When it comes to income taxation, there are a number of subtleties that raise doubts, not least the question of non-commercial profits (BNC), whether earned on a professional or non-professional basis. What is the principle behind this tax regime for micro-entrepreneurs and the self-employed? How does it work? What is the distinction between professional and non-professional BNC? What are the reporting obligations? Our answers.
The non-commercial profits regime: general principle and activities concerned
General principle
Amounts received from self-employment are included in the calculation of taxable income in the same way as other remuneration. The non-commercial profits(BNC) category is reserved for people engaged in non-commercial activities. This category differs from industrial and commercial profits (BIC) associated with commercial, industrial or craft professions.
Activities concerned
The non-commercial profits category covers a range of professions and business income, including :
- Liberal professions (medical, legal, accounting, etc.)
- Holders of offices (notaries, bailiffs, court clerks, etc.)
- Professions subject to copyright
- Sales agent revenues
- Information and communication professions
- Industrial property income earned by individuals
These BNC activities can be carried out under a variety of statutes: micro-enterprise, sole proprietorship, société civile professionnelle(SCP), société d'exercice libéral (SEL). However, the tax regime will vary according to the status in question.
The difference between professional and non-professional BNC
The categorization of income within a tax regime depends on a number of factors, including legislation and case law. In this area, the General Tax Code(CGI) and administrative jurisprudence have defined two types of non-commercial profit: professional BNC and non-professional BNC.
The professional nature of a self-employed activity is defined by two main criteria:
- It is carried out on a regular and constant basis
- It is carried out for profit
The Bulletin Officiel des Finances Publiques - Impôts(BOFiP) states that "the fact that the activity in question may be exercised in parallel with another profession providing the person concerned with his or her main means of subsistence does not, in principle, exclude recognition of its professional nature". However, "the persistence of a very low level of income or a marked disproportion between income and expenditure is an indication of the non-professional nature of the activity".
In practice, the tax authorities also recognize as non-professional BNC income that cannot be assigned to another category, such as copyright, commercial agent income, gambling winnings and miscellaneous allowances.
How the BNC declaratory systems work
There are two main systems for taxing non-commercial profits. The distinction is made at the time of the annual tax return.
The micro-BNC system
The "micro-BNC" tax regime is automatically awarded to self-employed people when they set up a micro-business for a non-commercial activity. This declaratory scheme applies to companies with annual sales excluding tax of less than €77,700.
Gross receipts must be declared on the 2042 C Pro form when filing your annual tax return. The amount of revenue should be declared without any deductions under the heading "non-trading income", then under the heading "special declarative regime or micro BNC".
The tax authorities then apply a flat-rate deduction of 34% on sales in the BNC category. The resulting taxable profit is then added to the tax household's total income, and taxed at the income tax rate.
Please note that a specific section is dedicated to micro-entrepreneurs who have opted for payment in full discharge of income tax. This is box "5TE" for non-commercial profits, accessible after ticking the "auto-entrepreneur ayant opté pour le versement libératoire de l'impôt sur le revenu" box.
The controlled declaration system
The controlled declaration system is designed for companies with sales of over €77,700 excluding tax. This system can also be used by professionals under the micro-BNC system, who apply for the option at the time of filing their annual income tax return.
This is the actual tax system, based on the company's net profit for the calendar year. Revenues and expenses are taken into account. This requires strict bookkeeping.
Several formalities are then required:
- Fill in form 2035 "Revenus non commerciaux et assimilés / Régime de la déclaration contrôlée" (Non-commercial income and similar income / Controlled declaration system)
- Complete form 2042 C Pro "Déclaration de revenus complémentaires des professions non salariées", under the heading "revenus non commerciaux", then under the subheading "régime de la déclaration contrôlée".
The boxes to be filled in are different for companies that use or do not use a certified management organization(organisme de gestion agréé- OGA). A distinction is also made according to the location of the business, particularly if it is located in a Zone Franche Urbaine(ZFU) or Zone de Revitalisation Rurale(ZRR).
If you have any doubts about the formalities to be carried out, we advise you to contact the tax department responsible for your business.
Good to know: it's important to note that fuel, toll and similar expenses can normally be deducted from non-commercial profits(BNC) when they are real and justified, provided they are recorded in the fixed assets register linked to the professional activity. To facilitate this justification, we recommend the use of fuel cards or the keeping of expense reports including mileage allowances. These solutions eliminate the need to keep all receipts for travel expenses, thus simplifying the accountant's work.