Solo French Startups Face Curbs as Hollande Heeds Lobbies

Helga Lemierre’s work as an independent translator provides enough money to cover the mortgage on her home in Grenoble, near the French Alps, while letting her be available for her two daughters. She’s concerned those days may be over.

The trilingual 43-year-old operates as an “auto-entrepreneur,” a special status that more than 1 million people, or almost 1.5 percent of France’s population, have used since 2009 to create one-person companies. The idea was to make it simpler to create a startup in a country that ranks 38th in the world for ease of doing business.

Now the Socialist government of Francois Hollande is pushing to restrict use of the status and the tax breaks it brings. The curbs may limit the designation to two years and cut the maximum allowed annual income in half to 19,000 euros ($26,000). The government, backed by France’s established small business lobby, says the rules have been abused. Supporters of the current system say Hollande is killing one of the few dynamic corners of the French economy.

“We’ve become scapegoats for all classes of entrepreneurs,” Lemierre said in a phone interview. “I can’t transfer to the classic tax status because it would mean working just to pay the taxes.” She would either have to return to her native Austria or go on welfare, she said.

The changes would add 50,000 people to France’s 3.3 million unemployed, said Adrien Sergent, a video-game designer whose advocacy group has circulated an online petition opposing the move. In addition, as much as 1 billion euros of activity could go underground, said Gregoire Leclercq, 30, who runs the Federation des Auto-Entrepreneurs and has a one-man computer-services company.

‘Don’t Grow’

“The government is sending a terrible message: Don’t grow too fast or too much,” said Leclercq. “After 19,000 euros a year, welcome to hell, welcome to complexity, welcome to social charges, welcome to taxes. It’s a bad signal.”

Small Business and Tourism Minister Sylvia Pinel says most of the people using the special entrepreneur status are retirees or have other jobs, and thus the proposed changes won’t make much difference. The government is promising steps to help the self-employed grow into regular companies.

The category, established by the previous government of Nicolas Sarkozy, allows one-person businesses to be created with a single Internet registration. Unlike with most private companies, no personal investment or audited accounts are required.

Payroll taxes -- between 14 percent and 24.6 percent of revenue depending on the activity -- aren’t paid until there’s revenue, which is self-declared via Internet. Auto-entrepreneurs also pay no value-added tax, the top rate of which will rise to 20 percent on Jan. 1.

Rising Signups

To retain those privileges, those in the program can’t gross more than 32,600 euros a year in services activities or 81,500 euros for retail. Regulated professions such as lawyers and doctors are ineligible, as are farmers.

In 2009, the first year, 320,000 people signed up. By August 2013, a total of 1.3 million one-person businesses had been created, with 914,000 still active. They had combined revenue of 5.8 billion euros last year.

Since the creation of the status through 2012, auto-entrepreneurs have accounted for 56 percent of the 2.3 million companies set up in France, according to state statistical institute Insee.

Sergent’s online petition asking the government to abandon its proposed changes has gathered 121,500 signatures since June. The 20-year-old video-game designer from Marseille created his company in 2009. His group supporting the petition is named “Les Poussins,” or chicks.

“We’re all aspiring roosters, and the rooster is the symbol of France,” Sergent said over coffee at a Paris cafe.

Pigeons, Chicks

The name is inspired by a movement of more established entrepreneurs that a year ago forced Hollande to back down on raising capital gains taxes. It was called "les pigeons."

The cabinet approved trimming the advantages for the self-employed in August. After the “poussins” protests, Pinel on Oct. 1 asked a member of parliament, Laurent Grandguillaume, to review her proposals.

His report, published Dec. 17, didn’t mention the proposed revenue ceiling. It did propose that some of the bureaucratic simplifications they benefit from should be extended to other small companies. Parliament is scheduled to debate the changes starting Jan. 21 and Pinel’s office says the government may introduce amendments to appease some of the criticisms.

Tax Plans

The government’s rationale for the cutback is that only 53 percent of auto-entrepreneurs report any revenue, according to an earlier government study by two agencies. Of those who do, only 15 percent earn more than 19,000 euros a year, which is about equivalent to France’s minimum wage. The report also said some companies may have forced employees to set up as auto-entrepreneurs to avoid payroll taxes.

Leclercq, who runs the auto-entrepreneurs group, said many of the self-employed don’t report revenue because they use the status to explore demand for their business plan. And while few earn over the government’s new limit, he said those are exactly the ones who will grow into full companies.

The government agency report said abuse might exist but couldn’t be measured. Finally, Pinel’s ministry hasn’t said how it will help solo entrepreneurs make the step to full-fledged companies, Leclercq said.

Vincent Feroux, 25, is one of those now using his two-year experience in the program to set up a full company. He’s planning to hire five people to develop a home-automation company in eastern France and says he never could have gotten that far with the limits the government is proposing.

Not Viable

“I was right out of college and there’s no way I’d have had the experience to create a real company from scratch,” he said. “The limit the government is proposing is fine for a student or retiree looking for some revenue on the side, not to build a viable business.”

Leclercq and Sergent blame lobbying by small businesses for the government’s move.

Alain Griset, head of France’s Chambers of Commerce of Tradesmen, said he wants the whole status of auto-entrepreneur abolished because of unfair competition, especially in the building trade. His members pay VAT ranging from 5.5 percent to 19.6 percent.

“All we want is equality of treatment,” Griset said in an interview. “Even with this reform, the inequalities still exist.” Builder groups demonstrated across France on Sept. 13.

The industry is suffering from a poor economy and the burden of rules and taxes, said Aurelien Salle, a business consultant who advised the government when it set up the status in 2009 and is now advising Morocco on doing the same.

No Scapegoat

“Don’t make auto-entrepreneurs the scapegoat,” he said.

The government’s report showed that only 12 percent of auto-entrepreneurs are in construction, with revenue of less than 1 percent of the entire industry. About 23 percent of solo entrepreneurs are in consulting, 16 percent in retail and 13 percent in personal services.

Nadine Levratto, a researcher at the Center of Labor Studies, based just outside Paris, said solo entrepreneurs have had a modest impact on fighting unemployment because their average revenue is about 1,100 euros a month, and at least half are retirees or have existing jobs.

“The role of auto-entrepreneurs in reducing unemployment isn’t nil, but marginal,” said Levratto. “It’s a good regime for complementary revenue, not for company creation. By definition, it’s a sub-enterprise.”

That misses the point, said Benedicte Sanson, director general of Movejee, an association near Paris that helps students create companies.

“It’s been very positive because it’s made people talk about entrepreneurship by showing that starting a company is something that everyone can do,” she said. “The new limits are too low. It doesn’t leave much room for a company to grow. The big problem in France is that our companies don’t grow, so it’s a mistake to put a cap on them.”

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