From simplicity to reality: Navigating between micro regime and real regime – From Micro to Real

The transition from the micro-enterprise regime to the real tax regime is a significant step in the life of a company. This transition requires a thorough understanding of accounting and tax obligations, but it can offer advantages in terms of deduction of expenses and tax optimization. It is therefore essential for the entrepreneur to carefully assess the implications of this change in order to choose the regime best suited to their business and financial situation.

We will therefore see the following points through this study:

• The different reasons that lead the entrepreneur to change regime;
• The formalities necessary to change regime;
• The consequences of this change.

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I – The reasons for a change of regime

This change of regime, very simple for the micro, will lead the company towards a more complicated management to meet the obligations implied by the real regime. However, in certain cases, the entrepreneur may be led – or forced – to change regime. Here are the possible motivations for a change of micro-enterprise regime.

> Exceeding the authorized turnover threshold?

If the turnover threshold of €77,700 or?€188,700 is exceeded for two consecutive years, the taxpayer must change tax regime as of January 1st following these two years of excess. He is thus subject to:

• the real tax regime (simplified or normal) if the activity is commercial or craft (BIC);
• the controlled declaration regime if the activity is liberal (BNC).

On the other hand, if the threshold is exceeded for only one year, the taxpayer retains the benefit of the micro-enterprise tax regime for the year of excess and the following year.

> The company generates expenses greater than the flat-rate deduction amount

In the micro regime, the amount of charges and taxes is based on the amount of revenue collected. URSSAF calculates the social security contributions of the micro-entrepreneur based on his turnover. The tax administration applies a flat-rate deduction to this turnover and subjects the remainder to the progressive scale of income tax. The flat-rate deduction rate is 34% of turnover (non-commercial services), 50% (commercial and craft services) or 71% (sales and similar).

Thus, when the actual amount of costs and charges exceeds 34%, 50% or 71% of turnover (depending on the activity carried out), it may be more advantageous to opt for a real tax regime.

> The entrepreneur wishes to carry out his activity in a company

The status of?individual micro entrepreneur does not allow you to form a partnership. It will therefore be necessary to transform the company into a corporation.?This solution will allow you to open up the capital to partners, or even investors.

The company’s tax regime will be changed. Thus, depending on the type of company chosen and the options taken, the company’s profits will be subject to income tax or corporation tax. This is a criterion that can be important in the development phase.

The social security system may also be modified and the cost of social security contributions may be more or less significant depending on the affiliation regime (self-employed worker or assimilated employee).

In the event of such an option, it will be necessary to proceed with the deregistration of the individual company and assess the value of its assets. It is then necessary to create a company and transfer the activity into this new structure by the transfer of the business assets.

> The micro-entrepreneur wishes to monitor his management more precisely

Keeping accounts according to the principles of the real system allows for more precise monitoring of the management of the company. It should be noted, however, that it is always possible to keep precise accounts without opting for a real system.

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II – Formalities to be completed when changing regime

At the time of the creation of the company, the micro regime applies, in principle, automatically for entrepreneurs who meet the conditions. However, they can opt for another tax regime through the one-stop shop. In the event of an error, the taxpayer has 3 months to send a letter to the corporate tax department on which he depends. He must denounce the option made.

During the activity, companies subject to the micro-BIC regime can opt for a real tax regime (simplified real regime or normal regime). This option is exercised when filing the income tax return, the deadline for which is generally around the end of May.

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III – The consequences of leaving the micro-entrepreneur regime

> On the tax and accounting side?

The operator will be taxed on the basis of the profits?actually made and will have to comply with a certain number of new accounting and reporting obligations. He will draw up an income statement and a balance sheet and it will thus be possible to deduct the actual expenses from the turnover, including the depreciation of fixed assets.

Note: If these fixed assets were purchased at the start of the activity, it will be necessary to enter them in the assets of the balance sheet at their original value, reduced by the depreciation annuities that would have been deducted if the company had not been subject to the micro-enterprise tax regime.

It should also be noted that it will be possible to deduct any provisions for losses or depreciation, something which is not possible under the micro regime.

If the company is subject to income tax, it will be possible to join an approved management centre (CGA) for BIC or an approved association (AA) for liberal activities, or even use a certified chartered accountant (contact us to choose the organization you can join).

> On the social level

Contributions, calculated on the basis of turnover for the micro scheme, will be calculated and paid according to the common law rules for self-employed workers. The entrepreneur will pay provisional contributions for the current year which will be calculated:

• either on the basis of income from year N-1;
• or, if the activity began less than two years ago, on a flat-rate basis.

> In terms of invoicing?

In the event of exceeding the VAT exemption threshold, the?operations carried out are subject to VAT from the first day of exceeding it and, at the same time, the right to deduct VAT can be exercised on the expenses incurred.

Note: This VAT regime also applies when the company continues to depend on the micro regime.

We remain at your disposal to study your situation in particular in order to define together the regime which suits you best, so contact us!