SMALL businesses are likely to pay less tax under the new business tax regime that is replacing the taxe professionnelle.
The new regime should see large firms paying a larger proportion of the tax - good news for many small businesses, despite the fact the new system is far from the "abolition of the taxe professionnelle" the government had promised.
In fact it replaces the tax with two new ones, only one of which will be paid by small firms.
Accountant Joanna Reintjes of AFA Expertise Sarl said: "They said ‘we are going to abolish taxe professionnelle,’ but the local authorities - who receive funding from the tax - reacted with horror and said ‘you can’t do this,’ and they’ve introduced something three times more complicated."
The old system:
"Taxe pro" (TP) was levied each year on businesses, from sarls (limited companies) to the self-employed, though there was an exoneration for auto-entrepreneurs for the first three years.
Local communes (mairies) levied the tax where the business was situated and it helped finance the communes, departments and regions as well as chambers of commerce and trade.
Turnover, staff, rental value of business property and the value of business equipment were all used to calculate a base figure for the business which was then multiplied by a percentage set by the commune to determine the final tax.
The replacement:
This system has been abolished, but the TP has been replaced by a new tax, given the overall name of contribution economique territoriale (CET). This in turn is made up of two parts, cotisation locale d’activité (CLA) and cotisation complémentaire (CC).
CLA will be charged on the rental value of business buildings in a similar way to the old tax regime, the main change being that business equipment (vehicles, tools etc) will no longer be considered.
As under the old regime, there are certain exonerations including, as before, new auto-entrepreneurs for the first three years. (Their exoneration is only for the first year, as for other new businesses, unless the auto-entrepreneur has opted for the simplified method of paying income tax payment - le micro-fiscal).
New rules also state that the exoneration will not apply in cases where the auto-entrepreneur or their spouse or civil partner or immediate family have in the three years before the creation of the business carried out a similar activity.
Unless you are exonerated, a minimum payment will be set by your mairie, starting at about €200.
CC is essentially a new tax on profit.
However Ms Reintjes said businesses with a turnover below e500,000 will not pay it. From this threshold it is payable at percentage rates which vary according to turnover, up to a maximum 1.5%.
It will not be payable by professionnels libéraux who employ less than five employees and who pay income tax (not corporation tax).
There are special provisions so that if your business would pay more than €500 extra tax under the new rules there are reductions at decreasing percentages until 2013.
The government has promised that if there is a shortfall in the overall revenue from the tax then it will compensate the local authorities in the first year.
Ms Reintjes said on the face of it small businesses are the winners in the new regime. "Due to the way they have changed what the tax is based on - and introduced the new tax on profit element - it is more likely the bigger businesses will pay a higher proportion of the levy."
She added: "One issue which remains to be seen however is that under the old tax most small businesses with low turnovers and no staff and using home offices were paying set minium amounts, which might be around e250-e450 depending on their commune - and if they used a home office that was usually not taken into account to calculate the tax.
"The government have calculated there will probably be a hole in the communes’ coffers due to the changes so it could be that if the communes want to get more people into the net they might use the change of regime to be more strict about taxing home offices."
So far new businesses, who made declarations for taxe professionnelle in January, have been asked to fill out the old-style forms as the new forms are not available, Ms Reintjes said. As it is not known exactly what information businesspeople will be asked to fill in, this adds to uncertainty about the exact impact of the tax.
Established businesses will have to make declarations for assessment for the tax from May 4, which will have to be done online for businesses with turnovers of half a million or more.
Ms Reintjes said that it is expected large businesses will make instalment payments during the year but smaller ones will just get a bill in December as they did before.
