New Sole Trader Status in France: Protected Assets and Corporate Tax Option

Quick answer. Since Law no. 2022-172 of 14 February 2022, a French sole trader (entrepreneur individuel) benefits from a single status that automatically separates business assets from personal assets, with no formality required. Creating an EIRL has been impossible since 15 February 2022. A sole trader taxed by default under income tax can, if not on the micro regime, elect to be treated as a single-member limited company (EURL) under Article 1655 sexies of the French Tax Code, which counts as an election for corporate tax, with a reduced 15% rate on profit up to and including €42,500.

A consultant we advised last year asked the question that comes up most often in start-up meetings: "If my business goes wrong, is my home at risk?" For years, the answer required heavy legal structures. Since 2022, the framework has fundamentally changed. France's single sole trader status offers default asset protection and, under conditions, opens the door to corporate tax. You still need to understand what this reform actually protects, what it does not, and when the corporate tax election becomes worthwhile.

Law no. 2022-172 of 14 February 2022 in favour of self-employed activity created a single protective status for trading in your own name. Its entry into force was phased: the rules apply from 15 February 2022, and for already-established sole traders, asset protection applies to debts arising after 15 May 2022.

Before this reform, a sole trader wishing to protect personal assets had to either set up a ring-fenced estate through the EIRL or incorporate a company. The new regime makes that protection automatic. This is a major change for anyone planning to go solo, whether a tradesperson, a retailer or a member of the liberal professions.

This evolution builds on protections that already existed, such as the unseizability of the main residence. To start well, our business creation support service always begins with this review of personal assets.

When a person sets up a sole proprietorship, their personal and business assets are automatically separated, with no administrative step or declaration of allocation.

In practice, two distinct sets of assets coexist:

• The business estate covers the assets, rights, obligations and securities useful to the activity: goodwill, equipment, stock, trade receivables, a bank account dedicated to the business. It secures business creditors.
• The personal estate holds everything else: main residence, second home, savings, personal vehicle. It secures personal creditors only.

The consequence is clear: in case of difficulty, business creditors (suppliers, the bank financing the activity, a commercial landlord) can in principle be paid only out of the business estate. They cannot seize the main residence or other personal assets, even if business assets are insufficient. This is exactly what reassures the entrepreneur stepping up after testing the waters with the auto-entrepreneur status.

Since 15 February 2022, it has been impossible to create an EIRL or to elect for that regime. The single status made the allocation declaration that drove the entire EIRL mechanism redundant.

EIRLs set up before that date still exist and keep operating under their own rules. If you are still under that regime, switching to the single status may be justified, but it deserves a case-by-case review: the ring-fenced estate and its tax consequences must be worked through before any decision. In particular, we check the treatment of unrealised capital gains at the time of transition.

By default, a sole trader is subject to income tax: the profit is added to the household's other income and taxed under the progressive scale. For entrepreneurs generating a result above their remuneration needs, this can become costly.

Article 1655 sexies of the French Tax Code provides a way out: a sole trader not on the micro regime may elect to be treated as a EURL (or an EARL for farming). This election automatically counts as an election for corporate tax. The steps:

1. Check eligibility: not being on a micro regime (micro-BIC or micro-BNC). A micro-entrepreneur must first leave it, which means moving to the standard (réel) regime.
2. Measure the economic interest: compare the tax and social charge under income tax and under corporate tax, factoring in the director's remuneration policy.
3. Notify the election within the first three months of the financial year for which the entrepreneur wants the business to be treated as a EURL.
4. Keep accruals-based accounts suited to corporate tax, distinct from the cash accounting often used under income tax.
5. Anticipate the irrevocable nature: the assimilation election is irrevocable. Only a renunciation of corporate tax remains possible, under Article 239 of the Tax Code, up to the fifth financial year following the year of the election.

If your activity grows enough to justify corporate tax for the long term, the question of a dedicated company — and the SARL versus SAS comparison — should be raised in parallel. Assimilation remains a useful intermediate vehicle, but it is not always the final destination.

The choice between income tax and corporate tax is never just about a rate. Under income tax, the profit is taxed under the scale, but the entire result bears social contributions. Under corporate tax, the business is taxed on its profit, and only the remuneration paid (and, where applicable, distributed income) bears personal social levies — which changes the trade-off between salary and distribution.

The reduced 15% corporate tax rate applies to the portion of profit up to and including €42,500, provided turnover is below €10 million and the capital is at least 75% held by individuals (Article 219, I-b of the Tax Code). Above €42,500, the standard 25% rate applies.

Corporate tax often becomes relevant when the profit clearly exceeds the remuneration need, because it lets you control what leaves the business. To make this trade-off objective, you can simulate the salary-dividend balance before deciding.

• Micro-entrepreneur: already benefits from automatic asset separation, but cannot elect for corporate tax while on the micro regime. To assess the right moment, our article on the micro-enterprise thresholds and rules details the thresholds and the move to the standard regime.
• Liberal profession: EURL assimilation is available, but certain professional-conduct rules and the director's social security regime must be reviewed. A liberal professional gains from comparing a sole trader under corporate tax with a dedicated practice company.
• Real estate held in own name: furnished letting and property ownership follow their own logic; the corporate tax election can crystallise capital gains. A prior review is essential.
• Entrepreneur hesitating between sole trader and single-member company: if you are alone and still hesitating, our sole trader vs EURL comparison clarifies the choice between the single-member company and the assimilated sole trader.

• Asset protection is not absolute. A written, express waiver of the protection may be requested by a bank for a business loan: you then bring a personal asset back into the creditors' security.
• Tax fraud removes the protection. In case of fraudulent manoeuvres or serious and repeated breaches of tax obligations, the authorities can recover against all assets.
• The corporate tax election is irreversible in its "assimilation" dimension. A decision taken on the back of one good year can weigh on later years. The window to renounce corporate tax (until the 5th year) is your only safety net.
• Leaving the micro regime has an administrative cost. The move to the standard regime imposes more demanding accounting: it is an investment to anticipate, not a formality.
• The main residence stays protected even after the activity ends, as long as the rights of the relevant creditors are not extinguished.

As a firm registered with the French Order of Chartered Accountants and also acting as statutory auditor, we see many businesses set up in their own name. The most common reflex is to think about "protection" and "tax" separately. That is a mistake: the two decisions are linked.

Recently, a building tradesperson approached us after a first year of strong turnover. Under income tax, the entire profit bore both the scale and social contributions, even though he did not need to draw it all. Electing for EURL assimilation, and therefore corporate tax, let him deduct his remuneration and keep part of the result inside the business at the reduced 15% rate. The gain was not automatic: he had to accept accruals accounting and a corporate tax return. For another client, a liberal professional starting out with a modest profit, income tax remained preferable. The right choice depends on the profit / remuneration-need pairing, and it evolves over time. That is also why a personal wealth optimisation strategy must be thought through beyond the first year, sometimes up to structuring through a holding company as the activity grows.

Hayot Expertise advice. Before electing, simulate income tax and corporate tax over three financial years, including your target remuneration and your investment plans. Make sure you have indeed left the micro regime if corporate tax is the goal. Notify the election within the deadline (first three months of the financial year) and keep proof of that notification. Our chartered accountant team in Paris 8 supports you at each step, from incorporation to the choice of tax regime.