Saturday, October 24, 2009

Cost of running a business in France

France has the reputation of being a country of high taxes compared with its European neighbours. It is certainly true that although income tax is low - 50% of the population do not pay any - social contribitions are relatively high for employers, employees and the self employed. However, in return the health and social security systems are extremely generous in terms of medical care, nursery, primary, secondary and university education, unemployment benefits and assistance to job-seekers.

Recent figures show that overall contributions including income tax, local taxes and social contribtions equal 43.5% of GDP, compared with 36.5% in Britain, 34.8% in Germany and just 27.3% in the USA where the level of social care is probably the lowest in the world.

All governments attempt to strike a sometimes delicate balance between the requirement for revenue and the amount of taxation the population will tolerate. Where this balance is perceived to be unfair, tax evasion will increase. France's underground economy is currently estimated to represent nearly 15% of the country's GDP, just behind Spain at 23%, but on a level with Germany. Figures for Britain are 13% and for the USA 8.8%.

The figures include under-declaration and concealment of income by 'legitimate' businesses and individuals, as well as earnings from drugs, trafficking and prostitution. Revenues from these activities in one year could wipe out France's social security deficit, leaving an additional 10 billion euros to spare.

Although there are strict laws applied to French taxpayers governing payments in cash up to a mximum of 3,000 euros, a recent report demonstrated that the rules are frequently ignored. Among the cases investigated were removal firms, dentists, fashion stores, cosmetic surgeons, garages, artisans - and psycho-analysts!

Source: Capital, October 2009, pp 63-64.