Is it really surprising that France is none too entrepreneurial?

One of the chief characteristics of French tax and social security administration is that when you start out in business they send you bills based on an estimate of what an established business would be earning, not what a start-up would be bringing in.

Although typically a new business will earn very little after start-up expenses in its first year, it will typically receive bills for thousands of euros no matter how small it might be. Clearly that’s something of a drag on start-ups in France and the effect is that considerable chunks of business activity are done on the black ie without registration. This, of course, helps nobody in that the businesses which do register have to shoulder the tax burden for those that don’t which forces many down the unregistered route or alternatively into bankrupcy, neither of which is beneficial for the country.

Take for instance Marcus who’s done some calculations as to what tax a start-up could expect to be paying in the first couple of years. His example was of a business making EUR 5000 per year right from the start and includes just the social security contributions (ie there would be addition taxes). Year one bill: EUR 4914, year two 2780, year three 2183 ie over 98% tax on the first years income.

Even if you change the parameters of the calculations to reflect zero income in the first two years followed by EUR 5000, the bill for the second year is EUR 4080! Still, at least in the third year you get a refund of EUR 281 in that case, which you could put towards the wind-up costs of your business.

Is it any wonder why the black economy in France is so large?

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One Response to “Is it really surprising that France is none too entrepreneurial?”

  • vnrozier says:

    Many years ago on being summoned to URSSAF over my lack of payment on my Social Security charges on my money losing business that was still waiting to make some money I asked them how they reckoned I owed them anything and what was the moral justification for it.

    Of course with over fifty percent of deputies from the Civil Service, and at that time not a single entrepreneur in government their thought processes were completely alien to those of the anglo-saxon.

    Internet will eventually help the free market to conquer but for the French, who usually get their information from the Chamber of Commerce it will take a generation or two to free themselves of the shackles.

    ————————

    What I found most interesting was that when my accountant started her own advisory business and received the bill for EUR 3000 from URSSAF, she immediately paid it despite having no income from that business at the time. I on the other hand wrote them a letter pointing out that I wasn’t making any money at that point and the bill dropped from EUR 3000 to a few hundred euro. So, as you say, the French simply accept what they’re told without question.

    I think that were France not in Europe it could well be a matter of generations to correct this but European law is pushing things along in some areas. For example, the largest figure in the calculations from the URSSAF site for a start-up are for pension contributions. However, if you are coming from another European country and already have a suitable pension in place, you can opt out of the French pension system thereby reducing that bill considerably. Likewise, I suspect that it is probably also possible to opt out of their health system in that it requires you to be covered by an “approved” company but I believe that they would have to accept a European health insurance company as being “approved” so, if I ever do get to the stage of earning that EUR 155,000 and get a bill for EUR 10,000 for health insurance I would be able to cancel the existing arrangement and go for a truly private European health insurance scheme at considerably less cost.

    I don’t think that it’s so much the high proportion of career civil servants in the government that causes the problems but that the French seem to simply follow the rules like sheep which makes it so much easier to introduce rules just for the sake of having rules.

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