Work in France: Choosing the Right Business Status to Save Time and Money

You’ve moved to Paris. Found the apartment you now call home, and settled in. After much reflection and research, you decide you’re going to work in France—but what does that entail? What’s this about obligatory social charges? Why can’t you deduct expenses just starting out as an auto-entrepreneur (a.k.a “micro-entrepreneur”)? Why does your future pension not reflect the years of work and social charges you’ve paid?

It’s not surprising that many international entrepreneurs in France find out too late that they have not done their homework and are paying dearly for it. Whether you’re from the UK, US, Europe or another country, you’ll quickly understand why France is known as the country that invented bureaucracy and charges workers heavily in exchange for generous social benefits such as free healthcare and education.

To help entrepreneurs, freelancers or blooming business owners in France, INSPIRELLE turned to Faten Amamou, a chartered accountant and founder of Paris-based ESCEC International. With over 20 years of experience in business establishment, registration, accounting, taxation, and social matters, she offers astute advice in English, French or Arabic on how to choose the right work regime and when to change status to accommodate your growth.

What’s your Paris story Faten? How did you become a chartered accountant to the expat community?

Born in Tunisia, a Mediterranean country that bridges Eastern and Western cultures, I was raised in a family of businesspeople, merchants, and accountants. From an early age, I was immersed in the world of international business. In 2004, I moved to Paris to study business administration and accountancy, earning three MBAs in these fields.

After obtaining the French chartered accountancy diploma and registering with the Paris Île-de-France Order of Chartered Accountants in 2011, I began my career as a chartered accountant and financial expert, working within my family’s firm in Paris.

During this time, I noticed that many foreign entrepreneurs were drawn to the French and Parisian markets but struggled with legal and tax advice due to language and cultural barriers. Recognizing the potential for more significant opportunities in global business, I sought to expand my professional network internationally. This was an exciting journey that taught me how to harmonize different cultures through ethical business practices.

In early 2017, I established my own international accountancy firm, ESCEC International, with a vision to connect the EU market to all regions of the world.

At what point does a person working in France need an accountant?

In France, one may need an accountant when their financial situation becomes complex or when they start their own business. Specifically, an accountant is essential for:

1. Starting a Business: Whether you are an auto-entrepreneur, creating an EURL, SAS, or any other company structure, an accountant can help set up the correct accounting system, manage taxes, and ensure compliance with regulations.

2. Tax Obligations: When your tax situation becomes more complex, such as having multiple sources of income, investments, or deductions, an accountant can help optimize your tax obligations.

3. Annual Accounts: For businesses, annual accounts need to be prepared and filed correctly. An accountant ensures these are accurate and meet legal standards.

4. Business Growth: As your business grows, so does the complexity of your finances. An accountant can assist with budgeting, financial planning, and managing payroll.

5. Financial Planning: For long-term financial planning, especially concerning investments, retirement, and estate planning, an accountant can offer valuable advice.

Join financial experts Faten Amamou and Yulin Lee on Wednesday, October 9th for an evening discussion on financial health for women. See HERE for details & registration.

Many of us start simply as an auto-entrepreneur (a.k.a micro-entrepreneur), a status that is manageable and has reasonable social charges. When do you advise a person to switch regimes?

There are several factors to consider. Here are some key situations when it may be advisable to change from the auto-entrepreneur status:

1. Reaching Turnover Thresholds

One of the primary reasons to switch status is when you consistently exceed or approach the annual turnover limits for auto-entrepreneurs:
– For commercial activities and accommodation services, the threshold is €188,700, excluding tax.
– For service provision activities and liberal professions, the threshold is €77,700.

If you exceed these thresholds for two consecutive years, you will be required to switch to the régime réel system in the third year.

2. VAT Considerations

While auto-entrepreneurs benefit from VAT exemption, this advantage has limits:
– VAT exemption applies only up to €39,100 for services and €101,000 for sales.
– Exceeding these thresholds requires you to start invoicing and paying VAT, which may necessitate a change in status to better manage your tax obligations.

3. Business Growth and Complexity

As your business grows, you may find that the auto-entrepreneur status is too limiting:
– If you need to hire employees or expand your operations, other business structures like EURL or SASU might be more suitable as they offer better liability protection and may be more appropriate for larger-scale operations.

4. Financial Considerations

The simplified tax and social charge system of auto-entrepreneurs may become less advantageous as your business grows:
– If you have significant business expenses, the flat-rate deductions under the auto-entrepreneur system may not adequately reflect your actual costs. In such cases, switching to a status that allows for actual expense deductions could be more financially beneficial.

5. Social Protection Needs

As your income increases, you may want better social protection, better healthcare coverage and retirement benefits, and might consider switching to a status like portage salarial or incorporating as a company.

6. Long-term Business Plans

The auto-entrepreneur status is often seen as a starting point for new businesses. But for long-term sustainability and growth, other business structures may offer more flexibility and benefits. Consulting with an expert-comptable (chartered accountant) can help you make the best decision for your specific situation.

What is BNC liberal and is it an option for freelancers? Pros and cons, please?

Yes, the BNC (Bénéfices Non Commerciaux) régime réel is an option for freelancers in France, particularly for those engaged in liberal professions. Here are the pros and cons of this regime:

Pros

• Accurate Representation of Income: The régime réel allows for a more precise calculation of your taxable income, as it’s based on your actual revenues and expenses rather than a flat-rate deduction.
• No Revenue Limit: Unlike the micro-enterprise regime, there’s no upper limit on revenue. This makes it suitable for freelancers earning more with potential growth.
• Deductible Expenses: You can deduct all your professional expenses (including equipment, supplies, travel, and professional development), which can significantly reduce your taxable income.
• Flexibility in Accounting: It requires more detailed bookkeeping but also provides a clearer picture of your business finances, which can benefit decision-making and growth planning.

Cons

• Administrative Complexity: Requires more detailed accounting and record-keeping compared to the micro-enterprise regime. You’ll need to maintain a complete set of accounts and potentially hire an accountant.
• Higher Initial Costs: The need for more comprehensive accounting may lead to higher costs, especially if you need professional help.
• Mandatory for High Earners: If your annual revenue exceeds €77,700, you’re required to switch to this regime, which might be a disadvantage if you prefer simpler accounting.
• Social Charges: Under this regime, your social charges are based on your actual profit, which could be higher than under the micro-enterprise regime, depending on your expenses. Usually, it is around 45% of the net income.
• Tax Complexity: More detailed tax return filing, including the 2035 form for BNC professionals, which can be more time-consuming and complex.
• Conclusion: The BNC régime réel can be advantageous for freelancers with significant expenses or those earning above the micro-enterprise threshold. However, it comes with increased administrative responsibilities and expensive social charges.

Your choice should depend on your specific financial situation and projected income.

Now it becomes complicated. Can you simply explain the difference between an EURL, SAS and SASU structures? Are we missing any other options?

Here’s a simple explanation of the key differences between EURL, SAS, and SASU, along with some other options to consider:

EURL (Entreprise Unipersonnelle à Responsabilité Limitée)

• Single-member limited liability company
• Automatically subject to income tax, with an option for corporate tax
• Manager is considered self-employed for social security purposes
• Less flexibility than SAS/SASU

SAS (Société par Actions Simplifiée)

• Simplified joint-stock company with multiple shareholders
• Automatically subject to corporate tax
• More flexible structure and governance
• President is considered an employee for social security purposes

SASU (Société par Actions Simplifiée Unipersonnelle)

• Single-shareholder version of SAS
• Same benefits as SAS, but for a single owner
• Flexibility in salary and dividend payments
• President has employee status for Social Security

Other Options:

• Auto-entrepreneur (Micro-entrepreneur)
• SARL (Société à Responsabilité Limitée)
• SA (Société Anonyme)
• SNC (Société en Nom Collectif)

Each structure has its own advantages and complexities, so it’s advisable to consult with an expert-comptable/chartered accountant to determine the best fit for your specific situation.

Why is choosing the right company status important?

Choosing the right company status in France is important for several key reasons:

Legal and Financial Implications: The company structure you select has significant impacts on liability protection. Different structures offer varying levels of separation between personal and business assets. For example, a sole proprietorship (entreprise individuelle) provides no separation, while a corporation (SAS/SASU) offers limited liability protection.

• Taxation: The company form determines how profits are taxed. Some structures face corporate tax, while others allow for income tax on the individual level.
• Capital raising: Your ability to bring in investors and raise funds can be impacted by the chosen structure. SAS/SASU structures offer more flexibility for raising capital compared to sole proprietorships, EURL and SARL.

Operational Considerations: The structure influences day-to-day operations and future growth

• Management flexibility: Some statuses like SAS and SASU offer more flexibility in terms of management and the ability to attract investors. They are better suited for businesses expecting rapid growth or seeking external funding.
• Compliance obligations: Different structures have varying levels of regulatory compliance and recordkeeping requirements. Sole proprietorships are simpler, while corporations face more rigorous obligations.
• Growth potential: Certain structures are better suited for scaling up and expanding the business over time, for example SAS / SASU are better than SARL/ EURL

Strategic Alignment

• Long-term goals: the right status should align with your long-term business goals, such as your exit strategy, adherence to industry norms/standards, and international expansion.

Making the right choice from the start can save significant time, money and headaches down the road as your business evolves.

How is retirement pension linked to making the right choices in declaring your work status?

In France, the retirement pension system is closely linked to your work status and the social contributions you pay. Here’s how:

Social Contributions: The amount you contribute to the pension system depends on your work status. Auto-entrepreneurs contribute based on a percentage of their turnover, while those under other statuses like EURL or SAS/SASU contribute based on their net income or salary.

Pension Rights: Your pension rights are accumulated based on your contributions.

Choosing a status with lower social charges might reduce your pension entitlements later. For example, auto-entrepreneurs may accumulate fewer pension points compared to those paying higher contributions under a different status.

Income Stability: Certain statuses offer more stability in terms of income, which can positively impact your pension. For instance, paying yourself a regular salary in SASU might help you accumulate a more predictable pension than fluctuating auto-entrepreneur income.

Making the right choice in your work status ensures that you not only optimize your current tax and social charges but also secure a more favorable retirement pension in the long run.