When a project leader creates his company, he must choose a tax regime and in particular the tax regime for his profits. He has the choice between two regimes: corporate tax or income tax. Here is a complete file on the advantages of income tax as well as a summary table.
The benefits of income tax
Income tax offers a sometimes significant financial advantage. Indeed, in this method of taxation of profits, it is not the company that pays the tax on profits but directly the beneficiary of the income. The results are therefore taxed directly in the hands of the partner or company manager concerned, in the category: Industrial and commercial profits : commercial, industrial or artisanal activity, Agricultural benefits : agricultural activity, Or non-commercial benefits : liberal activity. For more information, read this
Thus, profits may be subject to a much lower tax rate than that in force for corporate income tax (33.1/3% then 25% from 2022). A scale applies to calculate the tax due, it takes into account: The overall amount of income received by the tax household and the composition of the tax household (number of children, etc.).
Concretely, the different tax brackets range from 0% to 45%, with intermediate rates of 14%, 30% and 41%. As you will have understood, choosing income tax has an advantage when your personal tax rate is 30% or less. More precisely, we are talking about marginal tax rates. An entrepreneur also has an interest in opting for IR when he benefits from a profit exemption scheme (Zone Franche Urbaine for example).
The other advantage of the income tax lies in the possibility of deducting certain deficits from the overall taxation of the tax household. Indeed, if you participate personally, directly and continuously in the accomplishment of the acts necessary for the activity and that you do not fall under the micro regime , you can compensate for the losses made on your overall income. You will therefore pay less personal tax. On the other hand, when the activity is not carried out in a professional manner, the deficits can only be set off against the profits of the following 6 years.