French SASU Under Income Tax: The Wave of Social Levy Reassessments

I. The SASU Under Income Tax: An Attractive Vehicle with an Uncertain Social Framework

A. Electing for the Pass-Through Regime: The Legal Framework

A SASU (société par actions simplifiée unipersonnelle) is, by default, subject to French corporate income tax (impôt sur les sociétés, IS) under Article 206(I) of the French Tax Code (Code général des impôts, CGI)¹. However, Article 239 bis AB of the same code² allows SASUs that are less than five years old, with annual turnover below EUR 10 million and capital held at least 50% by natural persons, to elect for the partnership tax regime provided for by Article 8 of the CGI³. This election, limited to five fiscal years, renders the company fiscally transparent: profits are taxed directly in the hands of the sole shareholder, in the income category corresponding to the nature of the business activity, namely industrial and commercial profits (BIC), non-commercial profits (BNC) or agricultural profits (BA).

This regime is particularly popular among consultants, software developers, liberal professionals and other intellectual service providers operating through a SASU. It avoids the double taxation inherent in the corporate tax plus dividend distribution structure and offers considerable fiscal flexibility, especially during the early years of activity. In practice, the sole shareholder declares the entirety of the company's taxable profit as professional BNC on their personal income tax return, without any dividend distribution within the meaning of Article 108 of the CGI⁴ being legally required, the receipt of profits being a direct consequence of the company's fiscal transparency.

B. The Dispute: Earned Income at 9.7% or Investment Income at 18.6%?

The trap lies in the social levy treatment. Two regimes coexist within the French Social Security Code (CSS) for the assessment of the generalised social contribution (CSG) and the contribution for the repayment of social debt (CRDS):

The first regime, covering earned and replacement income, is defined in Articles L. 136-1 to L. 136-5 of the CSS⁵. It subjects professional income of self-employed workers to a combined rate of 9.7% (CSG at 9.2% + CRDS at 0.5%), collected by URSSAF (the French social security contribution collection agency). The second regime, covering investment income, is governed by Article L. 136-6 of the CSS⁶. It subjects investment income to a combined rate of 17.2%, raised to 18.6% as of 1 January 2026 by the Social Security Financing Act for 2026⁷, made up of CSG at 10.6%, CRDS at 0.5% and the solidarity levy at 7.5%, collected by the tax authorities.

The financial stakes are significant. For a taxpayer declaring BNC of approximately EUR 100,000 per year through their SASU under income tax, the difference between the two regimes amounts to roughly EUR 7,500 annually (nearly EUR 9,000 since 2026). Over three fiscal years, the standard reassessment period, the total claim can exceed EUR 25,000, plus late-payment interest at 0.2% per month⁸.

The tax authorities' position, as set out in reassessment notices and responses to taxpayer observations, can be summarised as follows: the sole shareholder of a SASU under income tax who does not pay themselves a salary cannot be considered a self-employed worker within the meaning of Articles L. 136-1-1(II)⁹ and L. 136-3 of the CSS¹⁰. Since they are not affiliated with the self-employed social security scheme administered by URSSAF and do not hold an individual SIREN number, they receive their share of profits in their capacity as a shareholder of a capital company, just like a SAS shareholder receiving dividends under the corporate tax regime, and such income therefore constitutes investment income within the meaning of Article L. 136-6 of the CSS.

II. The Tax Authorities' Flawed Interpretation

A. The Interplay Between Articles L. 136-6 and L. 136-3 of the CSS: A Selective Reading

Article L. 136-6(I)(f) of the CSS subjects to the investment income levy "all income falling within the categories of industrial and commercial profits, non-commercial profits or agricultural profits within the meaning of the French Tax Code." However, and this is the decisive point that the tax authorities appear to overlook, this provision expressly carves out an exception: it excludes from its scope income "that is subject to the earned and replacement income contribution defined in Articles L. 136-1 to L. 136-5"¹¹.

Article L. 136-1-1(II) of the CSS provides that "the professional income of self-employed workers, under the conditions defined by Articles L. 136-3 and L. 136-4" is subject to the earned income contribution. In turn, Article L. 136-3(I)(2) of the CSS¹² specifies the assessment base for BNC: it applies "in respect of activities falling under Article 92 of the said Code (CGI), to the amount, excluding long-term capital gains and losses, of receipts received (...) less the amount of expenses incurred (...) for the acquisition of such receipts, as these elements result from paragraph 1 of Article 93 and sections I and III of Article 93 quater of the same code."

The chain of cross-references is clear: professional BNC is subject to the earned income contribution for self-employed workers (L. 136-3, via L. 136-1-1(II)). Since it is "subject to" this contribution, it is excluded from the scope of the investment income contribution (L. 136-6(I)(f)). The statute does not make this exclusion contingent on the actual payment of the earned income contribution, nor on the taxpayer's affiliation with the self-employed social security scheme: the criterion is being subject to the contribution, that is, falling within its scope, regardless of its actual collection.

Article L. 136-3(I)(2) of the CSS adds, for activities carried on through a company, that "these amounts are taken into account in proportion to the profit-sharing rights in the company held by such self-employed workers, within the meaning of Article 8 of the same code"¹³. The legislature therefore expressly contemplated a self-employed worker operating through a company falling under Article 8 of the CGI, which is precisely the situation of a SASU that has elected for the partnership tax regime. The French Cour de cassation had reached the same conclusion even before this wording was adopted. Under the earlier texts, which based the contribution on the self-employed earned income "taken into account for the calculation of income tax" within the meaning of Article L. 131-6 of the CSS, it held that the share of profits allocated to a partner of a pass-through entity in respect of their activity constitutes self-employed professional income falling within the base of social security contributions and levies, "irrespective of the tax rules governing the allocation of taxable profit among partners"²⁷. The attachment of the working partner's share of profits to the earned income contribution therefore does not depend on any particular wording of the statute: it follows from the very nature of the income.

B. Self-Employed Status: Extra-Legal Criteria Imposed by the Tax Authorities

To deny the application of Article L. 136-3 of the CSS, the tax authorities argue that the sole shareholder of a SASU under income tax cannot be regarded as a self-employed worker, on the grounds that they do not hold an individual SIREN number and are not affiliated with the self-employed social security scheme administered by URSSAF. This reasoning is open to several fundamental objections.

First, the legal definition of self-employment does not rest on administrative criteria such as SIREN registration or affiliation with a particular social security scheme. Article L. 8221-6-1 of the French Labour Code (Code du travail)¹⁴ establishes a presumption of self-employment for any person whose working conditions are defined exclusively by themselves or by the contract defining them with their client. The statutory criterion is a single one: the absence of a relationship of subordination. The sole shareholder of a SASU, serving as president of their own company, exercises their activity in the complete absence of any subordination. They alone determine their working conditions, set their commercial strategy, negotiate their contracts and personally carry out the intellectual services that generate the company's revenue.

Second, the argument based on the lack of an individual SIREN number is irrelevant. Majority shareholders-managers of SARLs (sociétés à responsabilité limitée), categorised as "non-salaried workers" (travailleurs non-salariés) under the CSS and unquestionably subject to the Article L. 136-3 regime, likewise do not hold a personal SIREN number, except in the specific case of regulated liberal professionals. SIREN numbers are assigned to the business entity, not to the individual running it. Adopting this criterion would exclude from the scope of Article L. 136-3 all self-employed workers operating through a company, which manifestly contradicts the wording of the statute that expressly covers "activity carried on through a company."

Third, the absence of affiliation with the self-employed social security scheme administered by URSSAF is not a criterion for determining self-employed status. Article L. 311-3(23) of the CSS, on which the tax authorities rely, is an affiliation rule, not a classification rule: it sits within the chapter defining the scope of social insurance and merely lists SAS presidents among the persons subject to compulsory affiliation with the general scheme in respect of the remuneration they receive for their corporate office¹⁶. It says nothing about the nature of the company's profits taxed in the hands of the shareholder. The absence of affiliation with the self-employed scheme results from an administrative gap: URSSAF has not established a specific affiliation mechanism for shareholders of SAS companies under the income tax regime who receive profits without paying themselves a salary. This gap, which is beyond the control of taxpayers, cannot serve as a basis for subjecting their income to the higher investment income social levy rate. The tax authorities' reasoning is, moreover, circular: without remuneration there is nothing to affiliate, and it is from this notional affiliation that they infer the denial of a status in order to reclassify professional profits.

Fourth, the tax authorities' own published guidance contradicts the position taken by the audit services. Paragraph 400 of BOI-RSA-GER-10-30, in the version published on 16 July 2025, states, with respect to capital companies that have exercised the election under Article 239 bis AB of the CGI, that "the remuneration of partners carrying on an activity within such a company does not constitute a deductible expense of the company but is added back to the company's profit for the purposes of the tax personally due by each partner in the income category corresponding to the company's activity"¹⁵. The tax authorities themselves therefore describe the partner as a person "carrying on an activity within the company", and attach the profit to a category determined by the activity, not by the holding of shares. This guidance, published in the official tax bulletin (Bulletin officiel des finances publiques), is binding on the tax authorities under Article L. 80 A of the French Tax Procedures Code (LPF). It carries a decisive consequence: since the remuneration for the partner's work is, by construction, included in the share of profit taxed in their hands, the absence of separate remuneration is not evidence of inactivity but the legal consequence of the regime elected.

The tax authorities thus confuse the legal status of self-employed worker, which follows from the objective criteria laid down by statute, with the social security scheme of affiliation, which depends on administrative circumstances. That confusion adds conditions the law does not provide for and deprives the exclusion in Article L. 136-6(I)(f) of the CSS of any effect.

C. Case Law Supporting the Taxpayer's Position

The French Conseil d'État (Supreme Administrative Court) addressed the relationship between social levies on earned income and those on investment income in a decision of 2 April 2021¹⁷. In the context of agricultural profits, the Court held that income received during the taxpayer's period of activity as a farmer falls within the earned income contribution, while income received after the cessation of activity, in this case the proceeds from the sale of stock by a retired farmer, constitutes investment income within the meaning of Article L. 136-6 of the CSS.

The key takeaway from this ruling is that the determining criterion for the applicable social levy regime is not the legal form of the entity through which the activity is carried on, nor the taxpayer's social security affiliation, but the actual nature of the income-generating activity and the capacity in which the taxpayer receives it. When income results from a professional activity personally carried on by the taxpayer, it falls within the earned income contribution; when it results from the passive holding of assets, it falls within the investment income contribution.

Applied to the SASU under income tax, this reasoning leads to a clear conclusion. The sole shareholder who personally, directly and continuously carries on consulting, IT development or intellectual service activities through their company earns genuinely professional income. Such income does not result from the passive holding of shares, unlike dividends paid by a SAS subject to corporate tax, which remunerate invested capital. It results from the shareholder's work. The fact that this work is carried out through a capital company that has elected for income tax treatment does not alter the intrinsic nature of the income.

The Conseil d'État has since elevated this framework to a general rule of assessment. In a decision of 30 December 2021, reported in the tables of the Recueil Lebon, it held, on the basis of Articles L. 136-1 to L. 136-3 and Article L. 136-6(I)(f) of the CSS, that "income derived from a self-employed activity is subject to the social contribution on earned income where that activity is carried on professionally, whether on an ancillary basis or not"²⁴. The facts are instructive: a EUR 1.2 million indemnity taxed as non-commercial profits, received by a taxpayer who was neither affiliated with nor contributing to any self-employed scheme, had been subjected by the tax authorities to the investment income levies. The Conseil d'État set aside the appellate judgment for misapplication of the scope of the tax statute, ruled on the merits and granted full discharge. Three lessons follow. The criterion is the professional exercise of the activity, assessed by reference to the nature and the repetition over time of the services provided. The ancillary character of the activity is irrelevant. Finally, the tax authorities' reasoning by elimination, which infers from the absence of affiliation and contributions that the income falls within investment income, is rejected: discharge was granted even though no earned income contribution had ever been paid.

The characterisation as a misapplication of the scope of the statute is not procedurally neutral: such a ground is a matter of public policy (moyen d'ordre public), which the tax court must raise of its own motion at any stage of the proceedings. The Paris Administrative Court of Appeal recently provided an illustration. Hearing the case of a taxpayer whose non-commercial income had been subjected to the investment income levies, the court informed the parties, under Article R. 611-7 of the Code of Administrative Justice, that it might raise of its own motion the ground that such income constituted professional income within the meaning of Article L. 136-3 of the CSS. The Minister responded by granting relief from the corresponding levies himself, without waiting for the judgment²⁵. In the same vein, the Versailles Administrative Court of Appeal held that the portion of income falling within the scope of the levies on earned income "cannot be subjected to those assessed on investment income", and granted discharge²⁶. The two assessment bases are mutually exclusive: what falls within the first escapes the second.

This analytical framework is corroborated by the tax-law definition of professional exercise. Article 155(IV)(1) of the CGI¹⁸ provides that "professional exercise implies personal, direct and continuous participation in the performance of the acts necessary for the activity", and Article 156(I)(1 bis) applies the same criterion to identify non-professional industrial and commercial profits. The share of profits accruing to a purely passive shareholder, who carries on no activity within the company, therefore constitutes non-professional income and, as such, falls within the scope of the investment income contribution. A contrario, where the shareholder personally, directly and continuously performs the acts necessary for the activity, which is precisely the situation of the SASU director who personally performs the services billed by the company, their income retains its professional character and falls within the earned income contribution.

III. Defence Strategies and Practical Recommendations

A. Challenging the Reclassification: Legal Arguments to Deploy

When confronted with a reassessment notice seeking to subject SASU income tax profits to investment income social levies, the taxpayer has several lines of defence that should be structured methodically in their written observations.

The first argument, textual in nature, consists in demonstrating the interplay between Articles L. 136-6, L. 136-1-1(II) and L. 136-3 of the CSS as set out above. The wording of Article L. 136-6 is unambiguous: BNC that is "subject to the earned and replacement income contribution defined in Articles L. 136-1 to L. 136-5" is excluded from the investment income contribution. Article L. 136-3 subjects professional BNC of self-employed workers to that very contribution. The syllogism is complete. This ground is, moreover, a matter of public policy: subjecting earned income to the investment income contribution amounts to a misapplication of the scope of the tax statute²⁴, which the court must raise of its own motion and which may be invoked at any stage of the proceedings, including for the first time on appeal²⁵.

The second argument, factual in nature, aims to establish that the taxpayer personally carries on a professional activity within their company. Evidence should demonstrate the director's personal, direct and continuous participation in the performance of the services billed by the company: client contracts signed by the director on behalf of the company, professional correspondence evidencing personal involvement, the absence of any other employee or subcontractor performing the services, and the fact that the technical expertise is embodied in the director personally.

The third argument challenges the legality of the extra-legal criteria imposed by the tax authorities. Neither Article L. 136-3 of the CSS nor Article L. 8221-6-1 of the Labour Code makes self-employed status contingent on holding an individual SIREN number or being affiliated with the self-employed social security scheme. The tax authorities are adding conditions that the law does not provide for, in violation of the principle of fiscal legality enshrined in Article 34 of the French Constitution¹⁹.

Finally, a fourth, systemic argument deserves consideration: the tax authorities lack jurisdiction to collect contributions on earned and replacement income, which falls within the remit of social security collection bodies (URSSAF). By reclassifying earned income as investment income in order to subject it to social levies that they administer, the tax authorities arrogate a jurisdiction that the law does not grant them.

B. The 2777 Declarations and Recovery of Amounts Paid in Error

In practice, some SASU directors under the income tax regime have, through misunderstanding of the applicable regime, filed Form 2777 declarations (investment income, withholdings at source) and paid CSG and CRDS on profits distributed by their company, as though these were dividends from a SAS subject to corporate tax. However, under a fiscally transparent entity, the attribution of profits to the sole shareholder does not constitute investment income within the meaning of Article 108 of the CGI⁴: there is no dividend distribution as such, but a direct taxation of the entity's profits in the hands of the shareholder. These Form 2777 declarations were therefore filed in error and the corresponding amounts paid without legal basis.

It is essential to file corrective Form 2777 declarations reducing the bases and amounts to zero, then to submit a contentious claim for reimbursement to the competent tax office. The reassessment notice has the effect of opening a new limitation period for the periods covered²⁰, which may allow recovery of amounts that would otherwise be time-barred.

C. Preventive Measures for SASU Directors Under Income Tax

Given the current legal uncertainty and pending a ruling on the specific case of the SASU under income tax, we recommend that SASU directors under income tax adopt the following measures.

Pay yourself a director's salary. The most secure approach is to draw a salary as president of the SASU, even for a nominal amount. This salary triggers general social security contributions (assimilated employee status) and deprives the tax authorities of their primary argument, the absence of any social security affiliation. Under the income tax regime, this salary is admittedly not deductible from the company's taxable profits (unlike under corporate tax), but it establishes a social protection baseline and pre-empts any attempt to reclassify profits as investment income.

Maintain supporting documentation. Build a file evidencing the professional and personal nature of the activity carried on within the SASU: shareholder resolutions describing the services performed, client contracts, activity reports, professional correspondence. In the event of an audit, this documentation will readily establish that the profits constitute earned income within the meaning of Article L. 136-3 of the CSS.

Active legal monitoring. This area is rapidly evolving. No court has yet ruled on the specific case of the sole shareholder of a SASU that has elected for income tax, but the question of principle, namely the basis of assessment of the levies due on income from a self-employed professional activity, has been settled by the Conseil d'État in the taxpayer's favour, and the administrative courts of appeal are granting discharge in transposable situations. The ministerial answer of 2 June 2026, which endorsed the tax authorities' position, has no normative force and does not bind the courts. The Social Security Financing Act for 2026, which raised the CSG rate on capital income from 9.2% to 10.6%, provided no clarification of the regime applicable to SASUs under income tax.

Pursue hierarchical appeals and litigation. If the reassessment is maintained after observations, we recommend systematically exercising the hierarchical appeal provided for by Article L. 54 C of the French Tax Procedures Code (Livre des procédures fiscales, LPF)²¹. If this appeal fails, the taxpayer may refer the matter to the departmental tax commission²². As a last resort, a contentious claim²³ may be filed, followed by proceedings before the competent administrative court.