Your 1st tax obligation: reporting your profits When do you need to report your earnings? Your 2nd tax obligation: paying VAT Tax exemptions for the first year of business activity

Summary

What are the tax obligations for companies in their first year?

8 mins

February 09, 2023

By Panama Harris

You’ve just created your company, and now you’re ready to start building up your business activity. Only now, you have doubts about your tax obligations during your first year of activity.

You already know that you have to report your profits, but you don’t know how to proceed.

Maybe you’ve also heard about other tax obligations such as the VAT, the CFE, or the CVAE... but you’re not quite sure what all these acronyms stand for.

And amidst all this, you might be wondering if you qualify for certain tax exemptions, seeing as it’s your first year in business.

Over the course of this article, we’ll cover your first-year tax obligations in detail to answer your most pressing questions and help you see things more clearly.

Your 1st tax obligation: reporting your profits

Declaring your business profits (déclaration de bénéfices) is a mandatory fiscal obligation for all companies. That said, how you declare them all depends on your tax regime.

How to declare your profits according to your tax regime

Before we jump in, let’s take a moment to define the various tax regimes so we can make sense of it all.

Each and every company is subject to a tax regime (régime d’imposition). This has an impact on its taxation scheme, as well as on its accounting requirements.

You should know that your tax regime depends on the nature of your profits. There are two kinds of profits in the eyes of the law:

Industrial and Commercial Profits (Bénéfices Industriels et Commerciaux or BIC);
Non-Commercial Profits (Bénéfices Non Commerciaux or BNC).

Your profits belong to the BIC category if your business performs commercial, industrial or artisanal activities, or if your business is in providing food or accommodation (food service, hotel/ hospitality, etc.).

On the other hand, your profits are in the BNC category if you perform a liberal activity, work in a regulated profession or perform any other activity not related to BIC.

Option 1: Your profits are Industrial or Commercial (BIC)

In this instance, you have the choice between three different tax regimes:

the real normal regime (le régime réel normal);
the real simplified regime (le régime réel simplifié);
the micro-enterprise BIC regime (le régime micro-BIC).

The real normal and real simplified tax regimes

The real normal regime and the real simplified regime apply to businesses with BIC revenue. There aren’t major differences between these two statuses when it comes to declaring profits.

In both cases, companies must:

fill out an income report (déclaration de résultat) via a common form: the formulaire N° 2031-SD ;
submit a tax return (une liasse fiscale) using the formulaire n° 2050 for the real normal regime or the formulaire n° 2033 SD for the real simplified regime.

The deadlines for these declarations depend on your business’ tax scheme. Don’t worry, though - we’ll go into all that a bit further down in the article.

Both of the forms we listed above can be submitted online on the official taxation website.

💬 Note: as these declarations can be a bit complex, it can be useful to hire a professional (accountant or CPA) to help with your tax (and accounting) obligations.

The micro-enterprise BIC regime (micro-BIC)

This regime is reserved for micro-entreprises with BIC profits.

In order to benefit from this tax regime, your pre-tax (hors-taxe) annual income must not surpass:

€188,700 for commercial, industrial and artisanal business;
€77,700 for any other business that falls within the category of industrial and commercial profits (BIC). Both figures are for 2023 fiscal year.

In this instance, all you need to do is declare your revenue, be it monthly or quarterly according to your preference on the official URSSAF page. You can then declare your revenue on your tax return, using the 2042-C Pro form.

Important: contrary to the real normal and real simple regimes, you must report your revenue, not your net profits. As a reminder, your revenue encompasses all of your business’ income without deducting your professional costs.

Option 2: Your profits are Non-Commercial (BNC)

In this instance, you have two tax regimes at your disposal:

the controlled declaration regime (le régime de la déclaration contrôlée);
the micro-enterprise BNC regime (also known as the micro BNC regime = le régime micro BNC).

The controlled declaration regime

The controlled declaration regime relates only to companies with BNC revenue. It’s essentially the equivalent tax regime for BIC income.

Here, entrepreneurs must also report their income via the tax return form 2035 SD.

The micro-enterprise BNC regime

The micro BNC regime is reserved for micro-entrepreneurs (previously auto-entrepreneurs) with BNC revenue.

To qualify for this tax regime, your annual revenue must not surpass €77,700. This means that companies who have non-commercial income and who exceed the revenue ceiling mentioned above are automatically assigned to the controlled declaration regime.

Just like with the micro BIC regime, you must declare your income monthly or quarterly on the URSSAF website online.

When do you need to report your earnings?

The deadline for declaring your business’ income depends entirely on how your income is being taxed.

As a reminder, there are two ways to tax your income: via income tax (impôt sur le revenu or IR) or via corporate tax (impôt sur les sociétés or IS). In the instance of corporate tax, the company gets taxed on the income it generates. This is the default for companies like a Simplified Shareholder Company (société par actions simplifiée or SAS) or a Limited Liability Company (société à responsabilité limitée or SARL). As for the income tax regime, the associates of a company are taxed on the company’s revenue in their own name. As a rule of thumb, IR applies by default to individual enterprises and Limited Liability Sole Proprietor Enterprises (Entreprise Unipersonnelle à Responsabilité Limitée or EURL).

Deadline for companies subjected to income tax

For businesses that are taxed via income tax must report their income by the second business day following May 1 of the year following the creation of their company. This year, that means 3 May 2023.

Deadline for companies subjected to corporate tax

For companies subject to corporate tax, the deadline for reporting yearly income is within three months of closing out the previous fiscal year, if you close out the year after 31 December (e.g. if you close out 14 January, your deadline is 14 April).

However, if your year-end close was 31 December, then your deadline for declaring your income would still be the second business day following May 1 of the following year (e.g. 3 May for 2023).

Your 2nd tax obligation: paying VAT

Value Added Tax is an additional tax that applies to all consumer spending.

As a general rule, all companies must withhold VAT, even during the first year of operation.

That said, your company could be exempt from having to withhold this tax, i.e. your business is “VAT exempt”.

Is your business VAT exempt?

VAT exemption is automatically applied to companies whose pre-tax (hors taxe) revenue does not exceed:

€91,900 for commercial activity or supplying accommodation,
€36,800 for services rendered and liberal activities.

Any business setup can qualify, whether you’re an individual enterprise or a company like an SAS, a Simplified Single Shareholder Company (Société par Actions Simplifiée Unipersonnelle or SASU), a Limited Liability Sole Proprietor Enterprise (Entreprise Unipersonnelle à Responsabilité Limitée or EURL) or even a Limited Liability Company (Société à Responsabilité Limité or SARL) - so long as your income doesn’t exceed the exemption ceiling. Once your business surpasses this ceiling, however, then you must begin withholding VAT.

In practice, this means that, for the most part, most businesses aren’t subject to withholding VAT during the first few months of their activity. Let’s look at an example to illustrate how the exemption works.

Carole just founded a consulting agency. She opened her EURL in January 2023. Currently (in February 2023) her total revenue is €20,000. She’s still below the VAT exemption ceiling for services rendered, which is €36,800, so she is still exempt for the moment.

Imagine now that her business continues to flourish and her revenue goes well beyond the €36,800 yearly limit in April. Carole must then begin withholding VAT starting the day she surpasses the exemption threshold.

Good to know: certain types of activity are VAT-exempt by nature, regardless of the revenue. This applies particularly to the medical or paramedical professions, in education or in professional training work.

Should you always opt for VAT exemption?

You can always opt into withholding VAT, even if you’re well within the bounds for exemption.

Why opt in?

Simply because VAT exemption may not be the most attractive option for certain businesses.

As a matter of fact, applying and withholding VAT on products and services also allows you to deduct it from your professional purchases. Which basically means you don’t have to pay VAT on those purchases.

So, if for example you make quite a lot of purchases for your business (equipment, raw materials, subscriptions, renting office space...), it might be in your best interest to opt into withholding VAT.

Don’t hesitate to consult a professional like a certified accountant to help you compare your options.

Tax exemptions for the first year of business activity

Good news: you can potentially qualify for certain tax exemptions for your first year of business activity.

Corporate property tax (CFE) exemption

Exemption for all businesses in their first year of activity

The Corporate Business Tax (La Cotisation Foncière des Entreprises or CFE) is a tax that is based on the value of any and all of the real estate property associated with the business (e.g. a storage space, a studio, an office, a shop, etc.).

All businesses are subject to this tax, no matter their size nor their tax regime, even if they don’t have property dedicated to their business.

For example, independent contractors who work from home are also subject to CFE.

The good news is all companies are exempt from this tax during the first year of activity.

But, be careful - in order to qualify for this exemption, you must send on this initial CFE declaration form to your assigned corporate tax center (service des impôts des entreprises or SIE).

Conditional extended CFE exemption

In some instances, it’s possible to qualify for an indefinite exemption from corporate property tax. In order to quality, your business must fulfil one or more of the following conditions:

your pre-tax revenue is under €5,000;
your business activity falls within one of the following categories: - taxi driver, ride-hailing driver or ambulance driver and you own one or two cars for business purposes;
agricultural worker;
independent door-to-door salesperson with a gross annual pay of less than €6,787;
company producing biogas, electricity or heat by methanization;
professional artist (painters, photographers, sculptors, engravers etc.);
independent teachers of science or the arts;
entrepreneurs wishing to open an independent reference library (or libraries with a public premises and a turnover made up of at least 50% of new book sales);
specialist newsagents;
subsidized housing organizations and property owners or renters who let or sub-let a part of their home on an occasional basis;
people who rent out part of their personal home for tourism purposes (bed & breakfast, gîte or guesthouses).

Is your business located in a priority neighborhood (QPV) and its base taxable income is below €29,886 (for 2023)? You can qualify for a complete exemption for 5 years, with subsequent tax abatements of:

60% in the sixth year;
40% in the seventh year;
20% in the eighth year.

To apply for this exemption, you must send your request to the business tax office (Service des Impôts des Entreprises - SIE) along with an explanation of the request.

Not sure if your business is in a QPV? You can find the complete list of priority neighborhoods on the agence nationale de la cohésion des territoires website

CVAE exemption

The value-added contribution tax (cotisation sur la valeur ajoutée or CVAE) is a tax for companies who:

have a yearly pre-tax (hors taxe) revenue of over €500,000;
have business activity that is subject to CFE.

That said, all businesses are exempt from the CVAE during their first year of operation, even if they fall within the categories set out above.In addition, this value-added contribution tax is slated to disappear entirely in 2024.

We hope this article helped shed light on some of the questions you may have been asking yourself as you set out to start your new business. You should now have the tools to be able to tackle your tax obligations for your first year of operation.

Thinking of embarking on the adventure that is is entrepreneurship, but don’t know whether to take the leap? Qonto and its partners are here to support you set up your business, every step of the way.

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ABOUT THE AUTHOR

Panama Harris

Panama is a Copywriter at Qonto with over 15 years' previous experience working as a freelancer around the world. Her mission is to take the mystery out of entrepreneurship and make it more accessible.

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