Non-commercial profits – Sole Proprietorship
If you run a self-employed business, you will be taxed as a non- commercial profit (BNC). This is the tax regime of right for individual firms. Collection accounts must be held for each calendar year. The professional activity is otherwise subject to VAT, if applicable. The operator has unlimited liability for the business and personal property. The operator must register with the URSSAF, or with the ETC depending on the activity.
There is a simplified micro-BNC, exempt from VAT and accounting, where revenues received are less than or equal to 70K€ before tax. The profits are put directly on the supplementary statement of income 2042 C. The benefit is calculated automatically by applying a 34% representative allowance to the reported amounts. With this system there is no VAT return (“franchise en base” VAT) if the turnover is lower than 35 200€.
There is also a super-simplified regime, also exempt from VAT, called Auto-entrepreneur, in which the same thresholds apply only to the micro-BNC. Through quarterly reports on the Internet, social charges and income taxes can be automatically deducted during the collection of revenue.
Industrial and commercial profits – Sole Proprietorship
Sole traders must be listed on the Registre du Commerce of the nearest Court of Commerce. They must obtain a work permit if they are not EU citizens, and are responsible for the business as well as personally liable for their business debts.
This model applies to the activities of purchase and resale apartments. A 2010 law established a sole proprietorship with limited liability (EIRL). The activity is subject to VAT.
As for BNCs, there is a simplified micro-BIC, exempt from VAT and accounting, when the revenue collected is less than or equal to 170K€. The profits are put directly on the supplementary statement of income 2042 C. The benefit is calculated automatically by applying the reported amounts of allowance representing 71% or 51% depending on activity. With this system there is no VAT return (“franchise en base” VAT).
There is also a super-simplified regime, also exempt from VAT, called Auto-entrepreneur, where the same thresholds apply only to the micro-BIC. Through quarterly reports on the Internet, payroll and income taxes can be automatically deducted during the collection of revenue.
An agency or connecting office
A connecting office is not a legal entity and does not have administrative and financial independence. Its purpose is to look into business opportunities for a foreign company considering investing in France. Because there is no commercial activity it is exempt from income tax and VAT. If the office employs staff, it must register with the social security organizations.
A branch is a permanent secondary establishment of a foreign business. Under French law, a branch has no legal identity and neither its assets nor liabilities are separate from those of the company. A branch is required to:
– file a report with the Ministry of Finance when the initial investment is made;
– register with the Registre du Commerce and include a French translation of its by-laws (memoranda and articles);
– appoint a person responsible for the branch. This person must have a work permit if he or she is not an EU citizen;
– file a set of the firm’s balance sheets with the Tribunal de Commerce nearest to the branch’s official place of business;
– pay tax on the profits of branches located in France, when their country of origin has signed an inter-country convention with France.
Private Limited Company (SARL)
A Private Limited Company has between 2 and 100 members whose liability is limited to the amount they have each contributed. The amount of capital of a Private Limited Company is freely specified by the articles of incorporation. Individual members are not deemed to be in business. The SGM approves the annual accounts and makes major decisions, as well as giving its assent to agreements made between the company and its managers or members where no independent auditor has been appointed.
One or more managers are given authority to run the company. They can be appointed by the articles or the SGM. They are not necessarily members of the company. Since they wield considerable power, they can be held liable for any misdemeanors. They are also responsible for drawing up the balance sheet and operating report and convening the SGM. A non-French manager must obtain a trading permit if he is not an EU citizen. Note: a non-French manager, who is not an EU citizen living in France, must obtain a residence permit which will allow him to exercise any profession. If he does not live in France, he must obtain an administrative authorization. There is a special kind of SARL, called EURL, with a sole partner (natural person or legal entity).
Simplified PLC (SAS)
A SAS can be created by one or several members whose liability is limited to the amount they have contributed. A SAS is a flexible organization that is suitable for small and medium- sized businesses. Membership is permitted to any natural person or legal entity, even in the case of a sole member. The capital amount of a SAS is freely determined by the articles. The statutes of the SAS set the rules of internal organization (management, collective decisions and information to the members) without any legal requirements. When there are at least two members, the statutes can set some clauses concerning the trading of shares, the acceptance of a new member and the exclusion of a member. The SAS is a privately-owned company and cannot be listed on the stock market.
Public Limited Company (SA)
A Public Limited Company requires a minimum of seven members who contribute a minimum global capital of €37,000 if funds are not raised from the general public, or €225,000 if funds are raised from the general public. Two types of management structures are possible:
– chairman (PDG) with a board of directors (3-18 directors who must be shareholders);
– supervisory board (same as board of directors) and an executive board (1-5 members who need not be shareholders).
Non-French nationals can be directors of a French SA without holding a trading permit. The board of directors convenes the shareholders’ ordinary general meeting (SGM), fixes the agenda, draws up the annual balance sheet and report, appoints and dismisses the CEO, and authorizes the signing of agreements between the company and any of its directors. Normally, the transfer of shares is straightforward and unrestricted. The disposal of shares is always subject to a transfer tax of 3%, limited to €5,000.
Economic Interest Group (GIE)
Profit making is rarely the objective here. In many cases, it is a consortium structure designed to pool the efforts of several firms in a specific field (technical research, for example). Members are all jointly and severally liable.
Real Estate Management Corporation (SCI)
The purpose of a Real Estate Management Corporation is to own, rent and manage real estate properties for the benefit of another business. It allows for the segregation of the real estate assets of a business from its main economical activities. The real estate management corporation can elect to be taxed at the corporate level or to be a pass-through entity.