A new law adopted by the Senate has ended months of uncertainty over reforms to France’s simplified business set-up the auto-entrepreneur.
While some see the Pinel Law as a missed opportunity to clamp down on employment abuses, it has been greeted by auto-entrepreneurs as a modest victory after months of uncertainty.
Almost a million people have signed up to the scheme since its introduction under the Sarkozy government. For many expats it offers a straightforward way to test a business with a minimum of red tape and up-front costs.
The biggest advantage is that, unlike conventional business set-ups, social contributions are calculated according to turnover, with no minimum charge.
Over half of all new start-ups are launched via the scheme, which involves maximum turnover levels before you have to change to one of the other conventional business models.
However, it has had its critics, not least established artisans who saw themselves as facing unfair competition from auto-entrepreneurs.
Detractors also claim it has failed in its primary aim, to help small businesses to grow, with only around 5% of auto-entrepreneur startups developing to the extent that they need to change to a different status.
Another issue is the rise in “concealed employment” with some companies allegedly putting pressure on individuals to work as auto-entrepreneurs in order to avoid paying their social contributions.
In response, sweeping government reforms were outlined last year in a draft bill put forward by Sylvia Pinel, the then junior minister for trades. They included a proposal to limit the number of years auto-entrepreneurs could stay in the system and to cut the turnover threshold to just over half its current level.
Both proposals were eventually rejected, and the new law, adopted by the Senate on June 5 is a tamer version of the bill.
Here we outline the main points:
Are the changes definitive?
Yes. The Loi Pinel is expected to come into effect on January 1, 2015.
How are existing firms affected?
Many elements, such as the limits on annual turnover (€32,900 for trades and services, €82,200 for sales of goods) stay the same. As before, you can remain in the scheme as long as you do not hit these limits over a two year period – in which case you must switch to a “classic” regime.
With regard to the tax Cotisation Foncière des Entreprises (CFE), which replaced the old taxe professionnelle, the Pinel Law confirms the 2014 Finance Law’s abolition of the three-year exoneration auto-entrepreneurs previously enjoyed (apart from for the set-up year).
Auto-entrepreneurs’ body the Fédération des Auto-Entrepreneurs says the latest rules mean the tax applies to all auto-entrepreneurs, which Evo’Portail, a partner site advising those in the sector, says means everyone can expect to pay it this year unless they set up in 2014. CFE is payable by mid-December.
Evo’Portail states auto-entrepreneurs can expect to pay a fixed rate set by their communes, from €210-500 for businesses with turnover of €10,000 or less; €210-1,000 for turnover up to €32,600 and €210-2,100 for higher turnovers.
The site adds it is still hoped that final concessions will be made on arrangements for this tax (which is already paid by other businesses). The Federation insists that CFE for auto-entrepreneurs should be at a percentage of turnover or else risks being punitively high for those earning small amounts. A working group on the issue meets this month.
Less controversially - a tax for frais de chambres consulaires (towards running costs of the chambers of trade or of commerce) will mean a slight rise in charges paid from January 2015, of 0.044% of turnover for services, 0.015% for selling and 0.007% for artisans..
All artisan auto-entrepreneurs will also be required to register at their chamber on the Répertoire des Métiers (RM) and those involved in selling will have to register with the equivalent Registre du Commerce et des Sociétés (RCS). The requirement previously only applied to artisans, and only if the artisan work was their main activity.
Auto-entrepreneurs will be have to provide proof of professional insurance, in sectors where it is obligatory, notably the assurance décennale for building sector artisans. This must also be mentioned on devis (quotes) and factures (bills), as must artisans’ qualifications.
The law provides for an optional support scheme to help business owners once firms reach 50% of the turnover ceiling. Details of this are due later this year. It also provides for optional end-of-year social charge top-ups for those who have not worked enough to build up a full four quarters of pension rights.
I plan to become an auto-entrepreneur. What changes for me?
If you are an artisan, you will have to attend a four or five-day training course when you enroll, intended to help get your business off to the right start. As for other artisans, it will be compulsory and you will have to pay for it.
What about people registered under other small business set-ups?
The Loi Pinel does away with the differences between the auto-entrepreneur setup and the “traditional” micro-entreprise set-up of which it was designed to be a simplified version.
Both will now be called micro-entreprises and will share the same “pay as you go monthly or three-monthly social charges as well as the same taxation options - which include a choice of a similar tax regime or alternatively an annual tax declaration with a fixed expenses deduction.
It is planned that there will still be an alternative réel system for those who want to deduct actual business expenses, not a set amount.
Simplifications are meant to be worked out for those wanting to take advantage of the EIRL scheme, which allows sole traderships including auto-entrepreneurs a form of limited liability.
Is the AE status open to all work?
No. Some types of activities are not allowed, for example, lawyers, finance companies, hire companies and estate agents. People with revenue from royalties (artists, writers, software designers etc.) are also excluded.
What are the main pros and cons?
The auto-entrepreneur is relatively easy to set-up and run and it is compatible with a salaried job.
An important downside is that you will pay tax and charges on any expenses you invoice. If your activity is likely to incur significant costs, you should look into classic business set-ups.
Business experts agree: choosing the right set-up is crucial
The Franco-British Chamber of Commerce held a conference in Paris recently on the auto-entrepreneur scheme, the first of a series of events aimed at small businesses and start-ups. (Similar events are being held in the Corrèze).
Connexion was on hand to meet entrepreneurs and speak to experts
Ian McDonald - Talent-Consult "For me, it was the obvious solution"
Ian McDonald runs Talent-Consult, which provides C-level management consultancy and training for international companies.
He set up the company after a 25-year career with Barclays, latterly as head of International Clients in Paris.
“Actually, I fell into the auto-entrepreneur,” he said. “Soon after leaving Barclays, I started getting approached for consultancy work and I realised I would have to have some sort of structure. It quickly became clear that the auto-entrepreneur scheme was the obvious solution. It is the perfect structure, up to the level of €32-€33,000.
“Right from the outset, I was struck by how incredibly well thought-out it all was, so you’re spending very little time on administering the business. You register online, you only have to do it once. You don’t have to notify Urssaf or apply for a SIRET number; that all just happens in the background. The system is flexible so you can invoice quarterly without losing unemployment advantages.
And when the time comes to de-register, you go online, you receive a P4 to fill in, and that’s it. The only real limitation is that you can’t charge for expenses – in my case, that meant I couldn’t deduct for my laptop.”
The business has gone from strength to strength since he started out. Last year, after his turnover reached the upper annual threshold for auto-entrepreneurs, he made the transition to a SARL (Société à Responsabilité Limitée).
Yulin Lee - Project M: Mind & Money I see it as a stepping stone
Before moving to Paris three years ago, Yulin worked as a mortgage banker and financial adviser in California. It was there that she became interested in the difference between men and women when it came to managing money.
While men often learn to take responsibility for their finances early on, many women find themselves illequipped to take decisions on money matters that affect their lives, she says.
“It was the psychology that fascinated me. These are skills and habits that everyone should have... you just never know what life is going to throw at you.”
That was what made her decide to set up her own financial coaching business, helping women identify and move towards their short and long term money goals, through one-to-one coaching and workshops. Her French is not fluent, so her target market is mainly an expatriate one, people like herself. “I’m confident there's a real demand,” she said.
She has been pleasantly surprised by the simplicity of the scheme and thinks it is a good fit for a fledgling business like hers, with a very clear target market and goals.
“I’m just starting out, so my turnover probably won’t be hitting the threshold for a while - but I’m hoping it’s going to be a stepping stone.”
Accountant David Spira - Partner, Spira Twist & Associés, Paris
“You don’t need a formalised business plan to get started,” said David Spira, “but you do need to ask yourself some basic questions: “Do I have clients? Is my business going to grow? What are my costs? Am I going to be working from home or will I need to rent?”
There are some potential pitfalls, he warned. One concerns seasonal businesses, or companies that get off to a “windfall” start: “If you have a lot of activity in the first few months and you log around €18,000, Urssaf may decide to kick you off the system automatically.” To avoid that, he suggests arranging with clients to stagger your invoices.
A bigger problem occurs if you exceed the thresholds two years in a row without moving on to a classic regime. You could end up having to file backdated BNC tax returns - and any VAT you owe will end up coming out of your own pocket.
Lawyer Marie-Louise Noël - Ince & Co Avocats & Solicitors, Paris
The new legislation spells tighter controls on insurance, qualifications and licences for artisans.
That makes it even more important to check with the chambre des métiers that you meet the regulations that surround your activity, said Ms Noël.
She also stressed the fact that, as an auto-entrepreneur, you have unlimited liability, which could lead to your home being seized if you became insolvent.
There are two ways of protect yourself from this.
“The first is to make what is called a déclaration d’insaisissabilité, which is done through a notaire. It’s not retroactive, so debts incurred before that declaration still apply. The alternative is to create an EIRL (Entrepreneur Individuelle à Responsabilité Limitée), which separates your personal and professional assets.
There’s a simple online procedure for this, though if your assets are over €30,000, they’ll have to be valued by an accountant.”