A SARL is a very popular type of company structure that suits many kinds of projects. It's affordable and simple, which is why so many entrepreneurs across France have chosen it.
A SARL can be set up as a single-person entity, which is then called an EURL. It has no minimum capital, is managed by a manager and by an annual general meeting where all the partners sit.
As with any company, tax issues are at the heart of the choices of business creators. In this article, we offer you a better understanding of the taxation applicable to SARLs and the current taxation for distributed profits.
36% of companies created in 2018 are SARL companies!
SARL partners have a choice: they can opt for IR (Income Tax) or IS (Corporate Tax).
By default, taxation under the IS (corporate income tax) is generally chosen because it applies automatically if the partners don't decide otherwise when the company is set up.
In 2019, the CIT is applied to the amount of taxable profits. Several rates apply, depending on the amount of profit:
- Between €0 and €38,119, they are taxed at 15%.
- Between €38,120 and €500,000, they are taxed at 28%.
- Above €500,000, they are taxed at 31%.
The corporate income tax reform planned by the President of the Republic should bring it down to 25% in 2022. For the time being, the path this reform will take remains relatively unclear.
You might be able to get a reduced rate if:
- If your turnover is less than €7,630,000.
- If your share capital is fully paid up.
- If a minimum of 75% of the shares are held by partners who are natural persons, or legal entities with a turnover of less than €7,630,000.
If you opt for IR (income tax), the profits will be taxed in the hands of each partner. This option is valid for 5 years. Your marginal rate on the income tax scale will be applied. Deciding between IR and IS (corporation tax) depends on your personal situation, especially your other income.
Some SARL companies can benefit from a basic VAT franchise to be more competitive.
In return, it logically cannot deduct it when making purchases. To benefit from it, you must not exceed €82,800 in turnover for businesses selling goods, restaurants or accommodation; and €33,200 for service providers.
If these thresholds are exceeded, the SARL will have to collect VAT like a traditional company, and will be able to recover it on its purchases.
In this case, they can benefit from the simplified real tax regime if their turnover excluding VAT is less than €789,000 for businesses selling goods, providing catering or accommodation, and €238,000 for service providers. VAT can then be declared once a year, with advance payments.
If your SARL is not eligible for any of these schemes, it will be subject to the standard real tax system, with a mandatory monthly VAT declaration.
Two additional taxes must be paid. Firstly, the CVAE (Corporate Value-Added Contribution), which applies to SARLs with a turnover of more than €152,500. It corresponds to 1.5% of the amount of the value added.
Next, the CFE (Contribution Foncière des Entreprises - Corporate Property Contribution) is calculated based on the rental value of the company's premises. It is set at municipal level.
Taxation is one of the main obstacles to entrepreneurship in France. Business creators need to stay well-informed about changes to their taxation to avoid making mistakes. Otherwise, you could be subject to a tax audit that could have serious consequences for your company's financial health.
Written by our expert Paul LASBARRERES-CANDAU
February 24, 2020
