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THE LATEST TAX LAW CHANGES BASED ON THE FRENCH FINANCE BILL FOR 2013

Jan 15 2013
Introduction of a new tax bracket at 45% for personal income tax

The personal income tax progressive scale includes a new tax bracket at 45% for income above a threshold of 150,000 Euros per share of the family quotient. The new tax bracket is applicable before the cap of the family quotient.

End of flat tax rates for dividends and interest

Dividends and interest are taxed under the progressive scale (plus social contributions amounting to 15.5%). The tax allowance on dividends amounting to 40% is still maintained. However, the current additional tax allowance for dividends of 1,525 Euros or 3,050 Euros, depending on the personal situation of the recipient, is abolished. Finally, the deductible portion of the general social contribution is lowered to 5.1% (instead of 5.8%). An advance payment obligation is applicable (21% for dividends and 24% for interest), withheld at source, and implemented in 2013.

End of flat tax rates for capital gains on share disposals

The flat tax rate for personal income tax amounting 19% (plus social contributions amounting to 15.5%, making an overall tax rate of 34.5%) is increased for capital gains on share disposals carried out in 2012. The latter are taxed at a global tax rate of 39.5%.

As from 1 January 2013, capital gains are subject to personal income tax progressive scale; leading to a maximum tax burden of up to 60.5% (social contributions remaining applicable). However, the net capital gain is reduced by a tax allowance for the holding period (20% between two and four years, 30% between four and six years, 40% after six years). 

Favourable regime for entrepreneurs (flat tax rate of 19%)

Capital gains on share disposals benefit, under option, from a flat tax rate for personal income tax amounting to 19% without the tax allowance (plus social contributions amounting to 15.5%, i.e. an overall tax rate of 34.5%). Various conditions need to be met.

The company must operate an economic activity. This condition must be met on a continuing basis for at least ten years before the sale. In addition, shares must be held on a continuous basis, directly or indirectly, over five years before the sale. Shares sold must represent 10% of voting and financial rights during at least two years within the ten years before the sale. On the day of the sale, the shares sold need to represent at least 2% of voting and financial rights. Finally, the seller must be a manager or employed continuously over the five years before the sale.

Amendment to the mechanism of deferral taxation applicable to capital gains on share disposals

The deferral taxation treatment granted upon reinvestment of the proceeds remains applicable but is slightly amended. The seller must now reinvest at least an amount corresponding to 50% of the capital gain (net of social contributions) within a 24-month period. However, any portion of the capital gain not reinvested is taxed.

End of flat tax rates for acquisitions gains on stock-options and free shares

The flat tax rates for personal income tax amounting to 18% to 41% are abolished for acquisitions gains on stock-options and on free shares (plus social contributions amounting to 15.5%). 

Acquisition gains on stock-options and on free shares are taxed under the progressive scale amounting up to 45% plus a total of 18% in social charges on employment income. This measure is applicable to stock-options and free shares granted as from 28 September 2012.

Return to a progressive scale for wealth tax

The progressive scale is restored for taxpayers whose taxable net assets exceed a threshold of 1,300,000 Euros. The tax rates range from 0.5 % (for taxable net assets between 800,000 Euros and 1,300,000 Euros) to 1.5% (for taxable net assets exceeding a threshold of 10,000,000 Euros). A mechanism capping the amount of tax to 75% of the income is applicable (the amount of tax including, notably, wealth tax, personal income tax and social contributions). This measure is applicable as from 1 January 2013.

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