Starting Your Sole Trader Business in 2020 [Complete Guide]

Do you feel ready to launch your business as a sole trader (auto-entrepreneur), but aren’t familiar with the administrative steps? Don’t worry, they’re simple — just follow our complete guide, “Starting Your Sole Trader Business in 2020”.

Who is eligible for sole trader status

Before starting your steps to become a sole trader, you need to make sure you’re eligible for this status, as certain activities are excluded from it.

You can become a sole trader if you are:

• a student, employee, jobseeker, retiree, or civil servant;
• an emancipated minor or a foreign national under certain conditions.

You cannot become a sole trader if you are:

• a self-employed non-salaried worker (TNS);
• an employee on parental leave or maternity leave;
• an employee on sick leave.

Certain activities are excluded from the status:

• artistic occupations subject to copyright;
• scientific or literary production activities;
• agricultural activities falling under the MSA (Mutualité Sociale Agricole);
• real estate professions subject to real estate VAT (real estate agent, property dealer, etc.), as well as unfurnished or professional rentals;
• general agents and insurance agents;
• liberal professions covered by pension funds other than the Social Security for the Self-Employed (formerly RSI) or the CIPAV;
• certain healthcare professions (doctor, midwife, nurse, pharmacist, dental surgeon, veterinarian, etc.);
• new vehicle dealerships;
• public and ministerial officers (judge, chartered accountant, notary, bailiff, etc.);
• certain financial activities (transactions on futures markets, negotiable options, warrants, etc.).

Sole trader revenue thresholds

To remain eligible for the sole trader (micro-entrepreneur) scheme, you must stay under an annual revenue threshold. If you exceed this threshold for two consecutive years, you switch to the standard tax regime.

For service-providing activities — commercial or craft-based — and for liberal professions, the threshold is €72,500 excl. VAT. For activities involving the purchase and resale of goods, accommodation services, and on-site food and beverage sales, the threshold is €176,200 excl. VAT.

There are also caps beyond which the sole trader becomes liable for VAT. This is €36,500 excl. VAT for service provision, and €94,300 excl. VAT for buying and reselling.

Online registration as a sole trader

To become a sole trader, you must complete your steps online, starting with your business start declaration, on the URSSAF sole trader portal. There are other places to register depending on the nature of your activity, but the URSSAF portal has the advantage of covering all trades. Registration is free.

You’ll also find, at the same address, the link to apply for ACRE, which lets you benefit from social security contribution exemptions.

Supporting documents required to become a sole trader

You need to provide proof of identity, along with certain specific documents depending on your activity.

For craftspeople

Craftspeople must register with the RM (Répertoire des Métiers, the trade register). To do so, they must provide proof of address and a sworn declaration of no criminal record. A trade chamber fee will be deducted when you pay your social security contributions.

For regulated professions

Regulated professions must present a diploma, qualification, or proof of professional experience specific to their activity.

This is the case, for example, for construction trades, car repair, hairdressing and beauty, food trades (baker, delicatessen owner, etc.), plumbers, electricians, heating engineers, chimney sweeps, or farriers.

For merchants

Merchants and other commercial activities must register with the RCS (Registre du Commerce et des Sociétés, the trade and companies register). They must present proof of address and a sworn declaration of no criminal record. They are also liable for the trade chamber fee.

Traveling merchants or non-sedentary craftspeople must apply for a permit authorizing them to operate outside the municipality where the sole trader business is registered.

The final flat-rate income tax withholding

When you register as a sole trader, you have a choice between two tax methods, since you are subject to income tax (IR). If you don’t specify otherwise when registering, you’ll automatically default to standard taxation; otherwise, you must check the box to opt for the final flat-rate withholding.

Standard taxation

With standard taxation, you declare your income via form 2042-C PRO, applying the flat-rate allowances provided to cover business expenses. These are 34% for service-providing activities or liberal professions falling under non-commercial profits (BNC); 50% for service-providing activities falling under industrial and commercial profits (BIC); and 71% for sales activities or accommodation services.

Once the allowance is applied — with a minimum of €305 — your net taxable profit is added to your other taxable income, and your tax is calculated based on the progressive income tax brackets. You can then wait for your tax notice, or pay installments calculated using the tax administration’s simulator.

The final flat-rate withholding

The final flat-rate tax withholding is a withholding at source, applied as a percentage. It is collected with each revenue declaration (monthly or quarterly).

This fixed rate is 2.2% for service-providing activities or liberal professions falling under non-commercial profits (BNC); 1.7% for service-providing activities falling under industrial and commercial profits (BIC); and 1% for sales activities or accommodation services (excluding furnished residential rentals, for which the rate is 1.7%).

The final flat-rate tax withholding is definitive and non-refundable. Make sure to run your projected calculations carefully when starting your sole trader business, in order to choose the most advantageous taxation option.

CFE – the Corporate Property Tax (Cotisation Foncière des Entreprises)

The CFE is a local tax, due starting from your second year of operation. It is calculated based on the rates of the municipality where your sole trader business is registered.

Sole trader registration certificates

Once your sole trader business is validated, you receive a registration certificate for the Répertoire des Entreprises et des Établissements from INSEE. It shows your SIRET number and your APE code. The turnaround time is generally less than a month.

You will also receive a notification of affiliation to the micro-entrepreneur scheme from your CFE, as well as a notification of affiliation to the Social Security for the Self-Employed.

Sole traders who are merchants or craftspeople receive a Kbis extract, certifying the legal existence of their business.

Steps to take after setting up your sole trader business

You are now a sole trader and can start operating and getting paid. Here again, management is extremely simple, but you must follow the procedures, in particular filing your revenue declaration on time, even if it is zero.

The online account for your revenue declaration is now automatically created at the same time as your sole trader business.

As a sole trader, you pay contributions proportional to your revenue and are not subject to fixed charges. You can choose between a monthly declaration at the end of each month or a quarterly declaration, due April 30, July 31, October 31, and January 31, at noon. Note that your first declaration is deferred, with an additional three-month period.

You are completely free to choose either of these schedules, but you must then stick to it strictly.

Filing this declaration shows you in real time the contributions you owe and must pay immediately. Here is the list:

• social security contributions, which provide social coverage for retirement and healthcare;
• trade chamber fees for non-liberal activities;
• the contribution to professional training;
• the final flat-rate withholding (if you opted for this option).

Insurance and civil liability for sole traders

A sole trader can — and sometimes must — take out professional civil liability insurance (RC Pro), to protect against any material, non-material, or bodily risk.

This is mandatory in certain cases, for example for professions related to healthcare, construction, transport, automotive, insurance or financial advisory, or sports. Construction professionals are also required to have ten-year liability insurance (décennale), which protects them for the ten years following project completion.

Where your insurance is mandatory, the details must be stated on your invoices.

There are other optional supplementary insurance policies that can cover additional risks, worth considering depending on the nature of your activity.