Sole trader tax obligations in France

Article illustration: Sole Trader Tax Obligations Explained

Which tax regime applies to your business

Before you can understand your tax obligations, you need to know which regime governs your activity. In France, a sole trader (entreprise individuelle) usually falls into one of two broad categories: the micro-entreprise regime or the régime réel. The one that applies depends mainly on your annual turnover and, in some cases, on choices you make when registering.

The micro-entreprise regime is the simplest option and is available as long as your turnover stays below defined ceilings. Under this regime, you are not taxed on your actual profit but on a fixed percentage of your turnover, because the tax authorities apply a standard allowance to cover your expenses. This means you cannot deduct your real costs, so it works best when your expenses are genuinely low.

The régime réel, by contrast, taxes you on your actual profit, meaning turnover minus deductible expenses. It requires proper bookkeeping but can be far more advantageous if you carry significant costs such as stock, equipment, subcontractors or premises. You may end up under the régime réel automatically if you exceed the micro ceilings, or you can opt into it voluntarily.

Your activity type also matters. Commercial and craft activities (buying and reselling goods, manufacturing) are classed differently from service activities and liberal professions, and each has its own turnover thresholds and allowance rates. Identifying your correct category from the outset avoids surprises when your first tax return falls due.

Income tax on your business profits

As a sole trader, your business is not a separate legal entity, so profits are taxed as part of your personal income tax (impôt sur le revenu). The profit is added to your household's other income and taxed according to the progressive income tax scale, taking into account your family situation.

How that profit is calculated depends on your regime. Under the micro regime, the tax office applies a flat allowance to your declared turnover and taxes what remains. Typical allowances differ by activity: a higher rate for resale of goods, a lower one for services and liberal professions. You simply report your gross turnover on your annual return, and the calculation is done for you.

Under the régime réel, you must prepare accounts showing your actual income and deductible expenses, and it is the resulting net profit that is taxed. This demands a supporting balance sheet and income statement, which is why many traders on this regime work with an accountant or a management centre.

A popular alternative for micro-entrepreneurs is the versement libératoire. If you elect this option and meet the income conditions, you pay a fixed percentage of your turnover as income tax each month or quarter, at the same time as your social contributions. This spreads the cost and removes the year-end lump sum, but it only makes sense if your household would otherwise be taxed at a rate higher than the flat percentage. Run the numbers before opting in, because for a household with little other income it can cost more than the standard scale.

VAT: thresholds, rates and when to register

Many new sole traders start out benefiting from the franchise en base de TVA, an exemption that means you do not charge VAT to your customers and do not reclaim it on your purchases. Your invoices must then carry the standard wording indicating VAT is not applicable under this exemption.

The exemption lasts only while your turnover stays below the applicable VAT thresholds, which differ between goods and services. There is a basic threshold and a higher tolerance threshold: crossing the basic threshold but staying under the tolerance one lets you keep the exemption for the current year, but crossing the higher threshold means you become liable for VAT immediately. Watch these limits closely throughout the year, not just at year end, because exceeding them mid-year changes your obligations straight away.

Once you are liable for VAT, you must charge it on your sales at the correct rate. The standard rate applies to most goods and services, while reduced rates apply to specific categories such as certain food products, books and some works on housing. You then declare the VAT you collected, deduct the VAT you paid on business purchases, and pay the difference to the tax office.

Becoming a VAT-registered business is not only a burden. It lets you recover VAT on equipment, stock and expenses, which can be valuable if you invest heavily. Some traders even opt into VAT voluntarily for this reason. Whichever situation applies, keep clean records of every invoice issued and received, as these are the basis of your VAT return.

Social security contributions are often the largest recurring charge a sole trader faces, and they are separate from income tax. They fund your health cover, retirement, family benefits and other social protections, and they are collected through the Urssaf.

For micro-entrepreneurs, contributions are calculated as a flat percentage of turnover, declared monthly or quarterly. The rate varies by activity type. A crucial point to remember: because the calculation is based on turnover, you owe nothing when your turnover is zero, but you also cannot reduce the base by your expenses. If you declared your turnover, the contribution is due even if the customer has not yet paid you.

Sole traders under the régime réel pay contributions calculated on their actual professional income, with a system of provisional instalments during the year followed by an adjustment once the real figure is known. This can create a lag: contributions in your early years may be based on estimates, then recalculated later, so it is wise to set money aside for the eventual regularisation.

New business owners may qualify for a contribution reduction scheme in their first period of activity, easing the burden while the business finds its feet. Whatever your situation, treat these contributions as a genuine cost of doing business and factor them into your pricing from day one.

The CFE and other local business taxes

Beyond income tax and social contributions, most sole traders owe the cotisation foncière des entreprises (CFE), a local business tax paid to the commune where your business is based. The CFE is due even if you work from home, and it applies regardless of whether you made a profit.

The amount depends on the rental value of the premises you use and on rates set locally, with a minimum contribution applied to businesses with modest turnover. Because rates vary from one commune to another, two identical businesses in different towns can pay different amounts. New businesses are generally exempt from the CFE for their first calendar year of activity, so budget for it from the second year onwards.

CFE is not something you declare and calculate yourself each year in the same way as VAT. The tax office issues a notice, usually available in your online business account, and you pay by the stated deadline. When you first register, however, you must file an initial declaration so the authorities can establish your CFE base.

Depending on your turnover and activity, you may also be liable for a related contribution linked to the value added by your business, though this affects larger operations more than most sole traders. Keep an eye on your online account, as local tax notices appear there rather than always arriving by post.

Key filing deadlines and payment schedules

Staying on top of deadlines is one of the most practical challenges of running a sole trade. Missing a filing or a payment can trigger penalties and interest, so build the key dates into your calendar at the start of each year.

Social contributions for micro-entrepreneurs follow the rhythm you chose at registration: monthly or quarterly declarations to the Urssaf. You must declare even a nil turnover, because failing to file a declaration can itself lead to fixed penalties. If you opted for the versement libératoire, your income tax is settled at the same frequency.

The annual income tax return covers the previous year's income and is filed in spring, with the exact date depending on your department. Even micro-entrepreneurs must report their turnover on this return, so do not assume your Urssaf declarations replace it. VAT-registered traders file returns according to their VAT regime, which may be monthly, quarterly or annually depending on turnover and the option chosen.

The CFE payment falls in the final part of the year, with the notice available in advance. Diarise each obligation, and where possible set up direct debits so payments leave your account automatically. Keeping a simple running total of what you will owe throughout the year prevents nasty cash-flow shocks when several deadlines cluster together.

Records and declarations you must keep up to date

Good record-keeping is the foundation of meeting every obligation above, and the requirements scale with your regime. Even the lightest micro-entreprise carries obligations that go beyond simply filing turnover.

At a minimum, a micro-entrepreneur must keep a chronological record of receipts, and traders who buy and resell goods must also keep a register of purchases. You must issue compliant invoices bearing your business identification number and the correct VAT mention, and keep copies of everything you issue and receive. A dedicated business bank account is required once your turnover passes a certain level for two consecutive years, and is good practice from the start in any case.

Under the régime réel, obligations are heavier: full accounting records, an annual set of accounts and supporting documentation for every expense you deduct. This is where working with an accountant becomes valuable, both to stay compliant and to make sure you claim every legitimate deduction.

Across all regimes, keep your documents for the retention periods required by law, as the tax authorities can review past years. Store invoices, bank statements, contracts and declarations in an organised way, whether on paper or digitally. Reliable records not only protect you in the event of a check, they also give you a clear picture of how your business is really performing, which is the information you need to make good decisions.

Example

Overview of key tax and contribution obligations by area for French sole traders

Obligation	What it covers	Frequency	Basis
Income tax	Tax on business profit within household income	Annual return; optional monthly/quarterly if versement libératoire	Turnover with allowance (micro) or net profit (réel)
Social contributions	Health, retirement, family benefits via Urssaf	Monthly or quarterly declaration	Percentage of turnover (micro) or actual income (réel)
VAT	Tax collected on sales, deductible on purchases	Monthly, quarterly or annual once liable	Sales above VAT thresholds
CFE	Local business tax to your commune	Annual payment; exempt first year	Rental value of premises and local rates

FAQ

Do I have to declare my turnover even if I earned nothing this period? Yes. Micro-entrepreneurs must file a turnover declaration to the Urssaf for every period, even when the figure is zero. No contribution is due on nil turnover, but skipping the declaration itself can trigger a fixed penalty, so always submit it on time.

Can I deduct my business expenses as a sole trader? It depends on your regime. Under the micro regime you cannot deduct real expenses, because a fixed allowance is applied to your turnover instead. Under the régime réel you deduct your actual documented expenses from turnover, so this regime is usually better if your costs are significant.

When do I need to start charging VAT? You charge VAT once your turnover exceeds the applicable VAT thresholds, which differ for goods and services. Below the basic threshold you benefit from the franchise en base and add no VAT to invoices. Watch your turnover during the year, as crossing the higher tolerance threshold makes you liable straight away.

Is the CFE due in my first year of business? New businesses are generally exempt from the CFE for their first calendar year of activity, but you must file an initial declaration when you register so your base can be set. From the second year onwards the tax office issues a notice in your online account, and payment falls due late in the year.