News
LATEST CHANGES TO FRENCH TAXES - 2012
Jan 27 2012Exceptional surtax on "high income" - Article 2, Finance Act 2012
This tax is at 3% for single taxpayers with income (revenu fiscal de reference) in excess of 250K euros but less than 500k euros. The tax is increased to 4% when the income is beyond 500K euros. For joint filers the 3% tax applies when income is between 500K - 1 million euros. Any excess over 1 million euros will be subject to a 4% tax.
While presented as a temporary measure, this surtax is scheduled to apply until the tax year during which the public deficit disappears.
Income tax brackets to remain at the current level for 2011 income and future years - Article 16 , 4th Amended Finance Act 2011
The 2010 income tax brackets will be applicable to 2011 income. They are also maintained for subsequent fiscal years until the public deficit falls below 3% of GDP.
The indexing adjustments applied to wealth tax and estate and gift tax brackets are also frozen.
Ceiling on the use of tax credit items - Article 84, Finance Act 2012
The cap on the use of designated tax credit items is now the lower of €18,000 (unchanged) or 4% (previously 6%) of the total income used to calculate the income tax.
Certain tax credits are not subject to the ceiling including certain real estate investments including real property acquired (or for which a ruling was requested) prior to 1 January 2012.
Exemption from tax on real estate gains - Article 5, Finance Act 2012
New for 2012, individuals disposing of residential property (other than of their primary residence) for the first time shall now be exempt from capital gains tax under certain conditions. In particular, the seller must not have owned a principal residence during the previous four years. In addition, this exemption only applies to that portion of the sales proceeds re-invested within 24 months of the sale in the purchase or construction of a building to be used as a principal residence.
This provision is intended to temper the impact of measures in the Amended Finance Act 2011 announced on 8 September 2011 regarding the taxation of real estate capital gains realized by individuals. Following that announcement, a total exemption from capital gains tax is now available on the sale of residential property not constituting a principal residence only if that property has been held for 30 years (previously 15 years).
This new exemption applies to capital gains arising on sales on or after 1 February 2012.
Capital gains taxation on sale of shares: end of holding-period based allowances - Article 80, Finance Act 2012
This provision, which would have applied starting in 2012 and would have led to a capital gains exemption after a holding period of eight years, has been replaced by a tax deferral mechanism, subject to the following conditions:
· At least 10% of the voting rights or profit entitlement of the company whose shares are being disposed, must have been held directly, indirectly or through certain family members, during the eight years before the disposal;
· At least 80% of the amount of the capital gain must be reinvested, within 36 months, in subscribing the initial capital or a capital increase of a company carrying on a business, with the contribution to capital representing at least a 5% stake in that company;
· There was neither activity as a shareholder prior to the contribution to capital nor as a part of the top management thereof.
After five years of ownership of these shares, if all of the conditions are satisfied, the deferral of the capital gain becomes a permanent exemption.
Increased rates of taxation at source applicable to passive income (dividends and interest) - Article 20, 4th Amended Finance Act 2011
The final withholding tax called the “prélèvement forfaitaire libératoire” (“PFL”) is a system of taxation at source on certain types of income which is then not subject to further income taxation. The following changes will apply:
· The rate of PFL tax on dividends has increased from 19% to 21%
· The rate applicable to returns on fixed income investment has increased from 19% to 24%.
· The rates of withholding tax on such income have been aligned with the tax rates under the PFL system. For other income from securities, the respective rates have been increased from 10% to 15%, 12% to 17%, 25% to 30%, and the rate applicable to income paid to a non-cooperative state has been raised from 50% to 55%. These rates shall apply to any income from securities paid outside of France, to all kinds of beneficiaries, and not just individuals, subject to provisions of tax treaties.
These changes apply to income received on or after 1 January 2012.
“Madelin” plans limited to subscriptions for shares in Small and Mid-Sized Enterprises (“SME”) during the start-up phase - Article 18, 4th Amended Finance Act 2011
Income tax allowances available for subscription to the capital of SMEs is now limited to the start-up phase; the investment limits giving rise to a tax reduction are €50,000 for a single person and €100,000 for a couple.
For these purposes, start-up companies include those created within the last 5 years, with fewer than 50 employees and an annual turnover or balance sheet value of less than €10 million. These companies must also pursue an industrial, agricultural or professional activity or trade, excluding the management of their own investments and real estate.
Broadening the scope of the exit tax - Article 38, 4th Amended Finance Act 2011
The 1st Amended Finance Act of 2011 introduced the concept of an exit tax for taxpayers transferring their tax residence abroad, holding a direct or indirect participation in excess of 1% in the profits of a company subject to corporation tax or holding a value of at least € 1.3 million. This threshold was initially determined for each participation.
The 4th Amended Finance Act 2011 amends these provisions: these thresholds are now considered at the level of all of the shareholding participations held by that taxpayer. In the absence of further definition of “participation” for the purposes of these rules, the scope of the exit tax would be broadened considerably, so that an individual would fall within the scope of the tax when the sum of that person's investments in different entities exceeds the limits set out above, in particular, an investment value above €1.3 million.
In the absence of further clarification, this amendment is expected to be applicable as of the day following publication of the law.
Tax credits for work performed on the principal residence - Article 81, Finance Act 2012
Environmentally-friendly refurbishment work undertaken on the principal residence prior to 31 December 2015 (extended from the previous deadline of 31 December 2012) continues to benefit from a tax credit. The rate of the credit, previously between 13% and 45% (depending on the nature of the expenditure), will now be between 12% and 38% for work performed on or after 1 January 2012.
Furthermore, the criteria for these expenses and related work have been tightened
This tax is at 3% for single taxpayers with income (revenu fiscal de reference) in excess of 250K euros but less than 500k euros. The tax is increased to 4% when the income is beyond 500K euros. For joint filers the 3% tax applies when income is between 500K - 1 million euros. Any excess over 1 million euros will be subject to a 4% tax.
While presented as a temporary measure, this surtax is scheduled to apply until the tax year during which the public deficit disappears.
Income tax brackets to remain at the current level for 2011 income and future years - Article 16 , 4th Amended Finance Act 2011
The 2010 income tax brackets will be applicable to 2011 income. They are also maintained for subsequent fiscal years until the public deficit falls below 3% of GDP.
The indexing adjustments applied to wealth tax and estate and gift tax brackets are also frozen.
Ceiling on the use of tax credit items - Article 84, Finance Act 2012
The cap on the use of designated tax credit items is now the lower of €18,000 (unchanged) or 4% (previously 6%) of the total income used to calculate the income tax.
Certain tax credits are not subject to the ceiling including certain real estate investments including real property acquired (or for which a ruling was requested) prior to 1 January 2012.
Exemption from tax on real estate gains - Article 5, Finance Act 2012
New for 2012, individuals disposing of residential property (other than of their primary residence) for the first time shall now be exempt from capital gains tax under certain conditions. In particular, the seller must not have owned a principal residence during the previous four years. In addition, this exemption only applies to that portion of the sales proceeds re-invested within 24 months of the sale in the purchase or construction of a building to be used as a principal residence.
This provision is intended to temper the impact of measures in the Amended Finance Act 2011 announced on 8 September 2011 regarding the taxation of real estate capital gains realized by individuals. Following that announcement, a total exemption from capital gains tax is now available on the sale of residential property not constituting a principal residence only if that property has been held for 30 years (previously 15 years).
This new exemption applies to capital gains arising on sales on or after 1 February 2012.
Capital gains taxation on sale of shares: end of holding-period based allowances - Article 80, Finance Act 2012
This provision, which would have applied starting in 2012 and would have led to a capital gains exemption after a holding period of eight years, has been replaced by a tax deferral mechanism, subject to the following conditions:
· At least 10% of the voting rights or profit entitlement of the company whose shares are being disposed, must have been held directly, indirectly or through certain family members, during the eight years before the disposal;
· At least 80% of the amount of the capital gain must be reinvested, within 36 months, in subscribing the initial capital or a capital increase of a company carrying on a business, with the contribution to capital representing at least a 5% stake in that company;
· There was neither activity as a shareholder prior to the contribution to capital nor as a part of the top management thereof.
After five years of ownership of these shares, if all of the conditions are satisfied, the deferral of the capital gain becomes a permanent exemption.
Increased rates of taxation at source applicable to passive income (dividends and interest) - Article 20, 4th Amended Finance Act 2011
The final withholding tax called the “prélèvement forfaitaire libératoire” (“PFL”) is a system of taxation at source on certain types of income which is then not subject to further income taxation. The following changes will apply:
· The rate of PFL tax on dividends has increased from 19% to 21%
· The rate applicable to returns on fixed income investment has increased from 19% to 24%.
· The rates of withholding tax on such income have been aligned with the tax rates under the PFL system. For other income from securities, the respective rates have been increased from 10% to 15%, 12% to 17%, 25% to 30%, and the rate applicable to income paid to a non-cooperative state has been raised from 50% to 55%. These rates shall apply to any income from securities paid outside of France, to all kinds of beneficiaries, and not just individuals, subject to provisions of tax treaties.
These changes apply to income received on or after 1 January 2012.
“Madelin” plans limited to subscriptions for shares in Small and Mid-Sized Enterprises (“SME”) during the start-up phase - Article 18, 4th Amended Finance Act 2011
Income tax allowances available for subscription to the capital of SMEs is now limited to the start-up phase; the investment limits giving rise to a tax reduction are €50,000 for a single person and €100,000 for a couple.
For these purposes, start-up companies include those created within the last 5 years, with fewer than 50 employees and an annual turnover or balance sheet value of less than €10 million. These companies must also pursue an industrial, agricultural or professional activity or trade, excluding the management of their own investments and real estate.
Broadening the scope of the exit tax - Article 38, 4th Amended Finance Act 2011
The 1st Amended Finance Act of 2011 introduced the concept of an exit tax for taxpayers transferring their tax residence abroad, holding a direct or indirect participation in excess of 1% in the profits of a company subject to corporation tax or holding a value of at least € 1.3 million. This threshold was initially determined for each participation.
The 4th Amended Finance Act 2011 amends these provisions: these thresholds are now considered at the level of all of the shareholding participations held by that taxpayer. In the absence of further definition of “participation” for the purposes of these rules, the scope of the exit tax would be broadened considerably, so that an individual would fall within the scope of the tax when the sum of that person's investments in different entities exceeds the limits set out above, in particular, an investment value above €1.3 million.
In the absence of further clarification, this amendment is expected to be applicable as of the day following publication of the law.
Tax credits for work performed on the principal residence - Article 81, Finance Act 2012
Environmentally-friendly refurbishment work undertaken on the principal residence prior to 31 December 2015 (extended from the previous deadline of 31 December 2012) continues to benefit from a tax credit. The rate of the credit, previously between 13% and 45% (depending on the nature of the expenditure), will now be between 12% and 38% for work performed on or after 1 January 2012.
Furthermore, the criteria for these expenses and related work have been tightened
