A SARL (limited liability company) is a very popular legal form of company that can be adapted to many different types of project. Inexpensive and straightforward, it has already won over many entrepreneurs throughout France.
A SARL (limited liability company) can also be a one-person company, known as anEURL. It does not have a minimum capital requirement and is managed by a manager and a annual general meeting meeting attended by all partners.
As with any company, tax issues are central to the choices made by entrepreneurs. In this article, we offer you a better understanding of the tax system applicable to SARLs and the taxation of distributed profits.
36% of companies created in 2018 are SARLs!
SARL partners have a choice: they can opt to be taxed at IR (Impôt sur le revenu) or IS (Impôt sur les sociétés).
By default, we generally opt for corporate income tax, as it applies automatically in the absence of a decision to the contrary by the partners when the company is set up.
In 2019, corporation tax will be 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%.
President Sarkozy's corporate tax reform is set to bring it down to 25% by 2022. For the moment, the trajectory of this reform remains relatively imprecise.
It is possible to benefit from a reduced rate under the following conditions:
- If your sales are less than €7,630,000
- If your share capital is fully paid up
- If at least 75% of shares are held by associates who are individuals or legal entities with sales of less than €7,630,000.
If you opt for income tax, profits will be taxed in the hands of each partner. This option is valid for 5 years. Your marginal income tax bracket will be used. Deciding whether to opt for income tax or corporation tax depends on your personal situation, and in particular your ancillary income.
Certain SARLs can benefit from basic VAT exemption in order to be more competitive.
On the other hand, it cannot logically be deducted when making purchases. To qualify, sales must not exceed 82,800€ for companies selling goods, catering or accommodation; and 33,200€ for service providers.
If these thresholds are exceeded, the SARL will have to collect VAT in the same way as a traditional business, and will be able to reclaim it on its purchases.
In this case, the company can benefit from the simplified actual system if its sales (excluding VAT) are less than €789,000 for companies selling goods, catering or accommodation, and €238,000 for service providers. VAT can be declared only once a year, with payment on account.
If your limited liability company is not eligible for any of these schemes, it will be subject to the normal actual tax regime, with a compulsory monthly VAT return.
Two additional taxes must be paid. Firstly, the CVAE (Cotisation sur la Valeur Ajoutée des Entreprises), which applies to SARLs with sales in excess of €152,500. It corresponds to 1.5% of the value added.
Next, the CFE (Contribution Foncière des Entreprises) is calculated on the basis of 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. Entrepreneurs need to keep abreast of tax developments to avoid making mistakes. If you don't, you're liable to a tax reassessment that could have serious consequences for your company's financial health.
Written by our expert Paul LASBARRERES-CANDAU
February 24, 2020
