Understanding company taxation in 3 questions

Business taxation can sometimes be a source of stress for entrepreneurs. It has to be said that it is governed by a complex set of laws, texts and measures, particularly in France.

What tax regime does your company come under? What taxes do you have to pay?

To make sure you don't forget anything, and to avoid problems with the tax authorities, this article describes the main principles of company taxation.

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The main principles of company taxation: definition

Company taxation is a set of taxes to be paid, determined by tax laws and measures.

Each company is subject to a specific tax regime as of right, although it may be possible to opt for another regime that is more appropriate, depending on :

• legal form
• the nature of the business
• projected turnover.

💡 The tax regimes for profits and VAT are determined when the business is set up.

What taxes does the company have to pay?

Tax on profits

This is a direct tax. It is proportional to the profits generated by the business, and can take two forms:

• income tax (IR),
• corporation tax (IS).

Income tax (IR)

The special feature of income tax is that profits are not taxed in the name of the company, but in the name of the entrepreneur or the partners.

Which companies are subject to income tax?

• EI (sole proprietorship),
• EIRL (limited liability sole proprietorship),
• EURL (limited liability sole proprietorship) with a single individual partner,
• micro-enterprises,
• SNC (non-trading company),
• non-trading companies (SCI, SCP, SCCV).

💡 Micro-businesses may opt, subject to certain conditions, to pay their income tax at the same time as their social security contributions throughout the year: this is known as payment in full discharge of income tax.

👉 Good to know: some of these companies may voluntarily opt to pay corporation tax (IS).

Corporation tax (IS)

In this case, the company pays tax in its own name, rather than that of the head of the business or the partners.

Which companies are subject to corporation tax?

• EURL (limited liability company) with one legal partner,
• SAS (simplified joint stock company),
• SARLs (limited liability companies),
• SA (public limited company)
• SCA (société en commandite par actions),
• SASU (société par actions simplifiée unipersonnelle).

Income tax or corporation tax? Summary table

The territorial economic contribution (CET)

Formerly known as taxe professionnelle (business tax), the CET is a tax paid to local authorities.

It is made up of two contributions:

• the CFE (cotisation foncière des entreprises), which is payable by every company or individual (excluding the first year of business) carrying on :
  • a self-employed professional activity
  • on a regular basis
  • generating annual turnover in excess of €5,000.

👉 Good to know: the amount varies locally, and certain activities are exempt.

• and the CVAE (cotisation sur la valeur ajoutée des entreprises), which is payable by companies that :
  • generate annual sales excluding VAT of more than €500,000,
  • and carry on a business that is subject to CFE.

VAT (value added tax)

Value added tax is payable by everyone carrying out economic transactions, although some businesses may be exempt.

Basic VAT exemption

Under the basic VAT exemption scheme, businesses are exempt from VAT, regardless of their status (with certain exceptions), as soon as their turnover is less than or equal to :

• 85,800 for commercial activities and sales of goods,
• 34,400 for service provision activities.

👉 Good to know: newly-established businesses benefit from the exemption in their first year of trading, if turnover does not exceed €91,000 or €35,200.

The simplified actual scheme

The simplified actual scheme involves fewer administrative formalities than the normal actual scheme, with the filing of an annual return. It applies to businesses with a turnover of between :

• 85,800 and €818,000 for commercial activities and sales of goods,
• 34,400 and €247,000 for service provision activities.

👉 Good to know: if the VAT paid in the previous year exceeded €15,000it automatically switches to the standard system, regardless of the turnover generated in the current year.

The standard VAT system

Under the standard VAT system, VAT returns are filed monthly and the balance (VAT collected - VAT deductible) is paid. It applies to businesses :

• whose turnover exceeds €818,000 (for commercial activities and sales of goods),
• whose turnover exceeds €247,000 (for service provision activities),
• excluded from the simplified scheme,
• automatically subject to the other schemes and who opt for the simplified scheme.

👉 Good to know: VAT returns can be made quarterly if the annual amount due is less than €4,000.

Other taxes for businesses

• Property tax, payable by the company or self-employed person who owns the property or land on which it carries on its business. This can take several forms:
  • TFPB (property tax on built-up properties),
  • TFPNB (property tax on non-built properties),
  • TaSCom (tax on commercial premises).
    
• Company vehicle tax (TVS), if the company uses or owns a vehicle for passenger transport in France.
  
• Apprenticeship tax, payable by all companies with one or more employees (with some exceptions).
  
• Payroll tax (taxe sur les salaires), payable by any company not liable to VAT in the year in which the remuneration is paid, or on less than 10% of its turnover.
  
• Contribution à l'audiovisuel public, if the establishment owns television sets.

What are the different tax regimes?

Now that you know what type of corporation tax you have to pay, you also have to make a choice about the tax regime.

If you are automatically subject to a tax regime, because of the nature of your company and the turnover generated, there are nevertheless a few options open to you.

Micro-enterprise scheme

This is an ultra-simplified system that allows small businesses to reduce their accounting and tax obligations.

Under this scheme, you have to declare your income annually, which is then taxed after a flat-rate allowance of :

• 71% for sales and trading businesses (micro-BIC scheme),
• 50% for services,
• 34% for self-employed activities (micro-BNC scheme).

The existence of the flat-rate allowance is due to the fact that you are taxed on your turnover, and cannot deduct any professional expenses.

→ Which businesses can opt for this system?

• micro-entrepreneurs are automatically subject to this scheme,
• EI and EIRL by option,
• and EURLs by option.

To take advantage of this tax regime, you must not exceed an annual turnover excluding VAT of :

• 176,200 € for sales and trading activities,
• 72,600 for services covered by BIC (industrial and commercial profits) or BNC (non-commercial profits).

👉 Good to know: if a business generates a turnover higher than these thresholds for two consecutive years, it will have to switch to a simplified or normal actual tax regime, depending on its situation.

Simplified actual tax regime (RSI)

Companies subject to this system pay tax based on their actual profits, i.e. actual expenses are deducted from sales.

Compared with the actual scheme, it offers lighter administrative formalities and accounting obligations, such as simple cash accounting.

→ Which companies can opt for this system?

• EI, EIRL, EURL, partnerships and limited companies are automatically subject to this scheme,
• micro-entrepreneurs may opt in.

Companies are automatically subject to this scheme if their turnover (excluding VAT) is between :

• 176,200 and €818,000 for sales and trading activities,
• 72,500 and €247,000 for service provision activities.

👉 Good to know : companies subject to the micro-enterprise scheme can opt to be covered by the RSI. This request, which must be expressly made before 1 February of the year concerned, is valid and definitive for two years.

Standard actual scheme

Like the simplified actual system, tax is calculated on the basis of actual profits. However, this system imposes a number of specific accounting obligations, such as the production of all accounting documents.

→ Which companies can opt for this system?

• sole proprietorships (EI), limited liability companies (EIRL), limited liability companies (EURL), partnerships and limited companies are automatically subject to this system if their sales (excluding VAT) exceed :
  • 818,000 € for sales and trading activities,
  • 247,000 € for service provision activities.
• EI, EIRL, EURL, partnerships and limited companies not exceeding these thresholds by option,
• micro-entrepreneurs, by option.

Zoom: which tax system should apply to my business?

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Covid-19: what measures should be taken to improve business taxation?

Small businesses are bearing the full brunt of the Covid-19 crisis, and are finding it difficult to meet their tax obligations.

In addition to the solidarity fund, the government has introduced a number of support measures to help businesses get back on their feet:

• VAT exemption for medical equipment imports,
• tax deferrals for direct taxes (excluding VAT and withholding tax) for businesses in difficulty or affected by an interruption or restriction of their activity linked to a closure measure in curfew zones,
• a specific payment plan for business taxes,
• deferred payment of IS and CVAE advance payments,
• deferment of BIC and BNC advance payments to the next due date for self-employed people,
• accelerated payment of the tax credit without waiting for the income tax return.