French 'Auto-Entrepreneurs' Face Tax Threat

by Ulrika Lomas, Tax-News.com, Brussels

01 December 2010

Barely two years after the successful launch of the government’s new scheme, enabling individual entrepreneurs or traders to register with the new legal status of ‘auto-entrepreneur’, the government’s controversial new land tax contribution, imposed on all companies in France (la cotisation foncière des enterprises – CFE), is threatening to dash the hopes of thousands of individuals now faced with the prospect of having to terminate their activities.

Denouncing the “profoundly unjust” tax, which forms part of the new economic contribution for businesses (la contribution économique territoriale – CET) replacing local business tax in France from 2010, the federation of auto-entrepreneurs (la Fédération des Auto-entrepreneurs - FEDAE) explained that the new tax is imposed on all auto-entrepreneurs in France irrespective of their declared turnover, and is based on the rental value of the work place, determined by each municipality, even if the work place is also the individual’s own home, as is primarily the case. The tax varies dramatically between EUR200 and EUR2,000 the federation points out.

According to the federation, this can result in absurd situations whereby one entrepreneur, realizing a turnover of EUR100 in 2010 is required to pay EUR2,000 in land tax contributions, whereas another entrepreneur, realizing a turnover of EUR30,000 may only face a CFE bill of EUR200.

When registering as an auto-entrepreneur, individuals may opt to pay a fixed withholding tax levy, exempting them from both income tax and the new land tax. However, entrepreneurs with an income exceeding a certain threshold and indeed other entrepreneurs are required to pay income tax and, from the second year of operations, the CFE tax.

Outraged by the current situation, FEDAE has organized an online petition opposing the tax, urging the government to act immediately to rectify the situation. FEDAE has urged the government to modify the calculation of the tax, which, it argues, goes against the government’s pledge for the scheme that “zero turnover, zero charge”. The federation has also called for clarification on the taxation of auto-entrepreneurs and for a meeting to take place to take stock of the scheme and to assess its first two years and to propose improvements. FEDAE has warned that the CFE tax as it stands could discourage more than 300,000 auto-entrepreneurs.

All too aware of the developing situation, the French government has pledged to review its methods of calculating and applying the tax as quickly as possible and has agreed to hold a meeting with FEDAE.

Since its creation at the beginning of 2009, the auto-entrepreneur status enables employees, unemployed and retired individuals as well as students to develop an activity, either as a main occupation or indeed as a secondary occupation, to increase their revenues. The status was heralded at the time as a triumph as it sought to offer simplified procedures and a favourable tax treatment.

The CFE tax is due on December 15.

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