The French government has introduced significant changes to the tax obligations of micro-entrepreneurs, with new regulations set to take effect from 2025. Specifically, the VAT exemption threshold for these small business owners will decrease from 37,500 euros to 25,000 euros for service sectors. This alteration is included as part of the 2025 budget and is anticipated to affect over 200,000 micro-entrepreneurs across the country.
For years, the micro-enterprise regime has been favored for its simplicity and ease of management. Currently, micro-entrepreneurs do not need to charge VAT as long as their revenue remains below the 37,500 euros threshold. Once this new limit is reached, entrepreneurs must start charging VAT—20% on most services—leading to significant shifts for those whose clientele consists mainly of private individuals.
Under the new guidelines, if, for example, Lucas—a freelance consultant earning 2,000 euros monthly—exceeds the 25,000 euros revenue, he must add VAT to his services. His service price would jump from 2,000 euros to 2,400 euros including VAT. The dilemma he faces is whether to pass the increased cost onto clients, risking loss of business, or reduce his net revenue and absorb the VAT, creating operational challenges.
This change, highlighted by the National Federation of Auto-entrepreneurs and Micro-entrepreneurs, has stirred considerable concern within the community. More than 63,400 people have signed online petitions against the proposed modification, advocating for the maintenance of the existing thresholds to preserve the unique advantages held by micro-entrepreneurs.
The government justifies the reduction of the VAT exemption threshold as part of its broader strategy to simplify taxation and bring more small businesses under the tax umbrella, aiming to increase state revenue by hundreds of millions of euros. By requiring more micro-entrepreneurs to collect and remit VAT, the government estimates it could recover upwards of 400 million euros by 2025.
While officials have framed this amendment as beneficial for fighting tax evasion and creating equitable competition, it is nonetheless viewed as detrimental by many small business operators. With the burden of additional taxation and more complex administrative responsibilities, these entrepreneurs may be forced to raise prices or cut back on their services, thereby altering their business models significantly.
Specific sectors will likely be hit harder than others. For example, those who provide services exclusively to non-VAT registered private clients, such as consultants, graphic designers, and artisans, will find the increase to their service costs more difficult to manage since their clients cannot reclaim the VAT. This could result directly in reduced demand for their services.
“The auto-entrepreneur regime was supposed to be straightforward, allowing individuals to establish their businesses more freely,” said Sophie, who runs her interior design consultancy. If she has to increase her price from 30,000 euros to 36,000 euros to accommodate the VAT, she risks pricing herself out of the market.
Further complications arise as the administrative tasks associated with managing VAT will become more burdensome for many. Not only will they have to handle VAT collection, but they'll also need to maintain thorough records, submit declarations, and remit the VAT, which can become overwhelming for those unused to such requirements.
To adapt to this forthcoming reality, micro-entrepreneurs are considering several strategies. Some may actively monitor their revenue to avoid exceeding the threshold, disregarding lucrative growth opportunities. Others might seek clientele exclusively among VAT-registered businesses, allowing them to sidestep consumer price sensitivity. A few might look to adjust their offerings, adding value to justify higher rates.
Still others might contemplate changing their business structure altogether, seeking avenues beyond the micro-entrepreneur status if their income significantly exceeds the new threshold. Interestingly, for some who have significant business expenses, registering for VAT could potentially prove advantageous as they would be able to reclaim VAT on their expenditures – from software to supplies.
Despite these potential adaptations, the overarching perception is one of frustration and concern. Many are now questioning whether remaining within the micro-enterprise regime will still be worthwhile after the changes take place.
"The shifts we face with the new regulations demand careful reconsideration of our business strategies," stated Marine, another independent worker facing the change. "It pushes us to be proactive about monitoring our earnings and planning for future financial health, which is far from the original appeal of our status.”
With the imminent adoption of this legislation, many micro-entrepreneurs are compelled to prepare for these challenges head-on. The ultimate impact of this transition remains to be seen, but one thing is certain: the ease of being your own boss just got a lot more complicated.