Sole proprietorships and micro-enterprises: a single legal status
Micro-enterprise is more a regime than a legal status in its own right. Sole proprietorships and EURLs(single-person limited-liability companies) can opt for this regime. The micro-enterprise regime is characterized by :
- entrepreneurial liability limited to business assets;
- exclusion of association with other contractors;
- social status as a self-employed worker (TNS)
The differences between micro-entrepreneurs and sole proprietors are not only in the way profits are taxed, but also in terms of tax and accounting obligations.
Sales ceilings
One of the distinctive features of micro-enterprises is the upper limit on sales:
- 77,700 euros for BIC and BNC services
- 188,700 euros for sales of goods, sales for consumption on the premises and provision of accommodation (excluding furnished tourist accommodation)
In the case of a mixed activity, i.e. a combination of sales and services, the micro-entrepreneur's sales must not exceed 188,700 euros for the years n-1 and n-2. The portion of sales dedicated to the provision of services must not exceed 77,700 euros.
If these sales ceilings are exceeded, the micro-entrepreneur automatically switches to the sole proprietorship system. In the case of a sole proprietorship, the entrepreneur automatically benefits from the special micro-business regime for the first two years of activity. Exceeding the micro-business thresholds for one year does not lead to automatic switchover to the IE regime.
Differences in the social security system
The differences between a micro-business and a sole proprietorship between a micro-business and a sole proprietorship.
The micro-social regime for micro-businesses
For a micro-entrepreneur, the social charges are calculated on the basis of monthly or quarterly sales.
Since July 1, 2024, self-employed micro-entrepreneurs covered by CIPAV (Caisse de retraite et de prévoyance des professions libérales) have been taxed at 23.2%. Two further increases are scheduled to reach the following thresholds:
- 24.6% at January 1, 2025
- 26.1% at January 1, 2026
Other micro-enterprise activities are taxed as follows:
- Purchase and resale of goods (BIC): 12.3
- Commercial and craft services (BIC): 21.2
- Other services: 23.1% (BC)
- Rental of classified furnished tourist accommodation: 6%.
If they have no income, micro-entrepreneurs pay no minimum social security contributions.
Social charges for sole proprietorships
The sole trader pays social security contributions at a rate based on the amount of profit earned. They represent around 44% of taxable income. Social security contributions are deductible from the taxable income used to calculate income tax. Minimum contributions apply even if there is no income.
Differences in tax treatment
The micro-tax regime for micro-businesses
Micro-entrepreneurs benefit from a simplified micro-tax regime. They are exempt from VAT on the basis of certain franchise thresholds:
- Self-employed professionals, craftsmen, service providers: 36,800 euros, with a tolerance threshold of 39,100 euros.
- Purchase and resale of goods, accommodation activities: 91,900 euros with a tolerance threshold of 101,000 euros.
Micro-entrepreneurs, formerly auto-entrepreneurs, can opt to pay income tax at source. They are exempt from the Cotisation sur la valeur ajoutée des entreprises(CVAE) and from the Cotisation foncière des entreprises (CFE) when their sales are less than 5,000 euros excluding VAT over the calendar year.
The tax system for sole proprietorships
Sole traders are eligible for VAT unless they meet the same thresholds as micro-entrepreneurs. They are taxed on actual income, but in most cases benefit from exemption from the Cotisation sur la valeur ajoutée des entreprises (CVAE). They are liable for the Contribution foncière des entreprises (CFE).
Differences in administrative obligations
Micro-entrepreneurs benefit from a genuine reduction in administrative obligations. Micro-entrepreneurs do not need to open a business account if their annual sales are less than 10,000 euros excluding VAT. Above this threshold, they must keep separate accounts, and therefore open a bank account dedicated to their professional activity. However, you are not obliged to use a professional banking solution, which is often much more expensive. A solution for private individuals is legal.
Sole proprietorships are required to keep a book of receipts and, in some cases, a register of purchases. Micro-businesses are exempt from these formalities. Micro-businesses declare their sales on a monthly or quarterly basis. The sole trader makes this declaration each year, through his income tax return.
Sole proprietorships and micro-businesses are exempt from drawing up annual financial statements and filing them with the commercial court clerk's office.
If you're not sure whether to opt for a sole proprietorship or a micro-business, the SeDomicilier team can help you with advice and guidance. These two legal forms allow you to do business with fewer constraints than a company. Choosing a micro-enterprise or sole proprietorship can be a good way of testing out a business idea.
Written by our expert Editorial staff
August 20, 2024
