New Single Entrepreneur Status and ISخيار Option

The individual status of the individual entrepreneur will enter into force on May 15, 2022. This reform of the individual entrepreneur was introduced by law in favor of independent professional activity on February 14, 2022, resulting from Article 13 of the Finance Act 2022 .

In particular, the individual entrepreneur will now be able to opt for corporate tax (IS). What are the consequences?

This article is devoted to the new individual business tax situation resulting from the reform, and does not address the consequences for economic activity.

The new status of the individual entrepreneur

The new status of individual entrepreneurs (Article L.526-22 of the Commercial Code) will be allowed in particular To be able to choose the IS, by assimilation EURL (or EARL for agricultural activities).

Moreover, the entry into force of the reform of this new status will lead to the end of EIRL, which allowed a natural person to allocate specific assets that could only be taken over by professional creditors (the declaration of asset allocation was also abolished by reform). The government issued Decree No. 2022-709 regarding the extinction of the EIRL.

The second Decree No. 725-2022 relating to the definition of the professional assets of an individual entrepreneur has also been published.

The main purpose of the reform is to protect any natural person who carries out one or more independent activities, By taking advantage of the automatic protection of his personal property against professional creditors through the asset allocation mechanism. This mechanism allows individual entrepreneurs to designate assets, rights, obligations or securities useful for their professional activity, so that professional creditors cannot confiscate assets that constitute personal assets, and vice versa.

however, It will be possible for the entrepreneur to waive the benefit of this chapterespecially within the framework of the guarantee that the entrepreneur will have to provide with his bank to obtain a loan.

In addition, the fix provides for the expansion of the application range of ATI (Independent Workers Bonus), which allows individual entrepreneurs to facilitate their retraining. This 800 per month aid should benefit more than 30,000 entrepreneurs each year, compared to just 1,000 currently.

The IS option coincides with the absorption, at the tax level, of the EURL or even EARL status for agricultural activities. CGI Amended Article 1655 sets out the conditions for this option:

  • Entrepreneurs must carry out a taxable activity in category BIC, BNC or BA ;
  • They should come under real tax system ; Entrepreneurs who are subject to the micro-enterprise system [1].

What concerns might an individual entrepreneur have in choosing to organize a state?

The IS option is particularly interesting when the infrared rate is higher than IS (25%). As a reminder, small and medium-sized companies whose turnover does not exceed 10 million euros benefit from a reduced rate of 15% up to 38,120, the increase will be subject to the normal rate. It also allows deduction of the wages paid to the entrepreneur and his income tax, the latter being absorbed in the majority of the director of an LLC remunerated under the Article 62 CGI system.

Profits reinvested in the business will not be taxable in the hands of the entrepreneur, while the profits that the entrepreneur imagines will be treated as profits.

Tax Consequences of ISIS Choice

The option of the EIRL to be absorbed into the EURL (or EARL for agricultural activities) must be exercised before the end of the third month in which the entrepreneur desires such absorption.

Once the option is exercised, the law provides for exemption from the registration procedure in the event of a company formation, transformation or capital increase.

Understanding EIRL and EURL It entails a contribution to the inherited assets of a sole proprietorship and a partial or total cessation of the company’s activities. Thus, an entrepreneur can apply to professional capital gains with exemptions and reductions stipulated in CGI, (revenue less than a certain amount).

So the choice means that The transfer of assets from private assets to professional assets of the operator will benefit from the immigrant asset system . This mechanism provided for in Section 151 VI of the CGI provides for deferment of capital gains taxation until the sale of the property in question. Once the transfer is made, the entrepreneur will have to determine his share of the professional and private value-added, according to the time he spends on the professional and private assets.

Conversely The conversion of professional assets into private assets follows the common law system for professional capital gainsi.e. taxes, unless there is a stipulated exemption or reduction where applicable.

Once exercised, the IS option is irrevocably applicable for a period of 5 years and can then be terminated during the same period. The waiver must be notified to the Department before the end of the month preceding the deadline for paying the first installment of corporate tax for the fiscal year to which the waiver applies. In the case of assignment, the sole proprietorship falls under the partnership system, and is subject to IR. The waiver is a stoppage, which in particular means immediate taxation of operating profits subject to tax deferral. This mechanism is also provided in the event of the liquidation of the individual institution that chose the Islamic State.

Consequences of the choice of state regulation on social security contributions

With regard to social security contributions, the profits received by the individual entrepreneur will be included in the basis of his personal contributions to social security and his contributions, for a fraction exceeding 10% of the amount of net taxable profit. This measure is specifically intended to prevent entrepreneurs from evading social security contributions by paying dividends.

[1] Thus, entrepreneurs who are subject to the system of small enterprises (including small business owners) who are taxed with income tax, will have to choose the real tax system.

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