When VAT for micro-entrepreneurs reignites the debate over their status
Introduced in 2008, the self-employed entrepreneur (or micro-entrepreneur) status has been a huge success. It has also sparked significant controversy… culminating in a public outcry in January 2025 over the announcement that the VAT credit threshold would be lowered.
Marion Polge, University of Montpellier
The Economic Modernization Act (LME) established the “auto-entrepreneur” status on August 4, 2008. Who would have thought that this status would still be at the center of controversy sixteen years later? According to Urssaf, France had 2.715 million auto-entrepreneurs at the end of 2023, who benefit from a VAT exemption designed to boost their competitiveness.
A proposal included in the 2025 budget to lower this threshold to €25,000 was submitted to the Joint Committee. However, it was put on hold due to the controversy it sparked. This latest development adds to the turbulent history of this program, which, since its inception, has oscillated between popular success and recurring criticism.
From the very beginning, stakeholders across the microbusiness and small-to-medium-sized enterprise sector gave it a lukewarm reception. This initiative to make entrepreneurship more accessible—allowing anyone to take a chance—took shape through legislation that was controversial from social, economic, and fiscal perspectives.
A priority for Nicolas Sarkozy
The idea of simplifying the process of starting a business was already part of Nicolas Sarkozy’s platform in 2007. As soon as he was elected, he made it a priority to include it in the LME. To understand the origins of this legislation, we must look back to the context of the late20thcentury, marked by an acceleration of deindustrialization in France due to the French economy’s lack of appeal to investors, which called for bold decisions.
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While everyone acknowledges that our economy is struggling, the decision to promote entrepreneurship represents a major departure not only from our social model but also from our culture.
Within a few months, starting a business—previously largely the preserve of business circles or hands-on trades such as crafts—became easily accessible to everyone. Between the recession of 1993–1994 and the subprime crisis (2008), France turned to the digital revolution at the dawn of the 2000s as a means of finding new avenues for growth.
A controversial flexibility
The self-employed entrepreneur has ushered in a level of deregulation never before seen in our country. While the process of starting a business has become easier, several requirements for doing so have caused concern among socio-economic stakeholders.
The lack of prerequisites for certain activities alarmed artisans, who were concerned about the consequences for the quality and safety of services. In response to this backlash, training requirements were imposed on certain sectors. The unpopularity of the “auto-entrepreneur” status reached such a level that in 2016, it was merged with the “micro-entrepreneur” status: while the legal status itself remained unchanged, the terminology—which had become too divisive—was abandoned.
Furthermore, the VAT exemption is seen as a source of distortion of competition. Businesses that are subject to VAT from the moment they are established view it as a privilege granted to micro-entrepreneurs. In principle, the idea is an interesting one: for a long time, the pre-establishment period has posed problems for the government. During this period, which could last from one to three years, young entrepreneurs “tested” their business without getting bogged down in the administrative red tape of official registration. They were not registered, did not pay taxes, and thus fueled the underground economy by engaging in undeclared work.
Is there a time limit?
The self-employed entrepreneur status was intended to address this issue through a “pay-as-you-earn” tax system (i.e., taxes are paid only when revenue is generated) and an income cap that would encourage a switch to a more traditional tax regime as business picks up.
In fact, another obstacle was quickly identified: the issue of time. A “springboard” status designed to facilitate business creation should have included a time limit, which Sylvia Pinel, Minister of Crafts, Trade, and Tourism (2012–2014), attempted to establish through a two-year fixed-term self-employed status. The Pinel Law (January1, 2016) ultimately did not include this measure.
Far from experiencing business growth, the average income of microentrepreneurs stood at €590 per month in 2019, with significant disparities depending on the type of business. Furthermore, the issue of revenue caps continues to fuel debate. Those approaching the €77,700 threshold for service provision or the €188,700 threshold for commercial activities face a dilemma: switch to a traditional business structure with heavier taxation, or voluntarily slow down their activity to remain below the VAT thresholds?
This threshold effect can hinder the development of initiatives that are otherwise promising:
“Some microentrepreneurs limit their business activity to avoid transitioning to the formal sector. Since inspections are still very rare, these practices result in few penalties, which does not encourage microentrepreneurs to act responsibly,”
explains certified public accountant Jean-Michel Haddad.
From the promise of independence to the reality of precariousness
Micro-entrepreneurship is more of a fallback option than a stepping stone, with only 50% of micro-entrepreneurs remaining active and an average quarterly revenue of €5,000—from which expenses and social security contributions must be deducted to calculate net income.
Economist Bernard Gazier highlights the rise of multiple jobholding, which is driving many workers to juggle different employment statuses to make ends meet. His analysis underscores the risk of fragmentation in the labor market and increasing social insecurity. With the rise of digital platforms, the flexibility they promised has sometimes turned into economic instability.
In this context, large companies—and especially service platforms—have quickly integrated micro-entrepreneurs into their business models. Sectors such as home delivery and passenger transport have seen the emergence of an outsourced workforce, caught between self-employment and precariousness. While this status was intended to lead to entrepreneurial freedom, a paradox has arisen due to the power of platforms that dictate working conditions, rates, and vehicle usage… https://www.youtube.com/embed/EQNPh0XG2mc?wmode=transparent&start=0 Legalstart 2025.
Under the guise of independence, self-employed entrepreneurs face the constraints of wage labor without enjoying its benefits. This shift from wage labor to a form of constrained entrepreneurship raises the question: to what extent can this status truly serve as a tool for entrepreneurial empowerment? How long do microentrepreneurs retain this status, which was initially created as a temporary stepping stone toward corporate status? And how many actually transition out of microentrepreneurship to form a corporation? It is difficult to determine the origins of the 284,000 companies created in 2024. The labyrinth of data does not clarify the trajectory of microentrepreneurs.
Business start-ups that are just for show
So, what are we to make of the figures recently released by INSEE (2024) on business creation in France? The announcement appears to have pleased analysts, with a record 1,111 million new businesses in 2024—a 5.7% increase over the past year—64.1% of which are microenterprises. The quantitative success is indeed undeniable.
While this momentum is widely praised, a sector-by-sector analysis reveals a predominance of personal services, cleaning, and retail. Rather than reflecting an entrepreneurial boom, these figures point to a reality driven more by economic necessity than by innovation.
In addition to the growing precariousness of employment—which is synonymous with deteriorating working conditions—there is a phenomenon of fraud linked to disguised wage labor. Sociologist Sarah Abdelnour points out that this arrangement has made it possible to circumvent the framework of traditional wage labor and that it is sometimes imposed on employees as a less restrictive model for employers, who thereby shirk their social obligations. Fraud to some, a renewal of the work relationship to others: Sarah Abdelnour illustrates her point with findings from her research showing that the micro-entrepreneur model reflects a paradigm shift in work among young people, who see it as a pathway into the workforce. This generational shift could naturally move away from the traditional wage-earning system toward self-employment.
A stepping stone or a dead end?
Ultimately, microentrepreneurship involves starting a business in the administrative sense, but the entrepreneurial act of taking risks and innovating to create value reflects ambitions that are still far removed from this status.
As the debates over the VAT highlight the flaws in this system, a broader discussion about the future of entrepreneurship in France seems necessary.
Should we help microentrepreneurs transition to a more stable model? Encourage them to move toward more sustainable structures? Or should we fundamentally rethink a legal status that, under the guise of simplicity, masks far more complex realities?
Marion Polge, Associate Professor (HDR) in Management Sciences, University of Montpellier
This article is republished from The Conversation under a Creative Commons license. Readthe original article.