Starting March 1, 2025, self-employed individuals in France will face a reduced VAT threshold of 25,000 euros, affecting approximately 250,000 workers. This change raises concerns about profitability and pricing strategies. While some may consider changing their business status to avoid VAT, experts warn that the benefits of remaining a micro-enterprise are significant. The reform has sparked considerable dissent, with critics labeling it a hidden tax increase, while the government claims it promotes tax fairness.
The Upcoming VAT Changes for Self-Employed Workers
Starting March 1, 2025, a significant shift will affect all self-employed individuals as the VAT threshold will be lowered to 25,000 euros in revenue. This change raises essential questions about whether to shift business status to evade VAT obligations or remain within the micro-enterprise framework amid this impending transformation.
Understanding the Impact of the New VAT Threshold
Previously, self-employed workers enjoyed varying VAT exemption limits based on their activities:
- 85,000 euros for commercial and artisanal endeavors,
- 37,500 euros for service providers and liberal professions.
However, with the new regulations, all self-employed individuals will face the same reduced threshold of 25,000 euros, necessitating the collection and remittance of VAT sooner than anticipated. Approximately 250,000 self-employed workers will be affected, leading to potential declines in profitability unless they adjust their pricing strategies.
“Many are at risk of seeing their profits diminish… or will be compelled to hike their prices,” cautions Jean-Baptiste Achard, the founder of StaffMe, which connects freelancers with clients.
Evaluating Status Changes: A Risky Move?
Some self-employed individuals may contemplate transitioning from a micro-enterprise to an LLC, SASU, or traditional sole proprietorship as a way to avoid VAT. However, tax expert Stéphane Absolu from Pyxis Conseil warns that this could be a misstep:
“Changing your business status solely to evade VAT could be a miscalculation. While accounting becomes more intricate with VAT, the benefits of remaining a micro-entrepreneur are still quite appealing,” he explains.
Among the perks of the micro-enterprise regime are:
- Simplified accounting: no need for detailed balance sheets, just a record of income and expenses.
- Favorable tax deductions:
- 71% for commercial activities,
- 50% for business income (BIC) service provision,
- 34% for liberal professions.
- Social contributions that are proportional to income: no charges if no income is generated, unlike other business structures.
- ACRE: a one-year partial exemption from social charges for new business creators.
In essence, switching to a different business structure could lead to more complex accounting requirements, greater obligations, and fixed costs, even in months of low income—decisions that should be approached with caution.
When Might Changing Your Business Status Be Beneficial?
While the micro-enterprise remains the simplest and most advantageous setup for many, there are specific scenarios where changing status could be beneficial:
- Consultants who invest significantly in their businesses: If you frequently acquire high-cost equipment (computers, tools, etc.), transitioning to the real regime allows for VAT recovery and expense amortization.
- Rapidly growing entrepreneurs: If your earnings substantially exceed 25,000 euros and you are approaching the micro-enterprise limits (77,700 euros for services, 188,700 euros for commerce), it may be wiser to choose an LLC or SASU for long-term benefits.
- Service providers collaborating with businesses: If your clients are primarily companies, charging VAT will not hinder your competitiveness, as they can recover the VAT charged.
“Ultimately, it’s a matter of individual circumstances, taking into account each entrepreneur’s revenue and expenses,” concludes Stéphane Absolu.
Reactions to the Reform: A Growing Dissent
This reform has ignited significant backlash among self-employed workers. Political opponents have labeled it a ‘hidden tax increase’ for independents. “We nearly overlooked this major scandal!” tweeted Éric Coquerel (LFI).
“End the exploitation of independents!” the National Rally protested, even launching a petition against the reform.
With almost 3 million self-employed workers in France, this policy will profoundly affect a vital electorate, particularly artisans, merchants, and freelancers.
In defense, the government claims this measure promotes tax fairness. According to Amélie de Montchalin, the minister responsible for public accounts, this new VAT threshold aims to reduce competitive imbalances. However, Grégoire Leclercq, president of the National Federation of Self-Entrepreneurs (FNAE), warns that this could compel independents to increase their prices by as much as 20%.
As the government anticipates an additional 400 million euros in tax revenue, the likelihood of a reversal seems slim.
Key Takeaways:
- Effective March 2025, all self-employed workers will face a VAT exemption threshold of 25,000 euros.
- Mandatory VAT collection beyond this threshold could diminish profitability or necessitate price hikes.
- Changing business status may not be the best route, as the micro-entrepreneur benefits are considerable.
- Individuals heavily investing or exceeding micro-enterprise thresholds may find a status change advantageous.
- This reform is met with strong criticism, and political factions are keen to capitalize on the unrest.