One of the big successes in France this year is the new ‘auto-entrepreneur’ system for starting a small business, with an estimated 120,000 businesses already registered under the scheme. This post is to outline the advantages and possibilities – we don’t actually have an auto-entrepreneur business ourselves so please take this as a casual guide as to how you should proceed, not a definitive legal statement!
Previously a small business in France had to pay estimated social contributions for the first couple of years, frequently far in excess of actual earnings of the business. This was, to say the least, a significant deterrent to starting a business.
Even worse, a ‘payment adjustment’ in the third year of the business meant that a very high percentage of buisnesses found they couldn’t continue beyond this point, and were forced into closure when they received bills for outstanding contributions, often for many thousands of euros.
So the auto-entrepreneur scheme has been widely welcomed. In principle, the amount of tax and social contributions for a small business registered under this scheme is clearly stated in advance, easily calculated each month, and payable only when the business has actually generated earnings. Radical? OK for many countries it sounds like obvious common-sense, and new businesses have always operated in this way, but in France it is a new thing and a big step forward.
Creation of an auto-entrepreneur business is also pretty straightforward, and you can even complete the limited formalities on-line (or at your chamber of commerce if you prefer). The enforced training courses no longer apply, and the extensive paperwork involved has been much reduced.
This type of business is often ideal for expats in France (as well a French locals) because it allows you to start a small business and operate legally without actually being certain the business will succeed. Making curtains from home? Mowing the grass in a few second-homes nearby? Doing painting and decorating jobs for people? Producing websites for a few people? These and many others are just the kind of business that will benefit from the auto-entrepreneur.You can also carry on in paid employment and still start a business under this scheme.
Facts and figures? Broadly speaking you qualify if you have income up to 32,000 euros (or 80,000 euros if you are buying things for resale). You will then pay social contributions at a level of 23% of your income (or 13% of your income if you are buying things for resale…).
Note the calculation is based on income not profit. So if every 100 euros of income costs you 50 euros to generate (costs of buying the lawnmower, curtain material, paintbrushes, petrol etc) you will be paying about 46% of your profit in charges. So you are not getting off cheap – 46% of net profit on a small business is hardly over-generous (some might even say the charges are onerous), but you are being able to try a small business where previously you wouldn’t have been able to.
The lower your real costs are in generating the income, the more appealing the auto-entrepreneur business will be for you.
Remember there are limits on the size (income) of an auto-entrepreneur business. If you exceed these limits you will get thrown into the world of real enterprises – VAT, accountants, regulations etc…for some people it may well be preferable to keep a business within the limits rather than go over them, even if it means turning away some business. Speak to an accountant before exceeding the limits so you are aware of all the implications.
One other note of caution – the tax benefits for setting up a business in a redevelopment zone (many parts of rural France) apply to new businesses only. So if you start a small enterprise, then later outgrow the income limits and convert to a ‘real’ business, you will not be starting a new business and will not get the tax benefits – which can amount to a very large amount of money lost, over many years, if your business is a success. If this could be you you should see an accountant before starting your auto-entrepreneur business!
So how to start your micro-business in France?