Running A Business In France - A Tax Nightmare?

One of the most common complaints I hear from expats in France (and there are an estimated half a million British expats alone living there) is that although France is a wonderful place to live, it is one of the worst places on earth to try and run a business. Many foreigners in France call the country ‘business hostile’ due partly to the vast and largely pointless bureaucracy that many businesses find themselves bogged down in, and partly due to taxes.

I don’t personally own a business in France so I’m not sure I fully understand all the ins-and-outs but essentially it seems to boil down to the fact that French taxes are some of the highest on the planet. Apparently the French tax system is divided into two – taxes proper such as VAT/TVA, income tax, property taxes and so on, then come the much dreaded ‘social charges’.

The social charges are mandatory payments made to the state to cover things such as health contributions, retirement benefits, invalidity cover etc. They are the rough equivalent of DSS contributions in the UK but about 5 times higher as a minimum. These are of course all taxes but are called ‘social contributions’ in France as the semantics of this sound warmer and cosier than ‘tax’.

Historically it has been the social charges that have crippled and destroyed many expat (and French) businesses. There are many different issues and legal ways of setting up a company and paying them, but it doesn’t seem to matter how you do it, you can be sure that around 40% of your turnover or profit (depending upon how you set up your business) will be taken by the state in social charges. Income and other taxes could be payable in addition to this huge percentage.

I know of many expats in France who have given up their small businesses claiming that the state was just bleeding them dry – several telling me that it was a complete waste of time trying to make a living there.

There may be some good news. Finally the French government have created a system to simplify the process of starting a company (in the past even that could be a nightmare I’m told) and much of it can be done online. More importantly, the payment of taxes and social charges for small businesses has been simplified at a lower flat rate. If I understand it, the new rate is 12-13% of your turnover and provides all income tax and social charges cover.

This may be a lifeline for those thinking of starting a business.

I believe the French state site at www.auto-entrepreneur.fr has all the details and also it has an outline of the new system in English. It may be worth having a look though be aware that the site has been unavailable a lot recently due to traffic ‘overloading’.

Keep an eye on Expat Focus for a more in-depth article about running a French business – it’ll be available shortly.