Sole proprietorships and partnerships are not directly liable for income tax.

The tax is payable by:

• the entrepreneur in the case of a sole proprietorship;
• the partners in the case of a partnership.

The tax applicable (personal income tax or corporate income tax) depends on the status of the partner concerned.

Who is concerned

Taxable persons can be grouped into 2 categories:

• the entrepreneur in a sole proprietorship, i.e. the natural person exercising a commercial activity in his/her own name. Only the entrepreneur has a legal personality and a personality for tax purposes. The owner who is taxed on any income, with the income from the sole proprietorship being only one component of this income;
• the partners in transparent partnerships (SENC, SCS, de facto companies, or civil companies) which are subject to a regime comparable to that of sole traders, namely:
  • personal income tax if the partner is a natural person;
  • or corporate income tax if the partner is an opaque capital company (SA, SARL, SECA).

Prerequisites

In order to be taxable, profit from a sole proprietorship or partnership must be derived:

• from commercial or craft activities;
• from agricultural or forestry activities;
• or from exercising a liberal profession.

Commercial or craft activities

An activity is considered as commercial from a tax standpoint if it meets the following four criteria:

• it is independent (which excludes salaried activity);
• it is for profit (which excludes amateur or unpaid activities);
• it is permanent (which excludes isolated acts);
• and it constitutes a participation in general economic life (it must target a large market).

Where the profit from a partnership does not meet these 4 criteria, it is nonetheless considered commercial profit if one or more of the majority partners are:

• ​partnerships exercising a commercial activity;
• or capital companies.

Partners of this type of partnership must therefore also declare the profits derived from this company as commercial profit.

Agricultural or forestry activities

Activities considered as agricultural or forestry from a tax standpoint specifically include:

• agriculture, forestry, viticulture, horticulture, fruit and vegetable growing, in nurseries or greenhouses;
• livestock farming;
• bee-keeping;
• hunting and fishing conducted in conjunction with farming or forestry.

Profit derived from these activities must therefore be declared as profit from agricultural and forestry activities.

Exercising a liberal profession

Activities considered to be liberal professions from a tax standpoint specifically include the following, if they are exercised as independent activities:

• scientific, artistic, literary, teaching or educational activities;
• doctors, dentists, veterinary surgeons, midwives, physiotherapists, masseurs;
• lawyers, notaries, bailiffs, executors of wills, property managers, accountants and tax advisers;
• engineers, architects, chemists, inventors, consultants, journalists, photo-journalists, interpreters and translators, etc.;
• directors, auditors of SA, SARL, SECA, cooperative companies (sociétés coopératives - SC), etc.

Profit derived from these activities must therefore be declared as profit derived from exercising a liberal profession.

How to proceed

Sole trader/Partner natural person

Natural persons must declare profit derived from a sole proprietorship or partnership on their personal income tax return (form 100F):

• in the commercial profit category if it results from a commercial or craft activity within the meaning of tax law.
  In such cases, the tax return must be accompanied by the declaration for the calculation of commercial profit and business tax (110F);
• or in the agricultural or forestry profit category;
• or in the profit derived from the exercise of a liberal profession category;

Any business losses may be deducted:

• from the owner's total income in the case of a sole proprietorship;
• from each partner's income pro rata according to his/her share of the partnership.

In the event of insufficient income, the residual loss can be carried forward by the taxpayer indefinitely against future income.

Partners in capital companies

Capital companies must declare profit derived from a partnership on their corporate income tax return.

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