One of the things I often hear from people with businesses in France is that their accountants never really talk to them or advises them on things that they can right off through the business. I wanted to cover a subject that I have touched on a couple of times, the Loi Madelin.

Introduction

Previously for business owners, entrepreneurs, tradesmen, independent and liberal professionals, and the managing directors’ of limited companies, only compulsory social contributions were seen as deductible from professional revenue. The tax services regarded any private pension capitalisation or any complementary protection plans (death, inability to work, invalidity etc.) as personal costs. With the introduction of the Loi Madelin, contributions for certain private insurance policies could be recognised as tax deductible for a business.

What types of costs are they?

This covers certain private pension plans (for yourself and your conjoint collaborateur), protection plans for death, loss to work, invalidity, complementary health cover for you and your family.

Which businesses does this apply to?

This does not apply to companies run under the micro entreprise option, as no costs are taken into account when calculating their tax or social contributions. This does however apply all persons subject to ‘impôt sur le rêvenu’ – BIC or BNC.

Who does it apply to?

This law applies to all independent workers; the entrepreneur, the managing director (gérant majoritaire) and the conjoint(e) collaborateur(trice) (i.e. the wife or husband, who has been attributed as taking an active part in the company and inscribe in the creation documents at the Chambres de Commerce or Métiers as conjoint collaborateur.) Those persons that benefit from these tax deductions must be up to date with their compulsory retirement and health contributions.

Tax Deduction Ceilings

I shall provide you with some general estimations of what your limits are in protection and retirement payments. For more specific and precise figures, contact an insurance broker, who will give you more precise information about different products, their rules and their implications. Under the Loi Madelin, the general limit for 2007 was approximately 48 900 euros. For all protection plans, this was limited to 7723 euros and any payments above were not tax deductible. Be aware, however, income generated from these placements is taxable.

The new reforms - Loi Fillon

These reforms meant that the different types of products available (retirement, protection, loss of work etc.) no longer have a global ceiling but each has an independent ceiling. Up until 2008, either of the two methods of ceiling calculations were possible, for any contracts subscribed before the 20th September 2003.

Retirement plans – Loi Fillon

- up to 10% of net taxable income limited to approx. 25 800 € - plus 15% of net taxable income limited to a max. 33 793 € - so the maximum deductibility for 2007 is 59 540 €

You need to deduct from the ceiling, the payment made by the company or independent worker to the PERCO (Plan d’Epargne Retraite Collectif). The payment is limited to 4600 euros p.a. The system for retirement plans is quite complicated and needs to be evaluated against other options.

Protection Policies

- 3,75% of net taxable income limited to approx. 25 800 € - plus 2 253 € - the higher limit can not go over 7 724 €

Sudden Loss of Work

- 1.875% of net taxable income limited to approx. 25 800 € - plus 805 € - the higher limit can not go over 3 862€

A little “plus” – Retirement

Whilst we touch the subject of retirement, I wanted to bring in the subject of assurance-vie. Earlier on, I briefly mentioned about PERCOs, a state controlled retirement plan, which is tax deductible. I wanted to briefly tell you about another way of planning for your future.

Assurance –Vie – another option for your retirement?

An assurance-vie is an investment plan. It does not involve anything to do with death protection. It is a placement policy, which has a minimum life of 8 years. You can place a lump sum or make regular payments. The objective is to leave the money to grow for 8 years from its start date. You can choose the level of risk and thus potential interest returns. This is a tax free investment plan (if you follow the rules). It can continue for longer than 8 years, but to profit from its tax advantages, you should leave the capital untouched for the 8 years. It is often used as a way of saving for the end of professional life - a nest egg. It is however not tax deductible and is often best of left out of the business, in case of bankruptcy.

How does this stand up against the Loi Madelin?

In order to optimiser your social protection and improve your retirement, you have the choice of one of the two fiscal options: The ideas and principals that I have written about should be looked at on an individual basis and discussed with a competent insurance broker and your accountant. Don’t forget that this is your money, try to keep hold of as much as possible and pay at little as possible to the tax man. This is a bit technical. I hope it shows you that for the majority of small businesses run by Brits in France, you can write off certain personal costs in your business. If you have made a little bit of money in 2007, talk to your accountant, before he prepares your end of year fiscal declarations. If you reduce your profit levels, you reduce your tax and social contributions bills.