Business creation
The formation of a company is a crucial step, involving significant tax choices that will have a long-term impact.
Our tax lawyers address three key points in the taxation of company formations: the choice of tax regime, registration duties, and value-added tax.
Which tax regime to choose for the creation of a company?
Entrepreneurs must first decide on the methods of taxing the company’s results. There are two very different tax regimes: income tax and corporate tax.
Income Tax:
When the company is subject to income tax (hereinafter IR), the annual result will be directly taxed in the hands of the partners, this is called fiscal transparency. Indeed, each partner will be allocated a share of the result based on their participation in the company, and this result will be added to their other income to be subject to income tax.
One advantage of IR is that the partner who practices their profession within the company can, under certain conditions, offset any deficits against the overall income of their tax household.
However, be careful, in the case of an option for income tax, the remuneration paid to the business owner will not be deductible from the taxable result.
Corporate Tax:
In the case of an option for corporate tax (hereinafter CT), it is the legal entity that will directly pay the corporate income tax it incurs.
The tax rate will depend on the amount of taxable profit:
– 15% on the first 38,120 euros of profit,
– at the normal CT rate beyond that (for financial years from January 1, 2021, to December 31, 2021, the normal CT rate will be 26.5%).
In addition to the fact that under this tax regime the remunerations paid to the manager are deductible, CT allows partners to better control their personal taxation. Indeed, with CT, the company is directly taxed, and partners will only be taxed on the share of dividends eventually paid.
CT does have some drawbacks, including the “double taxation” of the result in the case of dividend distribution. The result will be taxed first at the company level, and then the dividends will be subject to the flat-rate withholding tax of 30%, which is 12.8% income tax and 17.2% social security contributions (unless the option for the progressive scale).
Registration Duties:
As soon as a partner makes a contribution in kind at the time of the formation of a company, the question of registration duties will necessarily arise, which can be schematically classified into two categories:
– Pure and Simple Contributions:
These are contributions whose consideration consists solely of equity securities.
They are generally exempt from registration duties, including the fixed duty, in accordance with Article 810 of the General Tax Code (hereinafter CGI), subject to exceptions.
– Onerous Contributions:
These are contributions that are remunerated with cash, an asset, or the assumption of a liability by the company for a liability incumbent on the contributor.
These contributions are automatically subject to registration duties, including during the formation of the company.
Value-Added Tax:
Value-added tax (hereinafter VAT) is an indirect tax paid by consumers and collected by businesses. Currently, the standard VAT rate in mainland France is 20%.
When forming a company, it is possible to opt for the flat-rate scheme, in which case the company will not collect VAT, but it will also not be able to deduct it. This scheme is open to all companies whose turnover for the previous year does not exceed certain thresholds.
The formation of companies involves complex choices on the tax front. The assistance of a tax lawyer will allow you to make informed choices that align with your project.
The tax lawyers at LEXPERTAẌ are experts in all areas of taxation, especially in the formation of companies.
We commit to making our skills and experience fully available to you to accompany you throughout the formation process and enable you to make the most opportune tax choices.
