French President Unveils New Support Measures For SMEs

by Ulrika Lomas, Tax-News.com, Brussels

09 October 2009

Determined to support small- and medium-sized enterprises (SME) and to strengthen their development, French President Nicolas Sarkozy has unveiled a series of measures, specifically designed to increase company capital and to alleviate the tax burden.

During a recent gathering of the SME industry body the Confédération générale des Petites et Moyennes Entreprises (CGPME) in Paris, the French President announced that the tax initiatives contained in the government’s 2010 finance bill aim to reduce the tax burden on small companies, in order to increase their competitiveness on the international markets.

The key tax measures contained in the 2010 finance bill, designed to support SMEs are as follows:

Reform of local business tax in France.

Since February 5, President Sarkozy has pledged to abolish the highly controversial local business tax levied on productive investments, in a bid to enable French businesses to invest, to create jobs and to conquer new markets.

Effective from January 1, 2010, the reform will affect both new and existing investments.

Local business tax is to be replaced by another contribution, “la contribution économique territoriale – CET”. The CET comprises a land tax levied on companies (une cotisation locale d’activité – CLA) and a new levy on the value added by a company (une cotisation complémentaire – CC). The government has confirmed plans to cap the sum of the value added contribution and land tax levy at 3% of the value added by a company.

Determined not to penalise or hinder the competitiveness of SMEs as a result of this change in taxation, the French government is proposing to put in place a series of provisions.

• The rate of the value added contribution will be fixed at national level. A rate of 0% will apply to companies realising a turnover of less than EUR500,000 annually, and 1.5% for those whose turnover exceeds EUR50m per year. This contribution will not apply, however, to liberal professions employing fewer than five employees, given that these companies are already subject to income tax.
• In addition to the introduction of a progressive tax rate for the value added contribution, companies whose turnover does not exceed EUR2m will also be entitled to an annual deduction from the taxable base of EUR1,000.
• The tax base will be capped at 80% of turnover, to benefit companies with a high labour force.
• A sliding scale will apply over a period of five years to ensure that company contributions do not increase by any more than EUR500 or 10% in 2010.

The reform is due to enter into force from January 1, 2010 for businesses, in order to maximise the positive effect of the reform in 2010 on company funds.

The extension of existing government tax schemes.

Implemented late last year as part of the government’s economic stimulus plan, the measure granting accelerated repayment of research tax credit will now be extended to any spending incurred by companies in 2009.

For very small companies (TPE), with fewer than ten employees, the government is planning to extend its current scheme of ‘zéro charges’. This scheme grants employers exemption from their employer contributions when they recruit individuals either on a full or part time basis. This measure will be extended beyond 2009 and any employer who recruits during the first six months of 2010 will be exempt from contributions for one year.

In addition to the tax measures contained in the 2010 finance bill, the French President has announced government plans to contribute an additional EUR1.65bn to the capital of SMEs and medium size companies (les enterprises de taille intermédiaires – ETIs), with up to 5,000 employees, funded by the strategic investment fund (FSI) and Oséo, the public bank working to support innovation and growth of small businesses.

Although welcomed by Jean-Eudes du Mesnil du Buisson, the general secretary of the CGPME, for Jean-François Roubaud, President of the federation, these measures are completely inadequate. According to Roubaud, any company profits, reinvested in to the company’s own funds, should be less heavily taxed, while banks should be encouraged to facilitate credit for SMEs.

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