Taxation: practical guides and steps

Business taxation is about more than the amount of tax you pay. It shapes your choice of legal form, the director's pay and even the right moment to sell. These guides serve self-employed people and SME directors who want to pay the right amount of tax, safely.

Two systems, two logics

Everything starts with a simple distinction. As a sole trader, your profit falls under personal income tax, with progressive rates rising to 50%. In a company, profit falls under corporate income tax, at a standard rate of 25%. However, an SME may qualify for a reduced 20% rate on a first bracket, subject to conditions.

This gap explains why many self-employed people incorporate once their income grows. Yet the calculation must include running costs and the way you take money out. Our comparison of sole proprietorship and company puts figures on these differences.

Take an annual profit of 80,000 euros as an example. As a sole trader, the top slice then falls into the 50% bracket. In a company, the part kept in reserve bears corporate income tax, which is often lighter.

Taxation of directors: salary or dividends?

A company director has several levers. You can pay yourself a salary, dividends or benefits in kind. Each option follows its own taxation rules. For example, dividends normally bear 30% withholding tax. Reduced regimes do exist, though, such as VVPRbis or the liquidation reserve.

The right mix depends on your personal needs and the company's reserves. Our guide to dividend taxation compares these regimes. For the wider view, also read how to optimise your business taxation.

Deductions and incentives worth knowing

The law offers several ways to lighten the bill. First, actual business expenses reduce the taxable base. Social contributions paid by the self-employed also count as business expenses. SMEs enjoy further specific benefits, such as the investment deduction. Finally, the tax shelter gives an income tax reduction to individuals who invest in a young SME.

• Tax benefits for SMEs reviews the incentives available.
• The risk capital deduction explains notional interest.
• The tax shelter for SMEs details the conditions for investors.

Costly mistakes

• Optimising without a genuine business reason.
• Deducting private spending as business expenses.
• Using a company car without calculating the benefit in kind.
• Skipping advance payments and facing a surcharge.
• Missing the filing deadline for the tax return.
• Preparing the sale of your business too late.

The line between optimisation and abuse can be thin. So have major structures checked by a professional. Our guide to choosing an accountant helps you find the right adviser. For companies, the corporate tax return sets out the yearly calendar. Official rates appear on the FPS Finance website.