What’s a freelance ?
A professional freelance is generally someone who has chosen to create a business in their own name. The corresponding legal statute is better known as self-entrepreneur or micro-entrepreneur.
Since 2009, the establishment of the micro-enterprise statute has encouraged entrepreneurial adventures. Nevertheless, creating your own independent business doesn’t guarantee its success. The French Ministry of Economy observes that 50% of self-entrepreneurs stop their activity after just one fiscal year.
The specificity of the freelance self-entrepreneur
The fact that the business is in the name of a professional freelancer implies several differences compared to that of more conventional legal statutes (SA, SAS, SARL, etc.).
Indeed, the freelancer is liable for debts coming from his activity, which ever they are. Which is not always the case in companies. This arrangement can be problematic if the freelancer initiates a lot of costs.
The modality of the turnover’s statement
Micro-entrepreneurs must declare their turnover monthly or quarterly and thus calculate the contribution rate to pay. As opposed to companies, micro-entrepreneurs do not pay social and employer contribution on the salaries paid, but on the turnover achieved.
It is to be noted that the turnover corresponds to what is really perceived by the self-entrepreneur freelancer. Indeed, in companies, the turnover corresponds to the amounts billed to the customers, and this, even if the whole of the service isn’t settled.
This disposition allows self-entrepreneurs to pay contributions only on their actual income and not on counting their customer’s credits. This reduces risks in case a service is cancelled by the customer.
Amount of the freelancers’s social contribution
The rates deducted by the state, on the real and active turnover, is composed as a social package. This means that only one rate is applied on the turnover and includes all the contributions to the different social services as health insurance, retirement plan or family allocations.
For the professional freelancer, these rates are set and have been established at 13,1% for merchandise sale operations and 22,5% for services.
For liberal activities, the rate is set at 22,7% of the achieved turnover. It is to be noted that these are non-regulated liberal activities, because otherwise, it is impossible to obtain the statute of micro-enterprise.
In case a professional freelancer carries out several different activities that belong to different fields, he must break down his turnover in order to clearly indicate on his statements which belongs to the first rate, and which to the second and third rate.
This work can make the freelancer’s days more complicated, because it is a tedious task. This implies a rigorous management of all the income in order to know what will be subject to the deductions of 13,1%, 22,5%, or 22,7%.
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The issue of VAT
It is suitable to remind that a self-entrepreneur freelancer doesn’t charge VAT, but pays it when a supplier delivers goods and services. Unlike other companies which can deduct the VAT paid to the suppliers, the micro-entrepreneur doesn’t have this possibility.
While business companies only pay the price excluding taxes for an external service, the micro-entrepreneur will actually pay the full amount including VAT.
This situation increases the weight of purchases for the freelancer. On the other hand, the legal requirements concerning the tax returns are alleviated.
This VAT provision explains why the rate corresponding to the sale of merchandise is reduced of almost half as that of other rates applied. Indeed, to sell merchandise you have to buy them. A merchandise being, in accounting terms, an item bought and sold without transformation. As opposed to services which can be sold without necessarily buying anything.
Businesses have to pay the CFE (land tax on companies) based on the town their activity is located. This contribution can vary and depends on the turnover achieved.
For micro-entrepreneurs, it is paid only starting the second year of activity. Nevertheless, the Land tax on companies can represent a certain significant amount for a freelancer with amounts between 200 and 500€ per year.
Furthermore, depending on the activity chosen when creating the self-entrepreneur statute, their is another contribution devoted to professional training. These rates are in a range of 0,10% of the active turnover of the vendors, 0,20% for the professions said liberal and 0,30% for the craftsmen.
The income tax question
The freelance micro-entrepreneur doesn’t have a payroll nor a work contract since he is his own boss. Indeed, article 143-3 of the Labour Code oversees the payments as being a process that is practised by an employer to his employees.
Thus the calculation of the income tax is based on special modalities which needs to be well understood. For the freelance self-entrepreneur there are two possibilities :
- either indicate on his tax return the numbers corresponding to the previous fiscal year.
- or choose the withholding rate at source. Which is an arrangement allowing the freelancer to pay this tax directly via the active turnover achieved.
With the reform of the withholding tax in France, all the freelancers are now submitted to the withholding rate at source.
The calculation operates the same manner as the social contributions and professional training with rates of 1% for the merchandise sales, 1,7% for the services and 2,2% for the liberal activities.
If the professional carries out several types of activities, he must echo these different rates for each part that corresponds to the turnover.
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