What Tax Rules Apply to Business Owners?

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The tax obligations of business leaders vary depending on the legal structure of their company (sole proprietorship, EURL, SARL, SA, etc.) and the taxation method chosen (personal income tax or corporate tax). Here is an overview of the main tax treatments based on business type and leadership role.

If You Run a Sole Proprietorship

Business owners operating under a sole proprietorship are taxed on the net business income as part of their personal income tax. There is no separation between company earnings and personal compensation—the profit is treated as personal income.

You’ll need to submit the 2042 C PRO form along with your standard income tax return (Form 2042), declaring your earnings under the relevant category:

  • BIC (Industrial and Commercial Profits) for commercial, industrial, or craft activities.

  • BNC (Non-Commercial Profits) for liberal professions.

The tax rate applied depends on your total household income and family situation.

If You Manage a Company

In general:

  • Companies like SARL, SA, and SAS are taxed under corporate tax (IS), although some may choose personal income tax (IR) under specific conditions.

  • EURL and SNC are usually subject to income tax, but may opt for corporate tax instead.

Under corporate tax, company profits are distinct from the business owner’s remuneration:

  • The business pays tax on profits.

  • The owner declares their salary and dividends on their personal income tax return.

If the company distributes profits as dividends:

  • These are taxed at both the corporate level (IS) and the individual level, either under the flat tax (30%) or the progressive income tax scale, depending on the shareholder’s choice.

Tax Reporting by Legal Status

Here’s a breakdown of how business leaders declare their earnings and dividends depending on the legal form of the business:

Sole Proprietorship (EI)

  • Income reporting: Personal tax return, under BIC, BNC, or BA (agricultural income), depending on the activity.

  • Dividends: Not applicable, as income equals business profit.

EURL (Single-Member LLC)

  • If taxed under IR: Declare income in the appropriate category (BIC/BNC). Compensation is not deductiblefrom business profits.

  • If taxed under IS: Report salary under “wages and salaries” in personal tax return. You may deduct actual business expenses or use a 10% flat deduction. Salary is deductible from profits.

  • Dividends: Taxed at 30% flat rate (PFU), or optionally under the progressive scale.

Non-Owner Manager (Gérant non associé)

  • Income: Declared as salary. Deductions for real expenses allowed or 10% flat deduction.

  • Dividends: Taxed as above.

SARL (Limited Liability Company)

  • Majority Manager:

    • Under IS: Salary reported under “wages and salaries.” Eligible for real expense deductions or specific deductions (e.g., Madelin contributions). Not eligible for 10% flat deduction.

    • Under IR: Must declare their share of the profits under BIC/BNC.

    • Dividends: Taxed under the PFU (30%) or progressive scale.

SA (Public Limited Company)

  • Chairman or CEO:

    • Under IS: Salary declared under “wages and salaries,” with the option of real expense deduction or 10% flat rate.

    • Dividends: Taxed as described above.

SAS / SASU (Simplified Joint-Stock Company / Single-Member Version)

  • President or Shareholder-Manager:

    • Under IS: Salary reported under “wages and salaries.” Expenses deductible either as actual costs or via 10% flat rate. Salary is deductible for the company.

    • Under IR: Profit share declared under BIC.

    • Dividends: Same taxation as others.

SNC (General Partnership)

  • Managing Partner:

    • Under IR: Income reported under BIC/BNC. Only real professional expenses can be deducted—no flat 10% deduction. Salary is not deductible from profits.

    • Under IS: Salary declared under “wages and salaries.”

    • Dividends: Subject to PFU or progressive tax scale.