Micro-enterprise or individual enterprise: what’s best for your business?

Are you a freelancer and you don’t know which legal status to choose for your business?

Solopreneurs in France have the apparent luxury of choice between an array of options for their company structure. But the steps involved in creating your company can be tricky to navigate.

If you’re just starting out or testing the waters with your project, you may be reluctant to venture down the avenue of company creation and deal with all the complex administrative hurdles that could stifle your creativity.

In that case, the plethora of choice you had before is reduced to two options: micro-enterprise or individual enterprise status.

Determining which choice would be more beneficial to you is not an exact science. It depends largely on the nature of your project, your industry, and your ambitions for your business.

This article will look at the differences between the two options and cover all the benefits and drawbacks of each – helping you make an informed decision.

Before we dive deep into the technicalities of the subject, it’s important to define some key terms.

“Micro-enterprise” and “individual enterprise” are not exactly the same thing, although they both fall under the same legal status. The differences lie in the:

• accounting obligations,
• tax implications,
• social security contributions.

Think about it this way: a micro-enterprise is one branch of the individual enterprise status. It’s not technically a separate legal status, but this difference in nomenclature helps us talk about the tax and social security systems (or “régimes”) associated with each: the micro-fiscal regime and the standard regime.

Until recently, “individual enterprises” fell into three regimes: the standard “EI” regime, the micro-fiscal regime, and the entrepreneur individuel à responsabilité limitée (EIRL, Limited Liability Individual Enterprise) regime, which no longer exists as of 15 May 2022.

Also, it’s important to note that micro-enterprise status used to be known as auto-enterprise status, and this name is still sometimes used in some documentation.

This all seems quite obscure, so let’s use an example to illustrate the difference:

• Chloe has just started her freelance consultancy venture. She chose the micro-enterprise regime, which technically makes her an “individual entrepreneur” (with individual enterprise status) operating within the micro-fiscal regime.
• Oliver makes pottery and he picked “individual enterprise” status, but without the micro-fiscal regime. He’s therefore an individual entrepreneur operating within the standard EI regime.

Remember, “individual enterprise” (EI) and “micro-enterprise” are technically the same legal entity – the main difference is the tax systems they follow.

So, if they’re fundamentally the same thing, why do we have to differentiate between them?

It’s true, even when it comes to starting your business, both processes are remarkably similar. Whether you opt to become a micro-enterprise or an individual enterprise, you fill in the same form on the Guichet Unique website (link in French) – you just have to be careful to check the right box when it comes to choosing the tax regime (micro vs. standard).

There are, however, plenty of differences when it comes to accounting, tax, and social security. Let’s take a closer look at that now.

Firstly, whether you’re a micro-enterprise or an individual enterprise, your business revenue is taxed as part of your income tax.

Here’s where the first big difference comes in:

• As an individual enterprise, you are taxed on your profits. This means that you are entitled to deduct all your professional costs from your turnover to calculate a financial result.
• As a micro-enterprise, this is not an option. You’re taxed on your total turnover, so you can’t deduct individual professional expenses from your revenue. There are, however, fixed-rate allowances for professional expenditure which are automatically deducted from the turnover you declare. The resulting “profit” is then used to calculate how much tax you pay.

Every situation is different, but sometimes even this allowance isn’t enough to cover all the professional expenses you incur.

This first difference is the key to understanding what sets the two regimes apart. If you don’t choose the best set-up for your situation, you could end up paying much more tax than you need to, sometimes even outweighing your income. We recommend you seek professional help from an accountant or financial expert to advise you based on your particular circumstances.

If you opt for the micro-fiscal regime (remember, that’s still technically the individual enterprise status), you may be eligible for what’s known as versement libératoire (fixed-rate tax payments).

This means that your social security contributions and tax payments are made at the same time, with the latter being calculated by applying a fixed rate to your revenue:

• 1% for commercial activities,
• 1.7% for services that fall into the industrial and commercial profits (BIC) category,
• 2.2% for services that fall into the non-commercial profits (BNC) category.

When you think about it, this option may seem very attractive as the tax rates are relatively low. However, bear in mind that the standard income tax system works with a system of brackets, meaning you only pay tax on earnings over €10,777, whereas the rates for versement libératoire are applied from the very first euro you earn.

Eligibility for this tax payment option also depends on your turnover and your previous years’ earnings. The threshold fluctuates depending on your personal tax situation (link in French), but for a single-occupancy household, your earnings from two years before you want to begin versement libératoire must not have exceeded €25,710.

As a micro-enterprise, you also benefit from the “micro-social” regime and your social security contributions are taken at the same time as your monthly or quarterly revenue declaration.

From 1 October 2022, the percentages applied to your turnover to calculate your social security contributions are as follows:

• 12.3% for commercial activities,
• 21.2% for services that fall into the industrial and commercial profits (BIC) category,
• 21.1% for services that fall into the non-commercial profits (BNC) category.

Finally, a small proportion of your turnover (ranging from 0.1% to 0.3%) is added to contribute towards your eligibility for funding for certain training programs.

It’s important to remember that micro-entrepreneurs are affiliated with the standard social security system, as if they were a regular salaried employee.

Individual entrepreneurs are also affiliated with the standard social security coverage. Like with the tax system, though, their social security contributions are calculated based on their taxable profits (not their overall turnover) and amount to around 44% of their annual financial result.

Accounting requirements differ between businesses under the micro-fiscal regime and those under the standard individual enterprise regime.

Micro-enterprises enjoy extremely simplified accounting obligations, which is one of the main benefits of the regime. You only have to keep:

• a record of your takings, covering all sources of revenue,
• and a record of your outgoings on professional expenditure.

Bookkeeping and accounting for individual enterprises can be more complex, generally involving more comprehensive accounting obligations, annual reports, and profit and loss statements.

We strongly recommend entrusting a professional with your accounting to avoid errors, which can turn out to be costly.

We’ve seen that the differences between the micro-fiscal and individual enterprise regimes mainly lie in the accounting requirements and fiscal and social security calculations.

It’s essential to take all this into consideration when making your choice as all these factors have an impact on your monthly payments, your taxes, and your accounting practices.

Typically, solopreneurs tend to opt for micro-enterprise status to get their project off the ground and test the waters with their idea – simply because the admin is so much easier.

Meanwhile, freelancers who incur significant professional expenses and who are already well established in their business generally benefit more from the individual enterprise regime.

Are you a solopreneur looking to launch your business? Create your micro-enterprise in a flash with Qonto and enjoy a professional account with all the tools you need to run your freelance venture.