To run a business in France it is possible to use one of several different business structures.

The most common are a limited company, called a Entreprise unipersonnelle à responsabilité limitée - EURL ('SARL' for 2+ persons), or a sole trader with no separate legal personality, called a micro-entreprise.

It is also possible to set up as a Société par Actions Simplifiée -SAS(U), which is a simplified single stock company.

The use of micro-entreprise status is not always possible, as certain regulated activities are not permitted, and there is a turnover limit, which varies by type of activity.

The question often arises as to which business structure to use in order to keep social security contributions and income tax to a minimum.

Whichever business structure is adopted there is no escaping the high level of social security contributions payable.

Nevertheless, the contribution levels for tax and social insurance are not uniformly the same for each structure, and depending on the type of activity and the cost structure of the business, it can be preferable to choose one structure over another.

The fundamental difference between the limited company and the sole trader is that whilst the former pays social security contributions on their profits, a micro-entreprise pays as a fixed percentage of the turnover of the business.

In a limited company it is also possible to opt for company taxation over personal taxation, but once again only the latter is available to a micro-entreprise.

Finally, for those who adopt company taxation in a limited company, it is also possible to elect to pay remuneration by way of dividends (with slightly different social security charges), whilst this is not possible in a micro-entreprise.

To make a comparison of which is the most optimal structure our business partner has made a comparison of the net income received under the different business structures. The first comparison is of a service based (prestation de service) business. The second is for a commercial sales business (ventes de marchandies), which includes restaurants and chambres d’hotes.

In the comparisons, the tax liability assumes one person.

In this example the turnover comparison used is €77,000 a year, which is the maximum permitted under a micro-entreprise. The business owner is registered as a service provider paying taxes as a Bénéfices Industriels et Commerciaux (BIC). As a micro-entreprise the social security contributions payable are 21.3% of turnover, and the income tax allowance is 50% of turnover.

The comparison has been made with cost of sales at 15% of turnover.

Although it is possible in a EURL to receive remuneration by way of dividend, the analysis showed that this resulted in higher charges, so in the example below the figure shown is direct remuneration. The analysis did not include a mix of the two, which in some circumstances may be a better option. The income tax system used is company taxation (IS), which was found to be more beneficial than adopting personal taxation.

In the case of the SAS we have again used the most beneficial system of taxation, which in this case is remuneration by way of 100% dividend (DIV), rather than direct remuneration.

Nevertheless, whatever method was used, the net income received (after tax and social security contributions) was found to be highest using a micro-entreprise structure, as can be seen from the following table.

<table style="width: 100%;">
    <thead>
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        <td style="padding: 6px; text-align: center;">
            <span style="font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: bold; font-size : 1.1em;">
                EURL IS
            </span>
        </td>
        <td style="padding: 6px; text-align: center;">
            <span style="font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: bold; font-size : 1.1em;">
               SAS DIV
            </span>
        </td>
        <td style="padding: 6px; text-align: center;">
            <span style="font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: bold; font-size : 1.1em;">
                MICRO BIC
            </span>
        </td>
    </tr>
    </thead>
    <tbody>
    <tr style="background-color: #e0eee0; text-align: center; font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: normal; font-size : 1em; padding: 5px;">
        <td>
          €39,125 
        </td>
        <td>

The following table shows the results for a commercial sales (buy and sell) business. The turnover figure used is €188,700, once again the highest turnover permitted under a micro-entreprise. The fixed rate social security contributions payable as a micro-entreprise is 12.3%, with a 50% income tax allowance.

The comparison has been made with cost of sales at 60% of turnover. Once again the sole trader structure is shown to be more beneficial.

<table style="width: 100%;">
    <thead>
    <tr style="background-color: #9bcfff;">
        <td style="padding: 6px; text-align: center;">
            <span style="font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: bold; font-size : 1.1em;">
                EURL IS
            </span>
        </td>
        <td style="padding: 6px; text-align: center;">
            <span style="font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: bold; font-size : 1.1em;">
               SAS DIV
            </span>
        </td>
        <td style="padding: 6px; text-align: center;">
            <span style="font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: bold; font-size : 1.1em;">
                MICRO BIC
            </span>
        </td>
    </tr>
    </thead>
    <tbody>
    <tr style="background-color: #e0eee0; text-align: center; font-family: Arial, Helvetica, sans-serif; font-style: normal; color: #000000; font-weight: normal; font-size : 1em; padding: 5px;">
        <td>
          €51,562 
        </td>
        <td>

Although the results show that in all cases the use of a micro-entreprise structure is the better option, this will not always be the case.

First, there are limits on the turnover of a micro-entreprise.

Second, the cost structure of the business will need to be examined in each case, and particularly where significant capital investment is necessary, the use of a limited company is likely to be a more suitable option. Depreciation of capital is not possible using a micro-entreprise.

Neither can a micro-entreprise report a deficit, which may arise in the early years of a new business.

Finally, there is no limited liability for a micro-entreprise, save for the principal residence.

If you seek professional advice concerning anything in this article contact our <span

    style="font-weight: bold;">Business/Tax Advisory Service </span></a> and one of our advisors will get back to you.</span>