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French Bill To Benefit Entrepreneurs

Friday, February 26, 2010

The French National Assembly has adopted a bill providing for the creation of a new legal structure in France, a sole proprietorship company with limited responsibility (enterprise individuelle à responsabilité limitée – EIRL), designed to protect individual entrepreneurs, and to provide significant fiscal benefits.

The adoption of the text heralds good news for the 1.5 million individual entrepreneurs in France, as it not only marks an end to fiscal injustice, but also ensures that personal assets are protected in the case of liquidation.

Individual entrepreneurs who adopt the status of the EIRL will be able to opt either to become subject to income tax (l’impôt sur le revenu) or to become liable to pay corporate tax (l’impôt sur les sociétés), thus removing the distinction between the fiscal treatment of individual entrepreneurs and companies.

For entrepreneurs registered as an EIRL, and liable to pay income tax, profits realized will be taxed according to the nature of the business activity. Social contributions will be due on total income earned.

For EIRL entrepreneurs subject to corporate tax, realized profits of less than EUR38,120 will be taxed at a reduced rate of 15%, and profits in excess of this threshold figure will be taxed at the standard corporate tax rate of 33.33%. Regarding social contributions, these will be levied on the entrepreneur’s remuneration. Profits paid to the entrepreneur will be taxed separately under the dividends regime.

Establishing the EIRL status is one of the government’s key priorities to encourage entrepreneurship. Under the new legal structure, individual entrepreneurs will be able to decide upon the exact level of risk that they wish to take on their own assets, without the need to form a company.

Welcoming the decision, the Secretary of State for Trade, Crafts and SMEs, Hervé Novelli, announced that the new legal structure will afford the same level of protection to individual entrepreneurs as to company directors.

Due to be examined by the French Senate from April 6, the government aims to implement the new measure from January 1, 2011. Given that the measure is thought to lead to a shortfall in revenue for the government estimated at between EUR50m and EUR60m, Hervé Novelli has pledged to evaluate the cost of this initiative at the end of a year.