What is Freelancer(Auto-entrepreneur)?

This article delves into the unique business form of auto-entrepreneur (freelancer), analyzing its advantages and disadvantages to assist you in making informed decisions.

May 28, 2024

Choosing the right business structure is crucial in the journey of entrepreneurship. This article delves into the unique business form of auto-entrepreneur (freelancer), analyzing its advantages and disadvantages to assist you in making informed decisions.

Before diving into these details, if you are considering to be a freelancer, Micco can provide you a comprehensive array of services. These include streamlined procedures for company registration, professional bank account establishment, capital deposit management, and more.

Micco's commitment to empowering business creators extends to:

  • Effortless company registration processes
  • Seamless professional bank account setup
  • Convenient capital deposit management solutions
  • A suite of additional financial tools and resources catered to entrepreneurs

With Micco, business creators can access a one-stop solution designed to streamline their financial operations and support their growth endeavors effectively.

  1. Advantages of Freelancers
    • Easy Startup
    • Favorable Social Welfare System
    • Tax Benefits
  2. Disadvantages of Freelancers
    • Limited Business Status
    • Challenges Associated with Turnover
    • Constraints of Social Security
  3. Responsibilities of Freelancers
    • Property Liability Risks
    • Impact of Recent Legal Changes on Liability

1. Advantages of Freelancers

When comparing with other legal structures available to entrepreneurs wishing to start their own businesses, the advantages of being a freelancer mainly revolve around three aspects: administrative, social, and tax.

Note: Freelancers are individual entrepreneurs who opt for privileged tax and social status. It's not an independent legal form.

1.1 Easy Becoming a Freelancer

The establishment of this legal status aims to simplify the launch of businesses that require little or no investment. Not only are the conditions for obtaining freelancer status very flexible, but also starting/stopping freelance activities is straightforward, requiring only a simple declaration.

The simplicity of this formal procedure is particularly evident concerning accounting obligations: Freelancers are not subject to the same accounting obligations as companies like EURL or SASU.

In terms of accounting, freelancers have very limited obligations:

  • Record-keeping;
  • Keeping all receipts;
  • Recording purchases if necessary.

1.2 Favorable Freelancer Social System

Since January 1, 2016, a simplified micro-social system automatically applies to individual entrepreneurs who pay the micro-enterprise tax and engage in commercial, craft, industrial, or freelance activities. Therefore, freelancers are now referred to as "micro-entrepreneurs."

This system allows simplified payment of social security contributions and social security contributions monthly or quarterly, chosen by the freelancer. The amount of social security contributions is determined by multiplying the declared turnover by a contribution rate.

Therefore, if the turnover achieved is zero, the freelancer does not have to pay social security contributions.

Additionally, it's noteworthy that freelancer status can be combined with some assistance measures for freelancers, such as ACRE, which exempts social security contributions during the first year of activity.

It's worth noting: Your social security rights include benefits such as freelancer maternity leave or paternity leave.

1.3 Tax Benefits for Freelancers

The tax system for freelancers is special: VAT exemption, the option for separate taxation, or enjoying certain tax exemptions.

No VAT Required

Regarding VAT, freelancers are entitled to VAT exemption.

Thus, in principle, they do not need to issue or declare VAT: Consequently, the prices charged may be more attractive than those of businesses or craftsmen subject to VAT. Conversely, freelancers cannot recover VAT paid. Therefore, for projects requiring substantial investment for development, waiving the exemption may be wise.

Choosing Separate Taxation

Under certain conditions, it's possible to choose the "freelancer separate taxation." This option allows for the payment of income tax and mandatory social security contributions in a single payment. In this case, freelancers declare and pay freelancer contributions calculated at a fixed rate monthly or quarterly (depending on their choice).

Therefore, freelancers do not need to report annual turnover on the income tax return (recorded in either the industrial and commercial profits category (BIC) or the non-commercial profits category (BNC)), nor do they need to pay social security contributions separately.

This option is available only when the total household income does not exceed a certain amount (to be verified annually with the relevant business tax center).

This collection method provides real convenience in practice, allowing freelancers to know precisely the financial situation every month or quarter.

Moreover, to assess the opportunity of this choice, you must compare the separate taxation rate with the gradually increasing tax rates applicable to your turnover achieved.

Freelancer separate taxation prepayment rates tend to be favorable. Note that if separate taxation is not chosen (i.e., in the case of income reporting), a certain amount of specific expenses is deducted from the income, reducing the taxable base.

Tax Exemptions

Freelancers are exempt from paying the CFE in their first tax year.

A provisional declaration must be made before the start of the activity year (or within three months of the start of the activity starting from October), including a request for temporary exemption. The following conditions must also be met: no similar activity has been carried out by the freelancer's spouse, cohabitant, ascendant, or descendant in the past three years.

2. Disadvantages of Freelancers

2.1 Limited Business Status

Freelancers now must have a freelancer bank account specifically for financial transactions related to their professional activities.

If a freelancer's activity is commercial or craft, they must also register in the business register or directory of trades. This operation obtains a summary K-Bis, making them more trustworthy among partners, suppliers, or professional clients.

Freelancers must fulfill insurance obligations related to their status.

Overall, freelancers who use vehicles in their activities must subscribe to vehicle liability insurance. Freelancers in the construction industry must also have professional liability insurance and ten-year liability insurance.

Two fees that freelancers must bear have also appeared in 2015:

  • The business fee for freelancers engaged in commercial and craft activities, along with corresponding social security contributions, based on a percentage of turnover (ranging from 0.007% to 0.48%).
  • The business property tax (except for the year of freelancer creation).

These changes aim to avoid certain biases and standardize freelancer status.

2.2 Turnover-Related Challenges

Freelancer status is subject to turnover limitations. Some VAT exemption thresholds may be quickly reached.

VAT Exemption Thresholds:

  • For commercial and housing activities (hotels, guesthouses, vacation rentals, etc.), it's €91,900;
  • For service provision activities and freelance activities belonging to BNC or BIC, it's €36,800.

If the VAT exemption threshold is exceeded, freelancers will enter the VAT actual simplification system.

Freelancer Exemption Thresholds:

  • For commercial and housing activities (hotels, guesthouses, vacation rentals, etc.), it's €188,700;
  • For service provision activities and freelance activities belonging to BNC or BIC, it's €77,700.

If the freelancer exemption threshold is exceeded, they will enter the ordinary regime of individual entrepreneurs, especially concerning tax and social obligations.

Additionally, from the perspective of expense payment, if there's no withholding tax and no balance, there are no expenses if the turnover is zero (unless the freelancer chooses to pay the minimum fee applicable to the ordinary freelancer regime).

Therefore, this status presents some disadvantages if your business incurs significant expenses quickly, and due to the basis for calculating expenses in this case being the profit realized, higher expenses need to be incurred.

Remember, this observation holds true for income tax and VAT as well!

Becoming a freelancer is definitely not a good idea in cases of rapid business growth or significant purchases or costs!

2.3 Freelancer Social Security System

Freelancers benefit from social security for self-employed workers (TNS

/RSI), whether it's reimbursement for consultations, medication, or the right to continuing education.

Thus, they belong to the freelancer social security system and accrue retirement years but as self-employed individuals. If they stop their activity, unless they purchase private insurance covering unemployment, they won't have unemployment insurance coverage.

Freelancers also belong to the freelancer retirement system. However, compared to the "classic" retirement system for individual entrepreneurs, the latter has some peculiarities, especially concerning the calculation of effective quarters.

Please note: Since January 1, 2018, the RSI has been replaced by the freelancer social security system. This is a transitional system that will gradually integrate into the general system. Currently, there are no changes for freelancers.

3. Responsibilities of Freelancers

Freelancer status does not allow the creation of legal entities unrelated to the freelancer personally. Therefore, if you have debts to one of your professional suppliers, this will require repayment from your personal property.

Note that as of May 15, 2022, the situation has changed. A new unique independent entrepreneur status has come into effect, separating the property of entrepreneurs automatically so that they are no longer confused.

However, the old law still applies to debts incurred before May 15, 2022.

However, by choosing the EIRL status or making a disclaimer, freelancer liability can be reduced.

Finally, when deciding whether to become a freelancer, be sure to weigh its advantages and disadvantages and understand the related responsibilities and legal changes. While the freelancer regime offers some conveniences and benefits to entrepreneurs, there are also certain risks and challenges. Through in-depth understanding and consulting with professionals, I hope you can make wise decisions and realize your entrepreneurial dreams.

As a financial services company, Micco provides comparable services and solutions tailored to the needs of modern businesses. With a user-friendly platform, competitive pricing, and a commitment to customer satisfaction, Micco is a viable option worth exploring.

Whether you're a freelancer, startup, or established enterprise, Micco offers the tools and support needed to streamline financial operations and drive business growth. Check out Micco today to discover how it can complement your business banking needs.