When VAT for micro-entrepreneurs reignites the debate on their status
Launched in 2008, the status of auto-entrepreneur (or micro-entrepreneur) has been hugely successful. It has also sparked significant controversy... culminating in an outcry in January 2025 against the announcement of a reduction in the VAT credit threshold.
Marion Polge, University of Montpellier
With the Economic Modernization Act (LME), the status of auto-entrepreneur was created on August 4, 2008. Who would have thought that this status would still be at the heart of controversy sixteen years later? According to Urssaf, France had 2,715 million auto-entrepreneurs at the end of 2023, benefiting from a VAT exemption intended to strengthen 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 suspended due to the controversy it sparked. This latest episode adds to the turbulent history of this system, which, since its creation, has oscillated between popular success and recurring criticism.
From the outset, all stakeholders in the world of small and medium-sized enterprises gave it a mixed reception. This project to democratize entrepreneurship, allowing everyone to try their luck, took shape with a text that was questionable from a social, economic, and fiscal point of view.
A priority for Nicolas Sarkozy
The idea of simplifying the process of setting up a business was already part of Nicolas Sarkozy's program 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 text, we must return to the context of the late20thcentury, marked by an acceleration of deindustrialization in France due to the French economy's lack of attractiveness to investors, calling for strong decisions.
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While everyone agreed that our economic fabric was running out of steam, the decision to stimulate entrepreneurship represented a major break with our model of society, but also with our culture.
Within a few months, starting a business, which had previously been largely reserved for employers' circles or operational trades such as crafts, became easily accessible to everyone. Between the recession of 1993-1994 and the subprime crisis (2008), France focused on the digital revolution at the dawn of the 2000s as a means of finding new avenues for growth.
Controversial flexibility
The auto-entrepreneur has ushered in a level of liberalization never before seen in our country. Beyond the ease of setting up a business, several conditions for creation have caused tension among socio-economic partners.
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 status itself remained unchanged, the terminology, which had become too divisive, was abandoned.
Furthermore, VAT exemption is perceived as a source of distortion of competition. Companies subject to VAT from the moment they are created see it as a privilege granted to micro-entrepreneurs. In principle, the idea is interesting: for a long time, the pre-creation period has posed problems for the state. During this period, which could last from one to three years, young entrepreneurs would "test" their business without getting caught up in the administrative maze of official start-up procedures. They were not registered, did not pay taxes, and thus inflated the underground economy by engaging in undeclared work.
A time limit?
The self-employed entrepreneur status was intended to remedy this problem through variable taxation (i.e., only when there is turnover) and a revenue cap that would encourage a switch to a more traditional regime when business picks up.
Another pitfall was quickly identified: that of temporality. A springboard status to facilitate creation should have included a time limit, which Sylvia Pinel, Minister of Crafts, Trade, and Tourism (2012-2014), attempted to establish with a two-year fixed-term auto-entrepreneur status. The Pinel Act (January1, 2016) ultimately did not retain this measure.
Far from entrepreneurial expansion, the average income of microentrepreneurs in 2019 was €590 per month, with significant disparities depending on the activity. In addition, the issue of capping turnover continues to fuel debate. Those approaching the threshold of €77,700 for services or €188,700 for commercial activities face a dilemma: switch to a traditional business regime with higher taxes or deliberately slow down their activity to remain below the VAT thresholds?
This threshold effect can hinder the development of promising initiatives:
"Some microentrepreneurs limit their activity so as not to switch to the formal economy. As inspections remain 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
Microentrepreneurship is more of a fallback solution than a springboard, with only 50% of microentrepreneurs active and an average quarterly turnover 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 pushing many workers to combine different statuses in order to make ends meet. His analysis underscores the risk of fragmentation in the world of employment and social insecurity. With the rise of digital platforms, the promised flexibility sometimes turns into economic instability.
In this context, large companies and especially service platforms have quickly integrated microentrepreneurs into their business models. Sectors such as home delivery and passenger transport have seen the emergence of an outsourced workforce, oscillating between independence and precariousness. While this status was supposed to lead to freedom of enterprise, a paradox has arisen linked to the power of platforms, which impose working conditions, rates, vehicle use, etc. https://www.youtube.com/embed/EQNPh0XG2mc?wmode=transparent&start=0 Legalstart 2025.
Under the guise of independence, self-employed entrepreneurs experience the constraints of salaried employment without enjoying any of the benefits. This shift from salaried employment to forced entrepreneurship raises questions: to what extent can this status really serve as a tool for entrepreneurial empowerment? How long do microentrepreneurs retain this status, which was initially created as a temporary transition to company status? And how many actually leave microentrepreneurship to start a company? It is difficult to know the origin of the 284,000 companies created in 2024. The maze of data does not clarify the trajectory of microentrepreneurs.
The illusion of business creation
So, what should we make of the figures recently published by INSEE (2024) on business creation in France? Their announcement seems to have delighted analysts, with a record 1,111 million new businesses in 2024, representing a 5.7% increase in one year, 64.1% of which are micro-enterprises. The quantitative success is undeniable.
While this dynamism is unanimously welcomed, sector analysis reveals a predominance of personal services, cleaning, and retail trade. Rather than entrepreneurial growth, these figures reflect a reality marked by economic necessity rather than innovation.
In addition to precariousness, synonymous with deteriorating working conditions, there is also the phenomenon of fraud linked to disguised employment. Sociologist Sarah Abdelnour points out that this system has made it possible to break free from the framework of salaried employment and that it is sometimes imposed on employees as a less restrictive model for employers who wish to disengage from their social obligations. Fraud for some, renewal of the working relationship for others: Sarah Abdelnour illustrates her point with the results of her research showing that micro-entrepreneurship responds to a paradigm shift in the way young people view work, who see it as a means of entering the workforce. Generational change could naturally move the system away from traditional salaried employment in favor of self-employment.
A springboard or a dead end?
Ultimately, microentrepreneurship translates into business creation in the administrative sense, but the entrepreneurial act of taking risks and innovating to create value is still a long way from this status.
While debates on VAT highlight the flaws in this system, broader reflection on the future of entrepreneurship in France seems necessary.
Should microentrepreneurs be guided toward a more stable model? Should their transition to more sustainable structures be encouraged? Or should we fundamentally rethink a status that, under the guise of simplicity, conceals much more complex realities?
Marion Polge, Associate Professor in Management Sciences, University of Montpellier
This article is republished from The Conversation under a Creative Commons license. Readthe original article.