Taxation of SARL profits

The Société à Responsabilité Limitée (SARL) is one of the simplest legal forms in France. Made up of a minimum of two partners and a manager, its accounts are validated each year at a general meeting. It has a minimum capital of €1, and the entrepreneur's liability is limited to his or her contributions to the company. Setting up and running an SARL has become particularly attractive for entrepreneurs, given the simplicity of the procedures involved.

But what about the taxation of profits from this type of structure?

The principle of basic taxation for an LLC

It is possible to tax a SARL under the IR or IS regime, although in principle SARLs are taxed under the Impôt sur les Sociétés (corporation tax) regime. This allows them to concentrate the taxation of profits on the company, and then to decide freely how to distribute profits among the partners, in the form of remuneration (if they hold a position in the company) or dividends.

Le mode d'imposition des bénéfices doit être anticipé dès la création d'une SARL, car il a un impact direct sur la rémunération du ou des gérants.

If your sales are below €7,630,000, the following tax rates apply:

• Between €0 and €38,120, the rate is 15%;
• Between €38,120 and €75,000, the corporation tax rate is 28%;
• Above 75,000 euros, the tax rate is 33.33%.

For companies with sales between €7,630,000 and €50,000,000, the tax payable is determined as follows:

• For profits between €0 and €75,000, your corporation tax will be 28%;
• For profits in excess of €75,000, the corporate income tax rate is 33.33%;

For companies with sales in excess of €50,000,000, the corporate income tax rate is also 33.33%.

Remuneration paid to SARL managers is generally deductible from taxable profits. The company must issue an IS balance statement in order to pay the IS for a given fiscal year. The tax authorities require advance payments of corporate income tax when the total amount of tax due exceeds 3,000 euros.

It is also possible to opt to be taxed under the income tax system.

Special cases: SARL de famille

Une SARL de famille peut être constituée lorsque l’ensemble des associés sont unis par un lien de parenté direct ou collatéral jusqu’au deuxième degré, soit par le mariage ou le PACS. Il s’agit d’une simple option fiscale, c’est pourquoi la SARL de famille fonctionne de manière assez similaire aux SARL traditionnelles. Elle peut exercer une activité industrielle, commerciale ou agricole mais ne peut se consacrer à la gestion du patrimoine familial, ni concerner une activité libérale par exemple.

The advantages of this status are :

• Each shareholder can offset part of the loss against his personal tax liability in proportion to the rights held in the company when the result is negative;
• Partners avoid double taxation (IR and IS);
• They can benefit from capital gainstax exemptions on the sale of the company.

SARLs subject to corporate income tax (IS) must pay the tax according to the traditional corporate income tax scales.

A number of special provisions are worth noting:

• You cannot offset your deficit against overall income, but it can be carried forward against profits in subsequent years;
• You benefit from special provisions for deducting interest on loans;
• Remuneration paid to an executive is deductible from overall income.

All dividends paid by a SARL to a shareholder are subject to corporate income tax, then to the progressive scale of income tax, after application of a 40% allowance , and to social security contributions on the gross amount. Interest paid to shareholders is taxed at the progressive income tax rate, with no allowance, and the withholding tax rate is set at 24%.

Special cases: the one-man limited liability company (SARL)

More commonly known as the EURL, the SARL unipersonnelle requires that capital be held by a single partner. It has the advantage of limiting the partner's liability to the amount of his or her contributions to the company.

Taxation of the profits of a one-person limited liability company depends on the partner:

• In the case of a individualthe profit made by the single-member SARL is subject to income tax at the usual rates;
• In the case of a legal entity, the company's profits are subject to corporate income tax at the usual rates.

Special cases: the partnership system

The main difference with the partnership system is that profits are taxed directly in the hands of the partners:

• If you are an individual, your share of the profit or loss must be reintegrated into the overall incomeof the tax household to which you belong;
• In the case of a legal entity, its share of the profit or loss must be reintegrated into its income and taxed in its hands.

It is important to note that SARLs governed by the partnership regime may opt to be taxed on income tax.

It is, however, subject to a certain number of obligations: keeping regular accounts, having recourse to a chartered accountant, keeping accounting books and drawing up annual financial statements. SARLs therefore offer particularly flexible operating conditions, given the multitude of special statutes available, and are preferred by many entrepreneurs.