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Self-employment is a misleading term in France, as it has nothing to do with employment, and as the income generated is treated as business income. The term business will in the following refer to any type of independent, non-salaried activity, whether exercised in a limited or other type of company or not.

As for the legal form of the business, the basic choice is between: 

- entreprise individuelle (individual business) where the business activity is exercised by a personne physique (natural person), and where the income can only be subject to income tax,
- various types of société (company), such as SA, SAS, SARL, where the business activity is exercised by a personne morale (legal entity), and where the income can only be subject to company tax,
- and a couple of hybrid forms for a single entrepreneur, such as EURL, where either type of tax can be chosen.

Business income is either industrial and commercial (BIC) or non-commercial (BNC). Any sort of sale of goods is commercial, while more abstract professions are non-commercial (advice, counselling, lawyer, doctor...). The definition of commerce appears in the beginning of the Code de Commerce.

For the individual types of business, the entrepreneur has the option of running as micro-entreprise in various forms and denominations if the revenue is below a certain threshold. In a micro-entreprise, the fiscal deduction of business expenses is replaced by a fixed allowance as a percentage of turnover. The fixed deduction varies between 37% for non-commercial activities such as the liberal professions to approximately 70% for commercial and industrial activities. If you are a micro-entreprise, then you are automatically VAT exempt. It makes life simpler, but the 37% for non-commercial activities often doesn't cover the actual expenses, and in the beginning of the activity, before the business is developed to become profitable, you lose a large part of your fiscal deductions. Becoming VAT exempt is not automatically beneficial.

Below a certain threshold, with or without micro-entreprise, you have the option of becoming VAT exempt. Consider whether your clients are mostly VAT registered or mostly individuals.

Many expats moving to France keep their foreign-registered companies in place abroad, keep them taxed abroad and don't register them in France. The most common reasons are to avoid the complexities of French administration and the high taxes and social charges in France. Many refer to the right of any EU national to run companies in other member states. They make the assumption that a company is necessarily taxed in the country where it is registered. They overlook the fact that the double taxation agreements between France and other countries contain very complex rules for determining the country where a company is taxed. The basic rule is that if you keep running and managing a foreign company from France, then the company is taxable in France, regardless of the country where it is registered. If it were really that simple to avoid French charges, then there wouldn't be many companies left in France. But it is not that simple. It is in fact extremely complex to set up a legal arrangement to manage a foreign company and have it taxed abroad. In reality, many expats are committing tax evasion and exposing themselves to heavy penalties if the taxman finds out. The French tax authorities may be messy, but they are not stupid, and they are aware of this sort of tax evasion, whether it is committed in good or bad faith. If they suspect that major fraud is taking place, then they can and will raid your home and business premises and turn everything upside down. There is a further complication in French tax law called abus de droit (law abuse). It is a measure that says that if you make a legal fiscal arrangement with the sole purpose of paying less tax, then the taxman can legally disregard your arrangement and tax you according to the reality of the situation. Morale: Don't play amateur with your business arrangements but get professional advice to assure that you can sleep at night. You may end up with the conclusion that many others have arrived at: That France is not a business-friendly country and that it would be more profitable to run your business elsewhere. It may mean that you cannot live in France but only visit the country without becoming resident. You can't have your cake and eat it. If you want to live in France, then you must accept it with all its quirks - or run the risk of being ruined the day you're found out.

And now that we're at it, let's quash another myth: That it is only a matter of counting days to determine where you are resident for tax purposes. The days criteria appears in list of criteria to determine tax residence in the double taxation agreements after the following criteria: Where you have a permanent home and where your personal and financial ties (centre of vital interests) are. For example, if you've installed your family in a home in France and you travel outside France more than half the year, then you are still liable for tax in France, unless you can show that your financial interests outside France are so strong that they outweigh the interest of your family in France.

Disclaimer: The French Tax Code (Code général des impôts, or just CGI) takes the space of 2 bricks and uses 2000 pages of small print to present nearly 4000 articles. In addition, a separate Book of Fiscal Procedures (Livre des procédures fiscales) outlines the rules for collecting the taxes. We cannot possibly present all that in a couple of chapters. This section aims to explain the very basics of the core of the French taxation of employed persons or married couples with or without minor children at their charge, all persons concerned living regularly in France the entire calendar year and those of them working being employed and paid only by a French employer. In these cases, the calculations below will give you a very precise idea of income tax due, but you accept that you use this information at your own responsibility and that we can under no circumstances be held liable for your use of this information. Calculating and paying French income tax is your personal responsibility. This page is not a tax guide and it cannot replace a tax advisor, tax guides or the Tax Code. Different types of income are treated differently, and it is your responsibility to find out how they are taxed. The information below is not exhaustive. The following, non-exhaustive list shows a few examples of cases where you cannot directly use the information below or maybe not use it at all: Divorce, separation, same-sex couples, unmarried couples, couples having signed a partnership agreement (PACS), death, birth, family member living or working outside France, foreign income, persons working for international entities having special status (EU, CERN, ...), diplomats and other consular staff, capital income, retirement, self-employment, running your own business, small or large traders, authors, artists, nationals who may remain taxable in their own country despite living away from it (Americans and Frenchmen for example).

The French tax year follows the calendar year.

If you are resident in France, then you are taxable on your worldwide income in France to the extent that double taxation agreements with other countries don't give the right to taxation to another country. However, even if such an agreement stipulates that an income is not taxable in France, it must still in the majority of cases be declared in France, because even though it is not taxed, it can affect the tax calculation of your other income in France. This also goes for for example a spouse's income earned and taxed abroad, except if the spouse having the foreign income is living abroad and not in France.

There is no PAYE or other system in France to collect income tax at source. While social security contributions are deducted from your gross salary at source (unless you pay such contributions in another country under EU Regulation 1408/71 or a bilateral social security convention), no tax is deducted. You are personally responsible for saving enough money to pay your tax later. Tax is paid in arrears the year after the income was earned.

Tax calculation - the brief version

The income tax depends on your personal situation. A number of parts is determined for the family. A single person gets one part. A married couple 2 parts. Add 0.5 part for each of the first two children; 1 part for each additional child. For example: Married couple with 2 children gets 3 parts. Single person with 3 children gets 3 parts. The resulting number of parts is known as the quotient familial.

All income of the persons concerned - the married couple and the children - is added together in one amount. If you pay your social security contributions in France, your employer should tell you which of them are deductable and which amount to declare. If you pay them abroad, you should deduct them from your gross income before applying the tax calculations below. Only declare the appropriate amount net of deductable contributions.

I will illustrate the following calculations with an example of a married couple with one child, having a joint salary of 50,000 € after social security contributions.

Income earned in 2006 and later years (payable in 2007)

A standard allowance for professional expenses of 10% of your salary is automatically deducted (max. allowance 12,862 €):
50,000 - (50,000 x 10%) = 45,000

You do not need to do anything to claim this allowance. Do not deduct it from the amount you declare yourself. In the example, this leaves 45,000 € as taxable.

The standard allowance of 20% that existed until 2005 has been abolished and the tax bands are adjusted to neutralise the effect.

Divide the resulting amount by the quotient familial calculated above:
45,000 / 2.5 = 18,000.

The personal allowance and progressive tax bands (barème) are then applied to the resulting amount. This results in the income tax per part. For income earned in 2006 (payable in 2007), the following barème is applied:

This amount is then multiplied by the quotient familial to get the total tax:
1,259 € x 2.5 = 3,148 € 
which is the total income tax payable.

Income earned in 2005

A standard allowance for professional expenses of 10% of your salary is automatically deducted (max. allowance 12,862 €):
50,000 - (50,000 x 10%) = 45,000

A further standard allowance of 20% is automatically deducted from the resulting amount (max. allowance 23,580 €):
45,000 - (45,000 x 20%) = 36,000

You do not need to do anything to claim these allowances. Do not deduct them from the amount you declare yourself. In the example, this leaves 36,000 € as taxable.

Divide the resulting amount by the quotient familial calculated above:
36,000 / 2.5 = 14,400.

The personal allowance and progressive tax scale (barème) is then applied to the resulting amount. This results in the income tax per part. For income earned in 2005 (payable in 2006), the following barème is applied:

Personal allowance: 4,412 €.

In the example, the tax per part is

This amount is then multiplied by the quotient familial to get the total tax:
1,386 € x 2.5 = 3,465 € 
which is the total income tax payable.

All years, both before and after 2005

There is a limit to the tax advantage one can get for each half-part for children (2,121 €). In the example, this limit is not exceeded. To know if the limit has been exceeded, one makes two tax calculations: One that includes the parts and half-parts for the children and one that does not include these parts (that is, in our example one calculation using 2.5 parts and one calculation using 2 parts). If the difference between the two results exceeds 2,121 € multiplied by the number of children's half-parts (one half-part in our example), then the tax is increased with the amount that exceeds the limit. In other words, the maximum tax advantage for each of the first two children is 2,121 € and for each following child 4,242 €.

This is a very generalised information. Refer to the French Inland Revenue for more information. You can calculate your tax at that site. At newsagents, you can buy an annual tax guide. In case of any doubt, do not hesitate to take professional advice, or ask your local tax office (centre d'impôt). Skovgaard Europe can help you with the most common cases, while we aim to find professionals specialised in accounting and international tax to help our clients with more complex matters.

This article in the Weekly Telegraph by Finn Skovgaard, owner of Skovgaard Europe, focuses on income tax for UK cross-border workers living in France.

Interest

In any given tax year, you can choose between the following two options:

Prélèvement libératoire: 15% income tax and 11% social security is deducted at source by the bank. You don't pay any further tax.

Imposition réelle: Nothing is deducted at source. You declare the interest as income on your tax return. Except that you don't get the 10% allowance on interest, tax is calculated as for salary. In addition, you get a bill for 11% social security contributions (CSG and CRDS).

The choice is quite simple: If any part of your income will be taxed in the 30% tax band, then choose prélèvement libératoire; otherwise not. Your choice must be communicated to your bank before the end of the year.

The tax on lettings known as droit de bail was abolished from January 2001 and should no longer be collected by the landlord.

Taxe d'habitation is a tax on the dwellings you occupy on the 1 January in a given year. The tax does not depend on how long time you live in the property. If you move out on the 2 January, you must still pay the full tax for the year. The tax is payable in November the same year. The tax depends on the value of the property and your personal situation: More family members, less tax. The tax is also reduced if your income is below a certain level. A typical tax would be between € 300 and 1500 a year. Those on low-income support RMI are 100% exonerated.

Redevance audiovisuelle. TV licence. 117 € in 2006. It is mandatory for anyone disposing over a TV set on the 1st of January in a given year. If you move to France on the 2nd of January or later with a TV set, then the tax is not due for that year. It is automatically collected with the taxe d'habitation, unless you tick a field on your income tax return to declare that you had no TV set on the 1st of January. Watching TV on a computer or listening to radio only is not taxed. One licence covers the entire household, no matter how many TV sets you have. For businesses using TV sets, you may have to pay per TV set.

Excise duty on media storage devices. There is a copyright tax on writeable CDs and external computer harddisks and certain other storage devices useable for film and music to compensate artists for private copies (and at the same time, the media industry is making private copies more and more difficult to make, so it is beginning to look like a racket that you must pay a tax for something you can't do). It may or may not be cheaper to buy such devices outside France. According to the 2006 judgement from the European Court of Justice, excise duty on drinks bought by distance is payable in the country of delivery, and if the same principle is applied to storage devices, customs could thus collect the excise duty on arrival - if they find the devices in the post. In practice, the risk must be very limited. If you bring the devices across the border yourself, no taxes can be collected.

Property owners pay taxe foncière, a real estate tax. It is roughly at the same level as the taxe d'habitation. It includes certain service charges, such as refuse collection. A property owner living in his own house and paying taxe foncière still pays taxe d'habitation, as these two taxes are distinct.

Businesses and self-employed persons pay taxe professionnelle, a tax based on turnover (not revenue), in December.

Taxe d'habitation, taxe foncière and taxe professionnelle are known as local taxes.

Impôt de solidarité sur la fortune (ISF) is a wealth tax paid on assets above 750,000 €. Tax bands for 2006:

Starting with the taxes due in 2006: Income tax 2005, Taxe d'habitation 2006, taxe foncière 2006 and Impôt de solidarité sur la fortune (ISF) 2006, the total of these four taxes cannot exceed 60% of your income. For the taxes due in 2006, the revenues in 2005 are used as the base to calculate the 60%. The first time a refund can be claimed is in the beginning of 2007 for the taxes due in 2006.

Droit de succession is a death tax that assures that inheritants don't have too many worries about finding the best placement for inherited fortunes.

Car registration tax is paid when registering or reregistering a car, except if it's your own car you reregister after a removal within France. The tax varies with the département and is fixed as an amount per fiscal horsepower (chevaux fiscaux - CV). The tax is typically 30 € per fiscal horse. A family saloon car could have for example 9 fiscal horses. For cars older than 10 years, a 50% reduction is applied.

Global warming car tax: From January 2008, when registering a car the first time, either an additional tax is paid or a tax refund deducted, depending on the car's planet saving capabilities according to global warming theories. The more CO₂ emission, the more tax.

Annual road fund tax for privately owned cars, vignette, was abolished from 1 December 2000.

Taxe sur les voitures de société is an annual tax paid by companies for company cars in addition to the vignette. Self-employed operating as entreprises individuelles in their own name, as opposed to having a separate legal entity in the form of a company, are not concerned by this tax. If an employer pays mileage to an employee using his or her own car for business trips, this tax may be due on the employer to avoid that the employer tries to escape the tax by using employees' cars. This tax can be quite costly. Watch out!

There is no import duty on cars imported from the EU/EEA. Cars imported from other countries are exonerated under certain conditions.

The current VAT (sales tax - TVA in French) rate is 19.6%. 5.5% for some items and services. With very few exceptions, businesses cannot deduct VAT on cars and petrol (gasolene). 80% of diesel VAT may be deductable. This is in reality yet another company car tax.

Insurance tax is automatically collected by the insurance company.

Fuel taxes are automatically included in the price at the pump for vehicles and heating. Low-income families can certain years obtain a partial fuel tax refund. Check out the news section.

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