One of the first things you need to do is to select the activity you plan on pursuing from a list provided by the government. Activities are divided and taxed based on the category it falls in. For instance, if you are a plumber, then you will have to state that you will be starting a plumbing business. Auto-entrepreneurs will be registered either under RSI or under CIPAV. There is not one sole tax agency, like the IRS is in the USA.
You will be under CIPAV if you are an architect, psychologist, consultant or perform a similar type of activity. Everyone else will fall under RSI. If you are registered under RSI, your activity will be classified into one of its three categories: ventes de marchandises (BIC), prestations de service (BIC), or prestations de service (BNC). Each category is taxed differently, so you must select the appropriate category carefully.
If what you do falls into two different categories, you will have to separate your accounting for each activity. For instance, if you fix and sell computers. Income from fixing computers would be taxed by RSI as a prestations de service BIC. Selling computers would also be with RSI, but classified as ventes de marchandises BIC. Taxes owed for fixing computers is 23% (21.3% for régime mico-social simplified and 1.7% for régime micro-fiscal) and taxes for selling computers is 13.0% (12.0% with régime mico-social and 1.0% with régime micro-fiscal).
Not only are different categories taxed differently, but they have different limits for the amount of income you can make. If you sell merchandise, you can only sell 81,500 euros worth of merchandise and services can only bring in 32,600 euros. This is all before taxes and expenses – you cannot make any deductions. So if you paid 1,200 euros for a computer and sell it for 2,000 euros, the 2,000 euros is counted towards your limit.
To continue with the example above about selling computers and offering reparation services, you would only be able to invoice 32,600 euros to clients. If you invoiced a customer 200 euros for fixing the computer and had to pay 50 euros for parts, the full 200 euros goes towards your maximum allowance. You also can make the maximum of 81,500 euros for retailing computers, but this is after deducting what you make with offering your reparation services.
It gets more complicated. If you make 21,500 euros reparing computers, then you can only bring in 60,000 euros by selling computers. This means you have to carefully balance the two sides of your business carefully so that you do not go over the maximum allowance for either and both combined.
If you make more than the maximum allowance, you will get penalized. I believe they give you leeway the first year it happens – but I am not sure about that.
If you have a retail business that has very high profit margins then being an auto-entrepreneur can be a good choice. But if you have slim profit margins then it may be better to consider an alternative, such as starting a corporation.
For instance, if a person was to create a business making unique baby blankets. The cost of making a blanket is 60 euros and it can sell for 100 euros, bringing in 40 euros per blanket of before-tax profit. This person would only be able to sell 66 blankets per month, earning 31,680 euros per year.
In contrast, if the cost of making a blanket was 20 euros and it could sell for 100 euros, then the person could earn 63,360 euros per year. The person earning 31,680 per year from making blankets would do much better under a different business structure where she is able to deduct the cost of making blankets from the retail price. And if either person must turn away customers because they have reached the maximum allowance, it may be better to switch structures.
Starting a business in France as an auto-entrepreneur is quick through its online registration system. Just make sure to take your time and make sure everything is correct before submitting – it is a long and complex process to make changes later. After submitting your application online, you will have to wait to receive a letter stating if your application was approved or not. It took about 2 weeks for my husband and I to receive ours.
Bon chance with your business venture in France! It can be both an exciting and infuriating ordeal, and definitely an experience you will always remember.
Useful Sources:
Auto Entrepreneur Official Website
Auto Entrepreneur (very helpful information, in my opinion it is more helpful than the official website)
Piperade says
All good advice.. well done.
One aspect I found slightly disconcerting was that after I started receiving payment for work done, and I started posting the amount on the AE website each month, the tax was taken by them directly from my business bank account – instead of me sending them a cheque.
Apart from that cultural change, no probs..
Regards
P
French Mamma says
It is strange that they do not give you a choice. I actually prefer the direct payment because that is one less thing for me to forget to do.
yalda says
bonjour purue vous maide