France This Way...the blog!!

I’m not an expert on French business structures and setup but I have been through the process of starting and running a SARL for the last 16 months and thought a few comments might be useful to someone.

Bear on mind that you will always need legal advice before choosing a business structure in France, these are just a few of the things I wish I had understood better a couple of years ago – some things I have discovered along the way that might be useful in highlighting some of the issues you need to familiarise yourself, even if not resolving them. Of course your own circumstances and level of income are key to deciding the best structure for your own enterprise.

- A SARL is a limited company, much like a Ltd type company in the UK. It needs to be formed legally, a process that cost us about 2000 euros (not the £50 off-the-shelf’ price you might pay in the UK).

- There is almost certainly an ongoing need for an accountant for your business, unlike for an auto-entrepreneur business. We pay about 2000 euros a year for ours. I think quite a few people pay less than us though!

Of course if your business is small it might not justify these two first expenses, regardless of tax and other issues. So you can shelf the idea straightaway.

We live in an authorised zone of reconstruction and development in France so should have been able to avoid company tax for several years. But because we had a micro-entreprise first we lose this exemption – it only applies to newly formed companies, not reconstructions of existing enterprises. So be very wary about starting up using a small business structure if you think realistically you might exceed the thresholds quite quickly. Having had a micro-entreprise for six months first and then converting it will cost us perhaps 50,000 euros in taxes over the next few years that could have been avoided if we had started a SARL straightaway.

(We didn’t take our own suggestion about getting professional advice first, since it seemd a big expense when the business hardly existed. Big mistake.)

It’s even possible that it’s worth moving to a development zone before starting a business if location isn’t important to you. Check where the are at this list of ZRR in France. Check the rules before moving house!

Accountants like paperwork, keep everything!

By having a SARL you can be paid in dividends instead of salary. These are subject to CSG/CRDS at 12% (part of which is a tax-deductible expense), which is much lower than social contributions on salary. But you have to wait until about three months after the end of the year to pay dividends – can you go for 15 months without income?

If you receive all the income as dividends you are not paying into the health and pension funds, so it is still perhaps beneficial to be paid a small amount as salary. A small amount of social contributions will be imposed whichever route you take, 1300 euros a year I think.

Company taxes are payable as soon as you earn anything, albeit at a reduced rate on the first 38k euros. But personal taxes in France have very high thresholds, especially for people with children. Most people in France pay lots of social contributions, but little or no personal tax.

This is important because it means if you can transfer income from your company to yourself it will be taxed at a much lower rate. The two most common methods are:

1) Salary. If you are paid a salary this reduces the company tax but increases your personal tax much less. As mentioned above, there are implications for social contributions.

2) Rent. If you work from home you can charge yourself rent. This rent will need to go on your personal tax return as income received, but will be taxed at a much lower rate than the company would have paid.

Dividends are quite tax efficient. Broadly speaking, if a dividend of 10000 euros is paid, 1200 has to go straight to the CSG / CRDS agencies leaving 8800 euros. But more than half of the 1200 goes back into the tax calculation as an expense – so reducing the tax you need to pay. Much more exciting, on your personal tax for dividends you get an exemption of 40%. So only 6000 euros will be taxable, not 10000 (and apparently not 8800, which you might have guessed, since it is the amount you actually received).

Expenses of running the business are of course deductible from the income when working out profits, so be sure to keep records of everything – stationery, computers, office furniture, mileage from the car etc.

So the optimal solution might be to have a SARL, get paid just enough salary so you can survive, but wait until you can be paid dividends for the remainder. Meanwhile charge yourself rent and mileage which also gets some money out of the company.

Closing comment – we have just finalised the figures for our SARL and overall we have paid about 35% of our net profit in taxes and social contributions. Everyone will have different figures depending on their personal tax situation as much as anything, but overall not too bad I think and slightly less than if we had not created a SARL. It’s pretty hard to get away with paying less in France!

Hope those disorganised ramblings helped, let us know if you have a SARL in France and your experience is different, if there are glaring errors in the above, or you have some cunning tax-deductible expenses we have overlooked!

Edit: I should have mentioned, if your business is likely to have revenues less than about 30,000 euros a year for the foreseeable future then the auto-entrepreneur scheme will often be the best choice, and also a SARL is not a common way of running a gites / holiday rental business – there are usually better options, such as a micro-bnc if the earnings will likely be less than 70,000 euros a year because these get significant tax advantages. There are also other legal arrangements possible for larger property companies, those with larger borrowings etc (I don’t know about these, but I know some of our friends use them – try searching on ‘SCI immobilier’ in google.fr).