Income Tax in France
In general, you must pay income tax at the same rate whether you’re employed, self-employed or an employee. This is known as personal or ‘physical person’s’ income tax. If your total assets are worth more than €732,000, you may also become liable for wealth tax (impôt de la solidarité sur la fortune/ISF), but once you reach that stage, you know that your business is a success! French income tax rates are below average for EU countries, particularly for large families, and income tax accounts only for some 20 per cent of government revenue, and successive governments have been reducing income tax levels for the past decade.
If you operate a small business or are starting a business and your turnover is low, it can be to your advantage to operate as a micro-entreprise, which doesn’t mean ‘tiny business’, but is a specific tax regime that can be adopted by businesses whose turnover is below certain limits.
Income tax is calculated on earned income ( impôt sur le revenu) and unearned income (impôt des revenus de capitaux). Certain types of income are exempt from income tax, including payments from a complementary insurance policy or a temporary accident and illness insurance policy and allowances for obligatory training courses. Social security contributions aren’t taxable (with the exception of the non-deductible part of CSG/CRDS ) and are deducted from gross income.
Salaried workers, including employers, qualify for two general deductions from gross salary: a 10 per cent allowance (déduction forfaitaire) for ‘professional’ or ‘notional’ expenses, and a further general deduction (abattement général) of 20 per cent. The self-employed don’t qualify for either of these, which means that they must pay considerably more income tax than employees. But, as so often in France, there’s a way around this problem. If you’re self-employed, you can obtain a 20 per cent reduction on your taxable income by joining a centre de gestion.
For more information on income tax in France check the government website (only in French).
Business Taxes
Whether you’re self-employed or have set up a company, you are liable for business taxes, but the two situations are different:
- Self-employed – You pay personal income tax (see above) on all your earnings.
- Company – You pay no personal income tax, but instead pay company or corporation tax (impôt sur la société/IS). If your earnings are above a certain limit you pay the contribution sociale de solidarité; if you employ staff, you must also pay taxe d’apprentissage and a contribution to formation professionnelle.
Corporate Tax in France
Corporate tax (impôt sur la société/IS) is the main tax on most types of company. In effect, instead of the business owner declaring its income on his or her personal income tax form, as with the self-employed, the company is charged income tax as an ‘impersonal’ entity. The tax is levied at two rates: 15.45 per cent on the first €38,120 of taxable income (i.e. profit) and 34.33 per cent on the remainder.
As with income tax and VAT, there are different corporate tax regimes (régimes), which may be referred to by various names. For example, you may have a choice between a régime simplifié (d’imposition) – whereby certain figures (e.g. expenses) are ‘assumed’ and the declaration and payment procedures are simplified accordingly (usually to the benefit of small businesses) – and a régime réel (normal), whereby you declare your actual figures and pay tax on those. Either way, you should receive IS forms by the beginning of March and must usually submit them by 30th April. You must declare your business results for the previous year, and make payments starting the following year, based on your declared results.
Contribution Economique Territoriale (CET)
Introduced in January, 2010, the CET replaced the Taxe Professionnelle. The CET is a local tax implemented by the departmental and regional councils on business to assist in the funding of local services as well as the Chambres de Commerce. However, new companies do not have to pay tax in their first operational year and pay only 50% of the tax rate in their second year.
The CET consists of 2 parts:
- The Cotisation Foncière des Entreprises (CFE), based on the rateable value of the property occupied by the business.
- The Cotisation sur la Valeur Ajoutée des Entreprises (CVAE), based on the ‘value added’ each year by the business - more or less the wealth created by the business each year, a figure which is also used to calculate liability to VAT.
The two parts (CFE and CVAE) together make the CET. Local councils have set a minimum level of rates, which are aimed to cover the circumstances when the business has no real estate.
There are some exemptions from the CET:
- Artisans who work alone/in a family business
- Owners of chambres d'hotes, whose business property is part of their private residence.
- Companies located in development areas
- Leisure based companies who are bound to seasonality (activités saisonnières)
The CET can be paid in December each year or you can choose to pay it per month.