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France would like to introduce income tax withholding as of 2018

As part of the 2017 amended tax bill, the French government has confirmed that an income tax withholding system would be introduced, as of Jan. 1, 2019 for individuals who are tax resident in France.

Not all income is subject to the new tax withholding rules. For example, investment income such as capital gains or net rental income are not subject to tax withholding.
Wage and pension income, however will be subject to withholding.

The withholding tax rate on wages would generally be provided to the employer by the French tax authorities on a monthly basis, through France’s new payroll procedure (DSN). The tax rate would be determined by the tax authorities based on the previous year’s tax return.

If the French tax authorities do not provide a withholding tax rate to the employer, the employer would apply a standard tax rate.

The standard tax rate would apply:

  • When the taxpayer has never filed a French income tax
    return (for example, an assignee arriving in France); or
  • When the taxpayer specifically requests the use of the
    standard tax rate (an available option).

For employees resident in France but on a foreign payroll system, as taxes cannot be withheld at source, the individual would be required to make payments directly to the tax authorities on a monthly basis.

From January 2019, the tax on employment income will be deducted at source by way of the withholding tax, which means that 2018 employment income may end up being partly or fully tax exempt. In practice, an income tax return must be filed in May 2019 with respect to taxpayer’s 2018 income, however, taxpayers will benefit from a special tax credit called CIMR (broadly translated as “tax credit for modernization of the income tax collection”). This tax credit will cancel, at least in part, the French income tax due on non-exceptional employment income. For this purpose, types of exceptional employment income may include, but is not limited to, termination or severance payments, lump sum payments, or deferred compensation. Personal tax credits and tax reductions may be either offset against future liabilities or reimbursed over, or after, a couple of years.

The latest changes in US tax law

Here are the most important things that individual taxpayers need to know about the TCJA (Tax Cuts and Jobs Act), which was signed into law on December 22, 2017. Except where noted, these changes are effective for tax years beginning after December 31, 2017, and before January 1, 2026.

Changes to Individual Rates and Brackets
For 2018 through 2025, the TCJA retains seven tax rate brackets, but six of the rates are lower than before. The tax brackets for ordinary taxable income are as follows:

Single Married, Filing Jointly Head of Household
10% tax bracket $0 – $9,525 $0 – $9,525 $0 – $13,600
Beginning of 22% bracket $38,701 $38,701 $38,701
Beginning of 24% bracket $82,501 $165,001 $82,501
Beginning of 32% bracket 157,501 $315,001 $157,501
Beginning of 35% bracket $200,001 $400,001 $200,001
Beginning of 37% bracket $500,001 $600,001 $500,001

In 2026, the rates and brackets that were in place for 2017 are scheduled to return.

Taxes on Long-Term Capital Gains and Dividends
The TCJA retains the current tax rates on long-term capital gains and qualified dividends. For 2018, the rate brackets for adjusted net capital gains are:

Single Married, Filing Jointly Head of Household
0% tax bracket 0% tax bracket $0 – $77,199 $0 – $51,699
Beginning of 15% bracket $38,600 $77,200 $51,700
Beginning of 20% bracket $425,800 $452,400 $452,400

Adjusted net capital gains are net capital gains plus qualified dividends less gains required to be taxed at 25% and 28%. These brackets are almost the same as what they would have been under prior law. The only change is the way the 2018 inflation adjustments are calculated.

Individual Alternative Minimum Tax (AMT)
Despite discussion by Congress to repeal the individual AMT, the new law retains it. But, starting in 2018, the exemption deductions will increase significantly and the exemptions will be phased out at much higher income levels.

Under prior law, the AMT exposure for many individuals was caused by high itemized deductions for state and local taxes and multiple personal and dependent exemption deductions. Those tax breaks are disallowed under the AMT rules.

Under the new law, many individuals who owed the AMT under prior law will be off the hook in 2018. In addition to higher AMT exemption deductions and higher exemption phaseout thresholds, the TCJA 1) limits deductions for state and local taxes, and 2) eliminates personal and dependency exemptions.

Standard Deduction and Personal and Dependency Exemptions
A big decision for individual taxpayers will be: Should I itemize deductions or take the standard deduction? Under the new law, many more taxpayers are likely to take the standard deduction, rather than itemize deductions. The TCJA significantly increases the standard deduction amounts, starting in 2018, to:

  • $12,000 for singles (up from $6,350 for 2017),
  • $24,000 for married couples who file jointly (up from $12,700 for 2017), and
  • $18,000 for heads of households (up from $9,350 for 2017).

Additional standard deduction amounts for elderly and blind individuals are still allowed.

The TCJA eliminates personal and dependency exemptions. (Under prior law, personal and dependency exemptions would have been $4,150 each for 2018.)

Deductions for State and Local Taxes
Starting in 2018, the TCJA limits the deduction for state and local income and property taxes to a combined total of $10,000 ($5,000 for married people who file separately). Foreign real property taxes can no longer be deducted. However, you can still opt to deduct state and local general sales taxes instead of state and local income taxes.

Important note: The TCJA specifically says that you can’t claim a 2017 deduction for prepaid state or local income taxes that are imposed for a tax year beginning after December 31, 2017. The IRS has also issued an advisory stating that prepayments of anticipated property taxes that haven’t been assessed prior to 2018 aren’t deductible in 2017. In addition, prepaying state and local property taxes to lower your tax bill for 2017 could backfire if you are subject to the AMT.

Tax Breaks for Homeowners
Starting in 2018, the TCJA allows you to deduct interest on up to only $750,000 of mortgage debt incurred to buy a first or second residence ($375,000 for those who use married filing separately status). However, this change doesn’t affect home acquisition mortgages taken out under binding contracts in effect before December 16, 2017, as long as the home purchase closes before April 1, 2018.

The limits allowed under the prior law ($1 million or $500,000 for married people who file separately) continue to apply to home acquisition mortgages that were taken out when the prior law was in effect — even if these loans are refinanced after 2017 (as long as the refinanced loan principal doesn’t exceed the old loan balance at the time of the refinancing).

Starting in 2018, the TCJA eliminates the provision that allows interest deductions on up to $100,000 of home equity loan balances.

In addition, the TCJA preserves the home sale gain exclusion. This valuable tax break allows you to potentially exclude from federal income tax up to $250,000 of gain from a qualified home sale, or $500,000 if you’re married and file jointly. Both the House and Senate versions of the tax bill originally included restrictions related to this break, but none of the proposed changes made the final cut.

Medical Expense Deductions
The new law expands the deduction for medical expenses to cover costs in excess of 7.5% of adjusted gross income (AGI) for 2017 and 2018. (Under prior law, the threshold for deducting medical expenses was 10% of AGI.) After 2018, the deduction threshold is scheduled to return to 10% of AGI.

Education Tax Breaks
The TCJA leaves all of the existing education-related tax breaks in place. It also allows you to take tax-free distributions of up to $10,000 per year from a Section 529 plan to cover tuition at a public, private, or religious elementary or secondary school, starting in 2018.

Child and Dependent Tax Credits
Under prior law, many households were ineligible for the $1,000 child tax credit, because they made too much money. But next year, more families will be eligible for this credit — which will help offset the elimination of the dependency exemptions — and it will double.

Starting in 2018, the maximum child tax credit increases to $2,000 per qualifying child, and up to $1,400 can be refundable. (In other words, lower-income taxpayers can collect up to that amount even if they don’t owe any federal income tax.) The income levels at which the child tax credit is phased out will also increase significantly (to $400,000 for married couples who file jointly). So, almost all taxpayers with under-age-17 children will qualify for this break. In addition, a new $500 nonrefundable credit is allowed for qualified dependents, such as:

  • A qualifying 17- or 18-year-old,
  • A full-time student under age 24,
  • A disabled child of any age, and
  • Other qualifying (nonchild) relatives if all the requirements are met.

Roth Conversion Reversals
Starting in 2018, you won’t be able to reverse the conversion of a traditional IRA into a Roth account. Under prior law, you had until October 15 of the year after an ill-advised conversion to reverse it and thereby avoid the conversion tax bill.

Other Noteworthy News
The Tax Cuts and Jobs Act is 479 pages long and covers a lot of ground. Here are some lesser-known aspects of the new law that might affect you personally.

Adoption. The TCJA retains the tax breaks for adoption expenses.

Alimony. Starting in 2019, taxpayers can no longer deduct alimony payments if they’re required to by a divorce agreement entered into after December 31, 2018. Recipients of affected alimony payments will no longer have to include them in taxable income, as they currently do. (The current tax treatment stays in place for divorce agreements entered into on or before December 31, 2018).

Gift and estate taxes. Starting in 2018, the unified federal gift and estate tax exemption will increase to roughly $11.2 million or $22.4 million for a married couple.

“Green” vehicles. The TCJA retains the tax credit of up to $7,500 for new qualified plug-in electric vehicles.

Moving expenses. Starting in 2018, deductions for most miscellaneous itemized expenses and moving expenses are eliminated. Tax-free employer reimbursements for moving expenses are also eliminated.

Personal casualty and theft losses. Starting in 2018, itemized deductions for personal casualty and theft losses are eliminated, except for personal casualty losses incurred in federally declared disaster areas.

Latest French tax law changes per the Finance Bill for 2018

The Finance Bill for 2018 was adopted by the French Parliament on 21 December 2017 (published in the French Official Journal on 31 December 2017).

Abolition of the Wealth tax and creation of a new tax based on real estate assets (Article 31)
Wealth tax is abolished and a new real estate tax is applicable as from 1 January 2018 due on real estate assets not used for business purposes.

The main rules of the old Wealth tax continue to apply but will be limited to real estate assets. Current thresholds, scaled rates, annual filing, valuation rules (subject to exceptions), payment rules and a 75% limit.
The filing rules would likely be the same as the ones for the old Wealth tax.
The specificities of the new regime will apply as follows:

  • Taxable base including real estate property held directly by individuals as well as shares of companies (whatever their legal form) up to their value representing the real estate or real estate rights;
  • Specific rules will limit deduction of debts exceeding 5 million euros when such debts exceed 60% of real estate assets value (except when the taxpayer can justify that his indebtedness is not mainly tax driven);
  • Various exemptions notably related to real estate and shares in real estate companies when such assets are mainly used to carry out an industrial, commercial, artisanal, agricultural or self-employed activity.

The new real estate tax is applicable from 1 January 2018. Gifts to general interest bodies and investments in certain companies’ shares carried out between the 2017 Wealth tax filing date and 31 December 2017 could still benefit from a tax allowance and be offset against the new real estate tax for 2018.

Amendment to taxation of capital gains, life-insurance proceeds, dividends and interest (Article 28)
A new 30% flat tax (12.8% of individual income tax plus 17.2% of social contributions) is introduced for investment income as from 1 January 2018.

The following tax regimes are amended: taxation of capital gains, dividends, interest and life-insurance proceeds. Rates applicable to non-residents are also adjusted.

The exceptional contribution (3% or 4%) on high revenues remains applicable.

Progressive exemption up to 2020 of the taxe d’habitation due on main residence for a portion of taxpayers (Article 5)
This exemption will come into force by steps between 2018 and 2020 and will apply to middle and working classes.

The exemption threshold will not be identical for each taxpayer; it will depend on the composition of the taxable household according to the criteria chosen by the government.

Strengthening of the “Madelin” tax allowance (Article 74)
Following the abolition of the wealth tax allowance provisions, the tax allowance for individual income tax for investments in SME has been strengthened.

As of 1 January 2018, the rate of individual income tax allowance is increased from 18% to 25%. The tax advantage remains subject to the EUR 10,000 global cap.

Increase of the CSG rate (Article 8 of 2018 LFSS)
As a consequence of a reduction in employee contributions, the CSG rate increases by 1.7%. The rates are now 9.2% for business income and 17.2% for capital incomes as of 1 January 2018.
The historical rate method will continue to apply for certain investments (PEA, life insurance, PERCO, PEE, etc.) under specific conditions for each investment.

In addition, the deductible CSG is increased by 1.7%.

Withholding tax rate of certain non-salary incomes (Article 84)
The withholding tax rate mentioned in the Article 182 B of the FTC is now assessed by reference to the CIT rate. As a consequence, it is going to progressively decrease from 33,1/3% to 25% in 2022.

Creation of a system of an income withholding taxation (Article 11)
Some technical adjustments have been made to the withholding taxation system which will come into force as of 1 January 2019.

For information, the withholding tax system will be applied on a monthly basis, avoiding the one year interval between the perception of the revenue and the payment of the corresponding income tax.

With a few exceptions, are subject to the new regime salaries, pensions, investments incomes, life annuities, self-employed workers’ incomes, land incomes and some other social contributions (e.g. social contributions on land incomes).

Are not subject to the withholding tax regime the damages for moral prejudice, stock-options, free shares or BSPCE revenues.

The withholding tax rate and the installment would be based on the average income tax rate that applied for a tax household during the previous year. Such information will be provided to the paying entity. However, each member of a tax household could elect to apply an individual tax rate. Besides, individuals perceiving salaries could elect for a “neutral rate” that would be based on a specific scale.

To avoid a double tax burden in 2019 (since the income tax is currently paid in France during the year following the year during which it was earned), the income tax normally due in 2019 on income for 2018 would be “cancelled,” except for the tax due on “exceptional income.” A special tax credit will be created equal to the amount of tax due for 2017 revenues.

Reminder of the new FBAR due date

The FBAR filing due date is now to be consistent with income tax return filing deadlines, the 2016 FBAR will be due on April 17 2017 because April 15 is a Saturday and the 16th, a Sunday. FinCEN’s automatic six-month extension will run until October 16, 2017, because October 15 falls on a Sunday.

Some noteworthy US tax items for the year ahead

Tax penalties related to Obamacare on the rise.
The Affordable Care Act imposed penalties for those not having qualifying health care coverage. Those penalties started at $95 per adult, or 1% of income above the filing threshold in 2014, but they rose to $285 per adult, or 2% of income above the filing limit in 2015. For 2016, penalties will rise again, hitting $695 per adult, or 2.5% of income. A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015, and the $285 in 2014.

Tax brackets are rising slightly.
Most of the tax brackets that govern different classes of taxpayers are adjusted for inflation. For 2016, these bracket amounts are rising by roughly 0.4%.

Standard Deduction
For taxable years beginning in 2016, the standard deduction amounts are increased to:

  • $12,600 for married couples whose filing status is “married filing jointly” and surviving spouses;
  • $6,300 for singles and married couples whose filing status is “married filing separately”; and
  • $9,300 for taxpayers whose filing status is “head of household.”

Exemption Amount
The exemption amount generally increases from year to year and has increased from $4,000 for 2015 to $4,050 in 2016 for taxpayers whose AGI does not exceed the following amounts:

Filing Status / Adjusted Gross Income
Married filing jointly or qualifying widow(er) / $311,300
Head of household / $285,350
Single / $259,400
Married filing separately / $155,650

For taxpayers whose AGI exceeds the listed amounts, the personal exemption is reduced. The
reduction in the exemption is equal to 2% for each $2,500 (or part of $2,500) of AGI in excess of the amounts shown above.

State and Local Taxes
A taxpayer’s ability to deduct state and local general sales taxes in lieu of state and local income taxes was made permanent by the Protecting Americans from Tax Hikes (PATH) Act of 2015. Thus, a taxpayer who itemizes deductions may elect to deduct state and local income taxes or state and local general sales taxes. However, a taxpayer cannot deduct both types of state and local taxes.

Higher exemption from AMT
The alternative minimum tax has impacted a growing number of taxpayers, making the exemption amount more important than ever. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $500 boost to $83,800.

The estate tax exemption is heading upward.
The lifetime exemption amount for the gift and estate tax is tied to inflation, and it is slated to rise next year as well. The exemption amount will rise to $5.45 million, up $20,000 from 2015. The limit applies to estates of those who pass away in 2016.

New EU rules to ease cross-border successions

The new EU Regulation (EU) No 650/2012 in matters of succession and on the creation of a European Certificate of Succession will make sure that:
a given succession is treated coherently, by one single court applying one single law;

  • citizens are able to choose whether the law applicable to their succession should be that of their last habitual residence or that of their nationality;
  • parallel proceedings and conflicting judicial decisions are avoided;
  • decisions relating to successions given in one EU country are recognised and enforced in other EU countries.

However, the initiative in no way alters the substantive national rules on successions.

The following issues continue to be governed by national rules:

  • who is to inherit and what share of the estate goes to children and spouse;
  • property law and family law in an EU country;
  • tax issues related to the succession assets.

Latest Changes When Selling Real Estate in France

As of January1, 2015, no need to appoint a tax representative

Until now, when a person (an individual or a company) who was not resident in France realised a capital gain on the disposal of French real estate or shares in a company principally invested in real estate, an accredited tax representative, who was responsible for calculating and paying the tax related to the capital gain had to be appointed in France by the seller. Such an obligation triggered significant costs and was contrary the EU principles and tax treaties. The CJEU has ruled against this kind of obligation.

REAL ESTATE CAPITAL GAINS REALIZED BY NONRESIDENT INDIVIDUALS

In order to ensure compliance with the EU free movement of capital principle, the 2014 Amending Finance Law expands the French real estate capital gains tax treatment applicable to EU nonresident individuals to nonresident individuals of third countries. The tax rate of 19 percent will be applicable to capital gains realized on the sale of French real estate or the sale of real estate entities shares by nonresident individuals, regardless of their residence (France, EU or third countries).

Affordable Care Act – What to Expect

Starting in 2014, the individual shared responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption or make a payment when filing his or her federal income tax return.

There are some changes to tax forms related to the Affordable Care Act. For the first time, you will report health care coverage on your tax return. Most taxpayers simply need to check a box indicating they had qualifying health care coverage for the entire year. However, some taxpayers will have to file a new form to claim an exemption from the requirement to have health care coverage. Taxpayers who do not have qualifying health care coverage and who do not qualify for an exemption will need to make an individual shared responsibility payment when they file their tax returns. Some taxpayers who enrolled in coverage through the Marketplace may be allowed the premium tax credit and must file a tax return to claim the credit and to reconcile any advance payments made on their behalf in 2014.

Exemptions
Taxpayers who did not maintain coverage throughout the year and meet certain criteria may be eligible to obtain an exemption from coverage. How an individual obtains an exemption depends upon the type of exemption. Some exemptions can be obtained only from the Marketplace other exemptions are claimed only when you file your tax return, and yet others can be obtained from the Marketplace or claimed when you file your tax return.

Recent French Tax Law Changes

New régime concerning capital gains from transfers of securities:

The 2014 Finance Law modifies the personal income tax regime applicable to capital gains derived from transfers of securities which are realized as from 1 January 2013 (except for certain gains which would have been totally or partially exempted under specific regimes which are repealed by the 2014 Finance Law). Capital gains derived from transfers of securities remain subject to the personal income tax progressive scale, but now benefit from increased progressive deductions:

for any securities:
50% of the amount of the gain is exempt where the corresponding securities have been held between two and eight years;
65% of the amount of the gain where corresponding securities have been held for more than eight years;
for securities in certain small- and medium-sized enterprises (petites et moyennes entreprises, SMEs) which are subject to corporation tax and carry out an operating activity, provided inter alia that such securities have been acquired or subscribed when the relevant SME had less than 10 years in existence:
50% of the amount of the gain is exempt where the corresponding securities have been held between one and four years;
65% of the amount of the gain is exempt where the corresponding securities have been held between four and eight years;
85% of the amount of the gain where corresponding securities have been held for more than eight years.

Real estate capital gain tax for individuals

For sales made after 1 September 2013, a full tax exemption of the real estate gain applies after a holding period of 22 years (but for social security contributions the holding period remains at 30-years). Before the 22-year holding period, there is a tax reduction of six per cent for each year of ownership beyond the sixth year and the twenty-first year, and of four per cent for the twenty-second year of ownership.

In addition, an exceptional reduction of 25 per cent also applies to the sale of real estate properties made after 1 September 2013, but only for a period of one year.

Nonresidents capital gains on real estate

The legislation amends the scope and implementation rules of the specific exemption that can benefit nonresidents on the sale of their home in France. First, by waiving the condition of free disposal of the property where the transfer is completed no later than 31 December of the fifth year following the transfer of tax residence outside France and second, by introducing a cap of €150,000 of the net capital gain that is tax exempt.

Transfer tax

The total amount of real estate transfer duties to be paid by the purchaser of a property is increased in 2014 from 5.09 per cent to a maximum of 5.80 per cent of the purchase price.

New French Declaration of Interest & Dividend Income

There is a new filing obligation requiring income & CSG/CRDS (at 15.5%) taxes to be withheld at source on interst and dividend income on a current basis. The new rules went into effect as of January 1, 2013.

For your French source interest & dividends, the bank will automatically apply the prélèvement (withholding), which is 21% for dividends and 24% for interest. Taxes paid in advance through the withholding will be taken in to account when your final tax bill is issued.

The text of this new law mentions that in the case of foreign source interest & dividends, given the bank or other financial institution is located outside of France, the onus is on the taxpayer to be compliant and make the necessary contributions through the filing of forms 2778-DIV and 2778-SD. Failure to do so will result in penalties.

2013 Top Tax Developments

The year began with the passage of the American Taxpayer Relief Act of 2012 (ATRA).

Top Tax-Bracket Increases
The most important result of this act was the tax increase from 35% to 39.6% for those with income over $400,000 if single and $450,000 for married taxpayers filing jointly.

Alternative Minimum Tax (AMT)
ATRA also increased the alternative minimum tax exemption amounts and, for the first time, indexed the exemption and phaseout amounts, with the result that taxpayers can avoid the annual uncertainty regarding the exemption.

Increased Capital Gains and Qualified Dividends Tax Rates
ATRA extended the favorable capital gains and dividends rates on income at or below $400,000 (individual filers), $425,000 (heads of households), and $450,000 (married filing jointly) for tax years beginning after December 31, 2012. However, for taxpayers with incomes above those thresholds, the rate for both capital gains and dividends increased to 20 percent.

New 3.8% Medicare Tax on Net Investment Income
Starting with the year 2013, individuals may be subject to the Unearned Income Medicare Contribution surtax of 3.8% on their net investment income. This surtax is also called the Net Investment Income Tax (NIIT). The tax is 3.8 percent of the lesser of two amounts:

  • Net investment income, or
  • the excess of the taxpayer’s modified adjusted gross income (MAGI) above $200,000 (single filer) or $250,000 (joint filer).

Same-Sex Marriage
As a result of the Supreme Court decision in U.S. v. Windsor and a related IRS Revenue Ruling issued shortly thereafter, same-sex married couples may now file joint federal income-tax returns. The state where a couple was married rather than the state where a couple resides determines a same-sex couple’s marital status for federal tax purposes. Civil unions and registered domestic partnerships recognized under state law do not qualify

Itemized Deduction and Personal Exemption Phase-Outs
The phase-out of itemized deductions (often called the “Pease” Limitation) has returned for 2013. The Pease Limitation was temporarily suspended from 2010 to 2012 and allowed taxpayers to enjoy the full benefit of their itemized deductions, regardless of their adjusted gross income. For 2013, if taxpayers filing as married filing jointly have adjusted gross income of $300,000 or higher ($250,000 for single, $150,000 for married filing separately and $275,000 for head of household), itemized deductions will be reduced by 3% of the amount by which their adjusted gross income exceeds the thresholds. This reduction is capped at 80% of itemized deductions.