France is a country of many beautiful images. One of the most prevailing is that of the small French business. Whether a small farm, the baker or the local carpenter and odd-job man, everything that comes to mind suggests a small and perhaps rural enterprise.
Although France has the largest economy in Europe and vast ultra-modern industries, this ‘shed based business’ is the image that many expats have of France. Indeed the small 1-2 person business it is an image cultivated by the French government as being part of the “French Way” and in fact small businesses constitute a very large part of the overall French economy.
It is therefore not too surprising that many expats upon arrival in France, and in need of income, become attracted by the idea of running their own business. From a practical point of view they may also find they have little choice as outside of the major cities work is VERY hard to find particularly for those not fluent in French or considered ‘local’.Starting your business
Unlike the UK, in France you can’t decide at 9am to start a business then at 9:30 go out and start doing it. You also can’t just ‘start-up’ or run it for a trial period so see if you like it or if it’s going to be viable.
To begin with, you’ll need to formally register yourself or your company and tell the authorities what it is you plan to do. This is usually done via your nearest local chamber of commerce. Engaging in commercial activity without registering is illegal.
You may find that initially you cannot start up without getting your UK based qualifications converted and certified locally, or going on local training courses to obtain the French equivalents. For trade based businesses this is done via the Chambre des Metiers – essentially a sort of trade regulation body.
At some point, whatever your business idea is, before registration of your company or ‘entreprise’, you’re going to have to decide what legal statute or regime your company will operate under.
Your decision here could be critically important to your future financial health!
Selecting The Legal Basis Of Your Company
One of the commonest reasons why expat businesses get into trouble in France is that major errors were made at the time the business was originally registered. That’s because at the time the expat failed to understand that the amounts payable in taxes and social contributions in years 2-3 would be directly affected by the regime chosen when initially registering.
Sound complicated? Well, it is! To explain…
When you register your company you’ll be asked to select a regime for it to operate under. A ‘regime’ here is roughly the equivalent of the UK’s Ltd, Partnership, PLC, or Sole Trader designations.
There is not really sufficient space here to explain the totality of the position in France, but essentially there are several types including Micro-BICs, EURL, SARL, SA and Micro-Entrepreneur.
Just as in the UK, the regime selected will depend upon your company size and other factors, and importantly it will also dictate what your obligations are in terms of submitting formal accounts.
Now as accountants’ fees in France are expensive by UK standards, typically around 1500euros/1200pounds per annum for even a small basic business, then many expats are understandably deeply attracted to those regime types that do not have obligatory requirements for formal annual accounts. These are usually the Micro-BIC and micro-entrepreneur regimes.
Listening to the siren-song of this though can seriously damage your bank balance!
To understand why, one needs to remember that these ‘no need for accounts’ regimes were set up initially to aid the VERY small business with miniscule annual turnover or ‘chiffres d’affaires’. They are really meant to be for people who are perhaps running a gite or two and have turnover not exceeding maybe 5-7,000euros per annum.
For many slightly larger businesses, using this regime type can be a disaster. To understand why one needs to look at the main tax and related charge costs you’ll pay as a small businessperson in France.
Basic Self-Employed Business Taxation & Social Charges
When you’re considering setting up a small business in France you’ll see lots of publicity about how to avoid tax. These discussions are largely irrelevant to the average expat businessperson! Taxation based upon income is a factor in France as in most countries. For most small businesses with moderate turnover and profits, personal taxation liability is rarely an issue and your costs here are likely to be small unless you are phenomenally successful and well off as result.
Each year you’ll have to declare your total income to the authorities and they’ll calculate your tax due just as in the UK. One will virtually never hear that a small business is struggling because of income tax demands.
By contrast, the thing that kills many small self-employed businesses in France, usually in the second or third year, is the mandatory social contribution scheme that is roughly the equivalent of NI in the UK.
When living in France you’ll enjoy phenomenally good health, pension and social benefits care assuming you qualify, but France has to pay for all these things and that is why its social charges on employers or the self-employed are massively higher that in the UK.
Whether a local or expat running your own business you cannot opt-out of these or make your own arrangements and you’ll need to be prepared to write some big cheques each month to the social security organisation (RSI for the self-employed).
So, “how big is big?” This is where we loop back to the question of regime.
Regime selection & links to Social Payments
If at the outset you selected say a EURL and elected to go for formal annual accounts, then as per normal with accounting, after all your costs are deducted (including any social payments made) you’ll end up with something roughly like your profit. The authorities will use that net profit to calculate what you’ll need to pay in social contributions the next year.
You can expect that in the year ahead you’ll be paying around 35-45% of your net profit in mandatory social contributions excluding income tax. Yes, it’s expensive!
The situation though can be far far worse for those sad people who selected a non-accounting regime and who then had the audacity to actually achieve a high turnover.
If you are operating as a micro-BIC, you may be saving accountants’ fees but if you have a high turnover and moderate profit percentage, then you’re going to be in DEEP trouble. The problem is, that because these regimes have no accounts to use, the authorities are forced to make assumptions about your profit margins based on turnover. Worse, you cannot deduct ANY costs at all from your turnover figures.
Let’s use some crude but not unrealistic figures to illustrate the principle. We’ll assume your business is in buying and selling and you have used a micro-Bic as your regime. In this scenario the government will assume that about 28% of your total turnover is net profit. In their calculations for how much social contribution you must pay, they’ll use this figure and won’t (usually) modify it. They will not take into account any costs you’ve incurred whatsoever or what the ’real’ picture is!
So let’s say you’ve had a busy year and turned over 75,000euros. The authorities will assume that of this figure 21,000euros is net profit. Next year you’ll get a bill for social contributions of roughly 8400euros. Maybe that looks fair if expensive but you won’t find it so if in reality your real profit after all costs was only say 7% and your real profit was therefore only 5250euros!
It’s also worth noting here that the 8400euros you’ve got to pay will NOT be deductible from your next year’s accounts either!
BE WARNED – Using a micro-BIC or similar means your social payments will be calculated on a crude and often incorrect basis totally detached from reality. YOU COULD END UP BEING FORCED TO PAY HUGE AMOUNTS MORE IN SOCIAL CONTRIBUTIONS THAN YOU ACTUALLY EARNED IN PROFIT! It does happen and not infrequently. It is a major cause of expat business failure.
Sadly, even once you’ve learned your mistake, you can’t just change regimes because you feel like it or have just grasped that say a EURL regime could save you money. You can only change regimes if you elect to do so before a given date in the year or if your turnover figures exceed a fairly high level (currently around 84,000euros) at which point annual accounts become mandatory.
Summary and Recommendations
1. In France taxation and social contribution laws change frequently. Get up-to-date expert advice locally BEFORE you start.
2. When selecting your business regime, avoid the micro-bic unless you know your turnover figures are going to be very low OR you are SURE your profit margins are going to be very high and way above whatever the automatic margin calculation figure is for your type of business.
3. Learn from local people. It is a fact that French people virtually never use the micro-bic regimes because they know the dangers. It is usually only expats who fall into this trap.
FAQs
Do expats pay self employment tax? ›
Nonresidents. Individuals who are neither citizens nor residents of the United States are not subject to self-employment tax. However, self-employment income you receive while you are a U.S. resident is subject to self-employment tax even if it was paid for services you performed as a nonresident.
What taxes do expats pay in France? ›Unlike residents, non-residents in France are only taxed on their French-sourced income. Non-resident taxes are typically collected by withholding at the source. These withholding taxes are applied at progressive rates of 0%, 12%, and 20%, depending on the total amount of taxable income.
How much is self employment tax in France? ›In 2021, most companies paid a standard rate of 26.5%, while companies with profits of more than €500,000 paid a higher rate of 27.5%. From 2022, however, all companies pay a flat rate of 25% regardless of the size of the profits. Some smaller companies that make less than €38,120 can pay a reduced rate of 15%.
Do French expats pay taxes? ›Both resident and non-resident taxpayers must file an annual French income tax return in the following year.
How do expats avoid taxes? ›The Foreign Earned Income Exclusion – The FEIE is the most common and broadest aid to prevent double-taxation. You qualify if you live and work overseas and pass either the Bona Fide Residency test or the Physical Presence Test. If you qualify, you can exclude up to $108,700 for tax year 2021, and $112,000 for 2022.
Do expats pay taxes twice? ›United States citizens who work in other countries do not get double taxed if they qualify for the Foreign-Earned Income Exemption. Expats should note that United States taxes are based on citizenship, not the physical location of the taxpayer.
What salary is considered upper class in France? ›According to the Observatoire des Inégalités, an income of 3,673 euros per month qualifies a single adult as wealthy. By this standard, the privileged bracket represents 7.1% of the French population.
Is France the most taxed country? ›France ranked 2nd out of 38 OECD countries in terms of the tax-to-GDP ratio in 2020. In 2020, France had a tax-to-GDP ratio of 45.4% compared with the OECD average of 33.5%. In 2019, France was also ranked 2nd out of the 38 OECD countries in terms of the tax-to-GDP ratio.
How much monthly income do I need to live in France? ›The minimum monthly earnings requirements has therefore increased from nothing to €1,329 net income per month for a single person and around €2,658 net income per month for a couple.
Can I move to France if I am self-employed? ›To come to France as a self-employed worker, you must either obtain a multiyear “entrepreneur/liberal profession” residence permit card, a multiyear “passport talent” residence permit with the mention “business founder”, or a multiyear “passport talent” residence permit with the mention “innovative project recognised ...
How do I declare freelance income in France? ›
You will need to register with URSSAF, Chambre de Métiers or Chambre de Commerce and get your official business number called SIRET before you can start trading. Get in touch if you want help to register your freelancing activity.
Is France a tax haven? ›Tax residence – domiciled fiscal is a criterion for tax liability – a foyer, business activity or centre of economic interest in France. The devolution of a resident's estate is strictly regulated by law, with some exceptions for foreign nationals.
How long can you live in France without paying taxes? ›An employee residing in France for less than 183 days does not owe tax on income earned through their work in the country, as long as their remuneration is paid by or on behalf of an employer which is not established in France.
What state is exempt from paying taxes in France? ›The third estate (traders, artisans and peasants) Complete answer: The first and second estate were exempted from paying taxes, while the third estate paid disproportionately large taxes.
What happens if expats don't pay taxes? ›Failure to pay – If you don't pay your taxes owed, you're subject to failure-to-pay fines. First, you'll accrue interest on the unpaid balance until you repay it in full. Second, you'll be fined the late payment penalty of 0.5% of the tax you owe for each month it's late, up to 25%.
Can you be taxed in 2 countries? ›If you are resident in two countries at the same time or are resident in a country that taxes your worldwide income, and you have income and gains from another (and that country taxes that income on the basis that it is sourced in that country) you may be liable to tax on the same income in both countries.
What taxes do expats pay? ›US social security taxes consist of 6.2% for employees plus 2.9% Medicare Tax, or a total of 15.3% of income for self-employed expats (12.4% social security tax and 2.9% Medicare Tax. Expats may also have to pay social security taxes in the country where they live though.
How can you avoid double taxation when living abroad? ›- Tax Treaties. The US has a number of tax treaties in place with foreign countries to prevent US double taxation. ...
- Foreign Earned Income Exclusion. For some types of income, you won't have to bother scanning tedious tax treaties to prevent US double taxation. ...
- Foreign Tax Credit.
As expats are required to file US taxes, we often get asked whether expats can also receive IRS tax refunds, too. The short answer is yes, as there is no differentiation in the US tax system between tax payers who live in the states and those who live abroad.
How much money can you receive from overseas without paying taxes? ›However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023). In addition, you can exclude or deduct certain foreign housing amounts.
Do I have to pay income taxes if I have dual citizenship and live in Europe? ›
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.
What is middle class income in France? ›Similarly, the middle class have an income level (US$ 20,000) similar to the OECD average. However, the poorest 10% of the French population have an income of almost US$ 9,000 per year – about 25% higher than the average for OECD countries.
Where do the rich people live in France? ›Archamps, on the Swiss border in France's Haute-Savoie department, is the wealthiest village in France.
Is 3500 euros a good salary in France? ›What Is a Good Salary in France in 2022? In 2022, a net monthly salary between 2,400 EUR and 3,500 EUR is considered good in France. What is this? Generally, a good net monthly salary in France is between 2,500 EUR and 4,000 EUR.
What is the best country in Europe for taxes? ›BULGARIA
At a flat 10%, Bulgaria has the European Union's lowest personal income tax rate. Corporate income tax rates are the same flat rate of 10% (tied with Cyprus), and Bulgaria maintains tax treaties with many countries that could allow for special tax treatment for some international entrepreneurs.
Sweden has a developed post-industrial society with an advanced welfare state and the highest income tax rate in the world, with as much as 52.9% deducted from annual income.
Who pays the highest taxes in Europe? ›| European OECD Country | Top Statutory Personal Income Tax Rate | Threshold of the Top Statutory Personal Income Tax Rate |
|---|---|---|
| In National Currency* | ||
| Finland (FI) | 51.2% | EUR 87,647 |
| France (FR) | 55.4% | EUR 587,696 |
| Germany (DE) | 47.5% | EUR 282,934 |
- Montpellier. For those who love to live in a lively city, Montpellier is a popular and surprisingly affordable city located in the South of France. ...
- Grenoble. ...
- Nantes. ...
- Châteauroux. ...
- Dordogne. ...
- Tarn. ...
- Cantal.
Numbeo estimates that a family of four needs around €3,000 per month excluding rent, while a single person's average monthly costs are about €800 before rent.
How long can you live in France without becoming a resident? ›For any stay in France exceeding 90 days, you are required to apply in advance for a long-stay vis. In this instance your nationality does not exempt you from requirements. Whatever the duration of your planned stay, the duration of your long-stay visa must be between three months and one year.
Which EU country is best for self-employed? ›
Which EU country is best for self-employed? Portugal is one of the best EU countries for freelancers (self-employed) thanks to its high quality of life, warm climate, relatively low costs of living, and low taxes for freelancers.
What are the pitfalls of moving to France? ›- CON: Cost of essentials
Many staples in France, such as fuel, food and clothes, are undeniably expensive. Value-added tax is applied to most goods and services. This tax can add considerable cost to a large purchase, like a car. Rent and home prices can also be quite high, depending on the area.
It is possible to work legally in France as a freelancer without registering as a business but by working through a portage salarial. Under this system, you sign a contract with a portage company (an umbrella company), who in effect becomes your employer and handles most paperwork.
What is the minimum income of a freelancer? ›Freelancer salary in India with less than 1 year of experience to 14 years ranges from ₹ 1.8 Lakhs to ₹ 11 Lakhs with an average annual salary of ₹ 4 Lakhs based on 6.5k salaries.
How do I pay less taxes in France? ›- Donations and grants to a charitable organisation.
- The cost of employing help in the home.
- The purchase of shares in small and medium enterprises.
- Subscription to mutual fund units for innovation (Fonds Commun de Placement dans l'Innovation – FCPI)
You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 and 1040-SR instructionsPDF.
Which European country has lowest taxes for expats? ›Bulgaria is the best European country to live in if you want to pay as little tax as possible as it is Europe's lowest-taxing country with its rock-bottom 10% tax rate gives workers the biggest pay packet.
Which country in Europe pays the least taxes? ›- Bulgaria.
- Malta.
- Gibraltar.
- Monaco.
- Montenegro.
Most couples pay less income tax or “impôts sur le revenu” in France than they would as a resident of the UK. This is not an outrageous claim but a statement of fact.
How long can I stay in France if I own property? ›The temporary long-stay visa is valid for up to a year, although it is typically issued for stays of between four to six months (remember, if you plan to spend longer than six months in France, it is likely that you will be classed as living in France for tax purposes).
Do retired expats pay taxes in France? ›
Even if you retire in France, you still may have to file a U.S. tax return. You'll still have to report money in any French financial accounts on your FBAR if you meet the requirements.
Does France tax overseas income? ›If there is no treaty, the income is taxable in France. Treaties usually provide that income from property located abroad is taxed in the country where said property is situated. The income is tax-exempt in France but it must be declared for taxation of French-source income using the taux effectif method.
Who must declare tax in France? ›There are several circumstances under which you have to send a tax declaration: you receive an income from a French source. you have a professional activity in France, salaried or not, unless it is a minor activity. France is your country of residence (for more than 183 days a year)
What happens if you don't pay tax in France? ›A penalty of 80% is only likely to be demanded where you have failed to pay, despite previous reminders to do so, or in the case of a clear act of bad faith. In serious cases of manifest and blatant fraud, known flagrance fiscal, the tax authority may act immediately to seize effects and impose very substantial fines.
Do expats get audited? ›And while IRS audits are generally rare, the chances do increase for expats. In fact, according to IRS data, Americans living overseas are 10 times as likely to be audited as taxpayers living in the US. This is because Americans living overseas are more likely to accidentally trigger IRS red flags.
What country can you live in without paying taxes? ›Key Takeaways. Bermuda, Monaco, the Bahamas, and the United Arab Emirates (UAE) are four countries that do not have personal income taxes.
How do taxes work for dual citizenship? ›For individuals who are dual citizens of the U.S. and another country, the U.S. imposes taxes on its citizens for income earned anywhere in the world. If you are living in your country of dual residence that is not the U.S., you may owe taxes both to the U.S. government and to the country where the income was earned.
Who is exempt from self-employment tax? ›Individuals who are self-employed and earn less than $400 a year (or less than $108.28 from a church) are exempt from paying the self-employment tax. The CARES Act defers payment of the employer portion of 2020 Social Security taxes to 2021 and 2022.
Can you be self-employed and live abroad? ›Can I Be Self-Employed and Live Abroad? Yes! Living abroad and being self-employed is becoming more common.
How much of US self-employment tax should he pay on his foreign self-employment income? ›You don't have to pay federal income tax because you can exclude all of your foreign income. But you have to pay the 15.3% self-employment tax on all $60,000 of your net profit.
Can I be self-employed in UK and work abroad? ›
Working Overseas Freelance
It is perfectly legal to travel and work abroad. Which every country you visit, you will simply need to ensure you apply for the correct working visa and check whether you need a license.
The only guaranteed way to lower your self-employment tax is to increase your business-related expenses. This will reduce your net income and correspondingly reduce your self-employment tax. Regular deductions such as the standard deduction or itemized deductions won't reduce your self-employment tax.
What happens if you are self-employed and don't pay taxes? ›Deliberate failure to pay tax
Self-employed workers are responsible for paying their own income tax and national insurance contributions (NICs). Failing to do so can lead to HMRC demanding the payment of any tax monies owed, plus interest.
Remember, too, that you'll also have to pay income taxes on the $20,000 that you've earned. If you are filing as a single taxpayer or are married and filing jointly, you'll fall into the 12% tax bracket on that $20,000 of freelance income.
Where do I pay taxes if I work remotely Europe? ›Which country can tax you? There are no EU-wide rules that say how EU nationals who live, work or spend time outside their home countries are to be taxed on their income. However, the country where you are resident for tax purposes can usually tax your total worldwide income, earned or unearned.
Can I be self-employed in two countries? ›If you normally work as a self-employed person in two or more countries, then the 24-month rule is not relevant. Under both the 'old' and 'new' EEA rules, you will need to pay social security in the country where you are resident if you perform a substantial part (at least 25%) of your activities in that country.
Why are self-employed taxed so high? ›In addition to federal, state and local income taxes, simply being self-employed subjects one to a separate 15.3% tax covering Social Security and Medicare. While W-2 employees “split” this rate with their employers, the IRS views an entrepreneur as both the employee and the employer. Thus, the higher tax rate.
Why is there a 15% self-employment tax? ›That's because self-employed people must pay both the employer and employee side of Social Security and Medicare taxes. In total, the self-employment tax is 15.3%. To offset the extra cost, the IRS allows a deduction of half a person's self-employment taxes.
How much should I pay in taxes if I am self-employed? ›The self-employment tax rate for 2022-2023
As noted, the self-employment tax rate is 15.3% of net earnings. That rate is the sum of a 12.4% Social Security tax and a 2.9% Medicare tax on net earnings. Self-employment tax is not the same as income tax.
You must tell HM Revenue and Customs ( HMRC ) if you're either: leaving the UK to live abroad permanently. going to work abroad full-time for at least one full tax year.
Can I be a sole trader in the UK and live abroad? ›
Yes, you can absolutely own and run a limited company or sole trader business in the UK without being in the country. There are some advantages to being inside the UK, such as being able to meet clients or travel to destinations within the UK.
Do I pay tax on UK income if I live abroad? ›You usually have to pay tax on your UK income even if you're not a UK resident. Income includes things like: pension. rental income.