personal only, so will not run with the property if and when you sell it.

Buying Business Premises

If you are going to buy a separate business premises, you should consider doing so through the legal structure of a property company (SCI).

An SCI may be used in tandem with another business, where the business property is held by an SCI to whom the business then pays a rental.

If the business property is purchased using a mortgage, the mortgage payments can be offset against the rental payments, thereby reducing liability to income tax by the SCI. 

Business Banking, Accounting and Insurance

Banking

If you set up a separate company structure to run the business, you will be required to open a bank account in the name of business. 

Even if you do not set up a separate company you are expected by the tax authorities and the banks to have a compte professionelle for your business. 

Banks make a charge of at least €25 per quarter for all business accounts. All bills in excess of €3000 must be settled by cheque or credit card. Salary payments can be made in cash up to €1500 per month. Deposit payments in cash are subject to an upper limit of €460.

Accounting

When starting a business getting the advice of a good accountant is highly recommended. When it comes to the fee for the accountant you must negotiate and select carefully.

A business start up can expect to pay around €1200 per year for basic accountancy support from a local firm. The support is likely to include preparation of the annual tax return.

If you do your own accounting, and it is computer based, then you are obliged to ensure that the archiving system maintains the authenticity and reliability of the records.

Insurance

You will need to consider your insurance requirements, notably the need for public liability and professional indemnity insurance - l'assurance en responsabilité civile professionnelle. 

Those in the building professions need to take out a particular type of insurance that guarantees their work against major defects for ten years, called l'assurance responsabilité décennale. 

You will also need to consider the need for insurance of your tools, equipment and business premises through an assurance multirisque professionnelle. 



Taxation of Business

Main Options

If you are a self-employed person you are automatically taxed under the personal income tax system. You have the choice of being taxed either as a micro-entreprise, or through the rules of regime réel. 

If you have set up as a sole trader then you may elect to be taxed under personal income tax system through the rules of regime réel, or through the system of company taxation. 

A private limited company can only be taxed under company tax, unless it is a special type of family business, or a small company under 5 years old, when it can elect to be taxed under the personal income tax system. 

We can, therefore, summarize the three main tax regimes as follows:


Micro-Entrepreneur
i. Tax Status - First, a micro-entreprise is not a legal business structure – it is a specific tax status that benefits from simple tax and accounting rules. 

ii. Turnover Limits - The second important qualification is that micro tax status is only available if the business does not exceed certain turnover limits. These turnover limits depend on the type of business activity you pursue. 

iii. VAT – A business adopting the tax status of micro-entreprise cannot charge VAT on their goods or services, and neither can they recover VAT paid on purchases. 

Iv. Exclusions - Finally, certain types of business are excluded from micro-entreprise status e.g. estate agents.
With effect from January 2009 there are two types of micro-entreprise tax regimes; although in large measure they probably amount to the same result:
i. Régime de base - Your liability to tax and social security contributions is calculated after deduction of a fixed rate allowance against annual turnover.
ii. Micro-Social/Fiscal – You pay a fixed percentage of your total turnover in social security and tax payments.

Regime Reel

Those taxed under this tax regime are:
A business whose main activity is commercial sales or furnished accommodation, with a turnover in excess of €80,000;

Company Tax

The rate of company tax depends on the turnover and capital structure of the business.
If the capital was provided by the owners and at least 75% continues to be held by individuals then the rate of taxation is 15% for profits up to €38,120 per annum and 33% thereafter.

Dividends

A general allowance of 40% is available on all dividends, irrespective of amount, and there is also personal tax credit of €115 and a personal allowance of €1525. These allowances are doubled for a married couple in a business.

The only social security contributions payable on the dividends are those of the social charges CSG/CRDS, at the rate of 12.1%, of which 5.8% is deductible against income tax.

For example:

If you and your wife ran a small company. At the end of the tax year, you decide to pay yourselves €10,000 each by way of dividends. 

You will receive a 40% rebate on this sum before becoming liable to income tax. So the gross taxable sum would be €12000. 

You are then entitled to a joint allowance of €3050 against this sum, leaving €8950 as the taxable sum.

Business Taxes

The Contribution Economique Territoriale (CET) is a local tax imposed by the departmental and regional councils on businesses to assist in the funding of local services and the Chambres de Commerce.
The tax was introduced in January 2010, replacing the previously controversial form of business rates called the taxe professionelle. 

The formula for calculating tax was very complex. However, 20% of the tax was based on the rate able value of the property, and 80% based on the value of the capital machinery and equipment employed in the business. 

A new business gets 100% relief in the first year and 50% in the second year.

VAT

TVA (Taxe sur la Valeur Ajoutée) is an expenditure tax imposed on consumers of goods and services. TVA is payable on almost all commercial goods and services, with few exceptions.

The main rate of TVA in France is 19.6%, but there is a reduced rate of 5.5% for food, travel, some domestic personal services and most entertainment events. 

The reduced rate of 5.5% also applicable to repair and improvement works to residential dwellings, but only on the costs of professional labor and materials. It is not available for DIY or for materials only. 

So, where you employed a registered company but bought the materials yourselves, the materials would need to be purchased at 19.6%, whilst the rate on the labor would be 5.5%. 

There is also a rate of 2.1% for medical prescriptions, TV licenses, sale of live animals, press publications and certain entertainment events.

Payroll Taxes

Training Tax - a tax to assist in the development of continuous professional training levied at a variable rate depending on the number of employees in the business. 

For a business with less than 10 employees the rate is 0.5%.
Housing Tax - a tax payable to assist the development of new and improved housing levied on a business with at least 20 employees at the rate of 0.45%.
Apprenticeship Tax - a tax payable by a business whose activity is either commercial, trade or industrial, to assist in the development of apprentice training. 

Tax is levied at the rate of 0.50% on the total salaries of the business. 

A business can be obtaining exemption from this tax if they already make suitable provision for apprenticeship in the business.
Salary Tax – tax paid on the salaries of employees by those businesses's who are exempt from TVA on their activities. 

Even though a company may be subject to VAT, those companies below the TVA turnover threshold are exempt from the tax. 

It is a tax that mainly concerns banks, finance companies, certain professions liberales, mutual organizations, so the tax is not particularly relevant for most people setting up a business in France. 

The tax rate is on a progressive, sliced basis on the salary starting at 4.25% increasing to 13.60% on that part of the salary above €14,295 for 2007. 

However, a rebate is then applied to the amount owed, in order to reduce the burden of the tax.
Company Car Tax - those vehicles owned and maintained by a company are subject to this tax. 

A company car is a tax free perk, as the value of the car for private use is added to the remuneration of the beneficiary for the purposes of income tax and social security contributions. 

In the event you are liable for the tax, the basis on which it is charged depends intially on the age of the vehicle. 

In relation to those vehicles registered before June 04, and not owned by the company before Jan 06, it is based on the size of the engine. 

For vehicles registered after June 04 the rate of taxation depends on the level of CO2 it emits. 

As might be expected the tax favors newer, lower polluting cars over older vehicles.
Social Security Contributions


Organization Structure

Self-employed people pay social security contributions for health care, family allowances, invalidity, pension and death. 

They do not pay contributions for unemployment insurance, so are not able to receive state benefits under the system of unemployment cover.

Once you have register your business the Centre de Formalities will notify the various social security agencies who will, communicate with you about your entitlements and the contributions you will need to make.

Contribution Rates

Regime Reel

Under the tax status of regime reel you are liable for tax and social security contributions on your actual net profits. 

The level of these contributions will vary depending on whether you have opted to be taxed on the basis of company taxation or through the system of personal taxation. 

However, whichever system of taxation applies the following table summaries the applicable average social security contribution rates for non-agricultural travailleur non salaries.

Micro-Enterprise

Someone running a business registered chambre d'hote would receive an allowance of 71% against revenues, so they would be charged social security contributions on 29% of their gross income. When the social security contribution rates for a micro-entreprise are the same as those for a business operating under the regime reel, since 2008 the total amount payable has been capped at a maximum percentage of turnover. The new arrangements are called micro-social. A 'service' based micro business would pay no more than 21.3% of their turnover in social contributions, whilst the figure is 12% for a 'sales' based business.

Relief from Contributions

There are plenty of grounds on which relief is available:

Deferred Payment: A new business can choose to defer the payment of certain social contributions due during the first year, and then to arrange for these contributions to be paid over the following five-year period. There is no interest payable on the deferred payments. 

Low Profit: If your annual net profits are less than €4489 (2008) then, on application to URSSAF, you can obtain reimbursement of contributions paid during the year. The calculation of net profit is after the deduction of your social security contributions. You can also get some reduction in sickness contributions with a profit level below €12K. 

There could also be some relief on pension and invalidity contributions at different levels of profit, depending on your professional activity.
Company Saving Schemes: If you employ a minimum of one member of staff you can get a company saving scheme, in which as the owner of the business you can also participate. 

These schemes are called Plan d'Epargne Entreprise (PEE). You can pay in up to 25% of your annual income into a scheme. 

Savings in a PEE are invested on the stock market and, as long as they are retained for at least 5 years. The gains are also exempt from income tax and capital gains tax. 


Unemployed: If you are unemployed in France, and decide to start a business, you are exempt from most social security charges for up to two years. 

To gain from this concession you do not need to be in receipt of unemployment benefits, provided you have been registered with the unemployment agency ANPE for at least six months out of the last eighteen months.
Development Area: If you establish a business in a development area you may be entitled to some gain of social security contributions. 


Occasional Work: If you work less than 90 days per year, you can claim a reduction in your health contributions. This contributes to 6.5% of net income.

If you only work on an occasional basis you will still pay at this rate, but on a discounted basis depending on the number of days worked. 

Illness: If you are unable temporarily for reasons of illness, to operate the business, social contributions continue to be payable, excepting those for retirement pension, where relief from payment is available. 


Dividends: It's possible to reduce your liability to social security contribution by the adoption of a suitable company structure and the use of dividends as a way of personal payment. 

If you decide to establish a limited company, you can choose to pay yourself via a mix of salary and an annual dividend.
Dividends attract an 11% social security charge (12.1% from 2009)
Company tax at the rate of 15% is payable, but only on 60% of the dividends, as there is relief on 40% of dividends paid.
Elderly Persons: If you are 65 years of age or above, then you are eligible for relief from the payment of social security contributions.
Free Health Cover: 

If your total income is below certain thresholds, then you can receive free health cover through the CMU complementary protection.

Financial Difficulties: 

From January 2008, a business that encounters financial difficulty can make an application to the RSI for temporary assistance with the payment of social security contributions.

Financial Assistance

Introduction

There are lots of available ways that a new business can get financial help to a business start-up. The schemes are given by lots of different bodies at a national level. If you speak French you should work your way through the relevant web pages of the national business start up agency APCE which has a list of the main schemes. 


Assistance to the Unemployed

There is a national scheme that offers financial assistance to set up a business to help the unemployed.
Eligible persons are:

     
Regional Development Schemes

The main national development areas are:


Some schemes operate on a nationwide basis and others are administered by the regional or local authorities.

Bank Finance

Banks are made to assist new businesses by the Government with finance. Provided you have a clear financial plan.

You should make enquiries to your bank about a start-up loan Prêt à la Création d'Entreprise (PCE) for up to €7,000. This loan will be available if you don't already have a start up finance, and your business has to be less than three years old.

If you are looking for medium to long term financing then go to your bank about aPrêt CODEVI, which is a cheap source of finance for a business, however it is restricted to certain business sectors.

Assistance/Employee Costs

Since The 4th December 2008 Companies with less than 10 employees, no employer social security contributions would be payable in 2009, up to the level of the minimum wage, in respect of new employees recruited in the year.

If you intend to employ staff then there are huge arrays of contracts available that grant full or partial exemption from employer social security contributions, or grant financial support towards the wage or salary. Most of these are centered at young people or those of 50 years of age.

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