Business Manager: What Tax Exemption Strategy?
The tax exemption schemes are aimed at all taxpayers who must free themselves from income tax. Also, it is not a status that defines access to tax exemption. The entrepreneur can detax his income tax like any salaried, retired, or other taxpayer. However, some schemes are aimed at self-employed workers, others directly at companies. We will therefore rather focus here on taxation linked to the company and the prospects for tax optimization for the company and for the self-employed worker. Here are some ideas for a well-established tax exemption strategy!
The scourge of corporate taxes
Unsurprisingly, companies are subject to corporation tax (IS). More precisely, their profits are subject to it. It is the third most important source of state tax revenue behind VAT and income tax. But because in France, we like to spice up what seems too simple, each company will be taxed differently. First, it will have to be operated in France. In other words, it will have to carry out its usual commercial activity on national territory. To push the reasoning, this means that the company will not be taxed by the IS on the profits it makes abroad.
Exploitation is the first point that complicates the situation, but it does not stop there. Only certain companies are concerned by the IS:
- Capital companies: These are mainly public limited companies (SA), simplified joint-stock companies (SAS), limited liability companies (SARL), partnerships limited by shares (SCA), and investment companies. liberal exercise type SELARL or SEL;
- Companies other than capital, whose nature of activity is industrial or commercial;
- Associations that carry out profit-making operations;
- The companies that have made the choice. The profits of companies that do not fall within the aforementioned criteria are a priori subject to income tax in the name of each partner. However, it is possible to choose corporate tax rather than income tax. As often, it is a calculation to be made according to the interest of the company.
If the company is taxable there, then the tax rate will vary according to the profit made, like the progressive scale of income tax, but without possible reduction or discount. In 2022, the profit of a company whose turnover is less than 7.63 million euros was taxed at 15% between 0 and 38,120 €, and at 25% from 38,120 €. The profit of companies whose turnover is greater than 7.63 million euros was taxed at 25% from the 1st euro of profit.
Apart from corporation tax, companies are potentially liable for four other taxes:
- Social contribution: It represents 3.3% of corporate tax. It is payable by companies subject to corporate tax, whose turnover exceeds €7.63 million, and whose corporate tax exceeds €763,000;
- The exceptional contribution: It represents 15% of corporate tax at N-4. It is due by companies subject to corporate tax, whose turnover exceeds one billion euros;
- The Additional Contribution: It represents 15% of corporate tax at N-4. It is payable by companies subject to corporate tax, whose turnover exceeds 3 billion euros;
- The Territorial Economic Contribution (CET): It is due by companies and natural or legal persons who carry out a self-employed professional activity. It is made up of the business property tax (CFE) and the business value added tax (CVAE).
There is also the Value Added Tax (VAT), which we voluntarily do not mention among the taxes and duties of companies, since it is actually the consumer who assumes it. The company is only an intermediary: it collects VAT and pays it to the Treasury.
Corporate sponsorship: the corporate tax exemption process
By making donations to associations recognized as being of public utility or non-profit general interest, the company can benefit from a tax credit. Beyond the promised tax exemption, sponsorship shapes the brand image of the company, in its ethical values. It is a welcome highlight in a society that tends to get closer and closer to the natural, the traditional, the local, solidarity, the values of mutual aid and sharing. Depending on the association and the projects supported, the company can develop its notoriety to ensure territorial or traditional anchoring. By supporting the activity of the territory, it supports its attractiveness, therefore supports its local identity, which is generally welcomed by inhabitants and consumers. Corporate Social Responsibility (CSR) can also be widely valued. Be careful however, the commercial advertising message is prohibited. The objective remains the gift, the voluntarist and disinterested work.
The values of the association can be varied: cultural, educational, scientific, social, family, humanitarian, sporting, heritage, artistic, environmental, electoral, editorial, etc. Through this action, the company can hope for a tax exemption equivalent to 60% of the amount of the donation made, within the limit of the ceiling set at 0.5% of annual turnover. The excess exceeding the fixed ceiling may be carried over to the following 5 years.
Self-employed worker: How to exempt from tax?
Without listing all the tax exemption procedures that are also available to him, let’s focus here on the systems open only to self-employed workers, which allow him to exempt his income from tax.
The Madelin contract
To better cover the vagaries of the life of the TNS, the Madelin law has set up several contracts allowing it to constitute suitable social protection to compensate for the deficiencies of the compulsory system. Thus, the TNS can opt for a retirement contract, a provident contract, a mutual insurance contract, or a job loss guarantee. Taxation is different for each of the contracts mentioned, but each allows the deductibility of contributions paid on taxable income.
Take the example of the Madelin mutual insurance contract, the deductibility will be equivalent to 3.75% of professional income, increased by 7% of the PASS (annual social security ceiling), within the limit of 3% of 8 PASS, i.e. in the limit of €9,872 in 2022. It is therefore a tax exemption scheme dedicated solely to self-employed workers.
The Retirement Savings Plan (PER)
In reality, the aforementioned Madelin Retraite contract is no longer offered to new subscribers. It remains valid and retains all of its properties for TNS already insured, but is replaced by the PER for new contracts. More flexible, it can be fed as the insured wishes, which is one of the big advantages of the PER over the Madelin contract. Indeed, the latter required at least one annual payment, while the PER does not require any periodic payment.
Each payment made on the PER is deductible from income tax. Knowing that the income of the self-employed worker can fluctuate, it is then possible to make no payment during more difficult periods, and to make larger payments during periods of high income to reduce tax.
The Company Savings Plan (PEE)
The PEE is accessible to employees and their managers, in any type of company, whatever its nature, size, activity or legal form, as long as it has at least one employee. The PEE is a flexible and very flexible envelope that can be funded by participation bonuses, profit-sharing bonuses, employer contributions, or voluntary payments.
Its advantage? The sums paid are blocked there for 5 years, in return for being exempt from income tax on entry and exit. They will simply be subject to compulsory social security contributions of 17.2%.