Have you been a self-employed physiotherapist for over 5 years? Why set up a company to generate €50,000 tax-free?
I have been a private practitioner for over 5 years. What are the advantages of setting up a liberal practice partnership (SEL) for physiotherapists? What legal and tax schemes are there to optimize the tax position of physiotherapists?
We will present the usual tax regime for self-employed physiotherapists, for which we will determine the tax and social security charges on €50,000 of earnings to be recognized (1.), then we will present the tax advantages of setting up a physiotherapist’s liberal practice partnership (société d’exercice libéral – SEL), which can allow €50,000 to be recognized tax-free (2.).
1. Classic scheme – Sole proprietorship for physiotherapists: apprehending €50,000 costs around €20,000
A self-employed physiotherapist is taxed in the non-commercial profits (BNC) category, and is also subject to social security charges on his/her profits (social security for the self-employed and CARPIMKO).
For sales of up to €70,000, self-employed physiotherapists can opt for the micro-BNC system (the BNC taxable for income tax purposes is calculated by deducting a flat-rate 34% charge from gross sales). The self-employed physiotherapist can also opt for the actual tax regime, and calculate his/her taxable BNC by deducting actual expenses from sales. The option for the micro-BNC regime is relevant if actual expenses paid (including social security charges) do not exceed 34% of sales.
Example: What is the tax and social security cost of apprehending €50,000 for a self-employed physiotherapist?
Ms. X is a self-employed physiotherapist with net sales (excluding social charges) of €50,000. In order to apprehend this €50,000, she will have to pay approximately €18,000, excluding professional association contributions, i.e. an available net amount of €32,000:
Simplified income tax model, see details of the mon-entreprise.fr simulation: Here
2. Diagram 2 – Setting up an SEL for self-employed physiotherapists and buying out your own self-employed fund tax-free?
A physiotherapist’s SEL can be set up by transferring his or her business assets to an SEL set up for this purpose. However, the physiotherapist does not generate any income from this transfer.
A physiotherapist’s SEL can also be set up by creating an SEL with a small share capital in cash, followed by the sale of the business itself. In this case, the SEL will pay the purchase price of the business directly to the physiotherapist, who will receive the money.
Principle: capital gains tax at 30%: In the event of the purchase of his/her business by the SEL, the physiotherapist will generate a capital gain subject to income tax and social levies. As this is a non-depreciable asset, the capital gain on the sale of the business is subject to short- or long-term capital gains or losses, if the business has been held for more than 2 years at the time of sale, the entire capital gain is considered long-term, and is taxed at the overall rate of 30% (12.8% for income tax and 17.2% for social security contributions). Thus, in principle, the apprehension of a sale price of €50,000 should cost 30% of the capital gain, i.e. €15,000 (versus €18k for the apprehension of BNC income).
Exception: Total exemption from capital gains tax for physiotherapists who have been self-employed for more than 5 years, with sales of less than €90,000, subject to abuse of tax law.
Article 151 septies of the Code Général des Impôts (General Tax Code) provides for total (or partial, depending on sales) exemption from income tax and social levies on capital gains arising from self-sale, if the following conditions are met
- the self-employed physiotherapist has been operating his or her business for more than 5 years; and
- the self-employed physiotherapist generates less than €90,000 in annual sales (sales are assessed on the average of the last 2 financial years, with partial exemption for sales between €90,000 and €120,000).
Example: What is the tax and social security cost of apprehending €50,000 on the sale of one’s self-employed physiotherapist’s business to a physiotherapist’s SEL?
Ms. X has been a self-employed physiotherapist for over 5 years, with annual sales of €89,000. Her business is valued at €50,000. She decides to set up a physiotherapist’s SEL by contributing €100 in cash capital, and the SEL buys out her business for €50,000.
After studying her situation, she qualifies for exemption under article 151 septies of the French General Tax Code, and will be able to apprehend the €50,000 without direct taxation or social charges. She will only have to pay registration fees of €810 (compared to €18,000 for the apprehension of traditional BNC income).
Such a tax-exempt sale of your own business via a physiotherapist’s SEL under article 151 septies of the CGI requires compliance with a number of conditions, and requires preparation, analysis and justification to avoid any risk of abuse of tax law.
In this respect, we would like to draw your attention to the fact that it is advisable to be accompanied by an expert professional to ensure the security of such an arrangement. We will also need to address issues such as the valuation of the business, the SEL’s tax status (income tax or corporation tax), and the implementation of more complex schemes such as the creation of a société de participations financières de professions libérales (SPFPL).
What are the advantages for a physiotherapist of going into partnership? → Make an appointment and we’ll discuss the most suitable scheme for your situation.
AGN AVOCATS – Tax Department
09 72 34 24 72