France

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Tax Policy

TAX POLICY

Provisional income tax scale rate for 2011 income (Projet de Loi de Finances Rectificative pour 2012)

Income Bands €

%

Up to 6,088

0.0

Between 6,088 and 12,146

5.5

Between 12,146 and 26,975

14.0

Between 26,975 and 72,317

30.0

In excess of 72,317

41.0

2011 French income tax scale and rates (barème) applicable to income received in 2010

Income Bands €

%

Up to 5,963

0.0

Between 5,963 and 11,896

5.5

Between 11,896 and 26,420

14.0

Between 26,420 and 70,830

30.0

In excess of 70,830

41.0

Note: The French system taxes on a household basis. Each household has a set number of family shares depending on the marital status, number of dependants, etc: a married couple is entitled to 2 shares, an extra half a share is granted for the first two children, and a full share per child thereafter.

Before applying the above scale rates, the total household’s taxable income is divided by the number of family shares. The tax liability, obtained after application of the scale rates, is then multiplied by the number of shares to obtain the final liability of the household. The benefit of the nil and lower rate bands is thus increased depending on the number of family shares.

Wealth Tax

France is one of the few remaining territories to enforce an annual tax on the basis of net assets owned. This applies to non-residents if the net value of their French assets (excluding investments in France) exceeds the limit of €1.3M (as at 1 January 2011). Wealth tax applies on a worldwide basis for residents of France who arrived before 5 August 2008. Those who settled after 6 August 2008 benefit from a five year exemption on their assets situated outside France. Married couples and unmarried individuals (living together) are assessed jointly. The onus is on the taxpayer to declare the value of their assets and pay the tax. Failure to submit a wealth tax form when applicable, can lead to assessments of up to six years in arrears.

Taxable Wealth €

%

From 1,300,000 to 3,000,000

0.25

Above 3,000,000

0.50

The 2011 wealth tax rates apply as follows where the total net taxable amount exceeds €1.3M as at 1 January 2011:

Taxable Wealth

Rate %

Less than €800,000

0.00

Between €800,000 and €1,310,000

0.55

Between €1,310,000 and €2,570,000

0.75

Between €2,570,000 and €3,000,000

1.00

Between €3,000,000and €7,710,000

1.30

Between €7,710,000 and €16,790,000

1.65

Above €16,790,000

1.80

Corporate tax

Companies are subject to French corporate tax on profits of any business carried on in France. A company is said to be carrying on a business in France if it has a permanent establishment, a dependent agent or a 'complete commercial cycle' in France. The fiscal year usually ends on 31 December, although each company can choose its fiscal year end. The company tax rate is currently 33.33%.

There is a special lower rate of 15% for SMEs (turnover under EUR 7,630,000 and at least 75% owned by individuals). The first EUR 38,120 of profits are taxed at the lower amount and the rest is taxed at 33.33 %.

Companies whose turnover exceeds EUR 7,630,000 also have to pay 3.3% social security contributions.

Tax is payable in four instalments, the due dates being respectively 15 March, 15 June, 15 September and 15 December for accounting years ending 31 December. The balance must be paid by the 15th of the fourth month after the accounting year end. Instalments amount to 8.33% of the fiscal profits of the last complete accounting period.

All corporations in existence on 1 January are liable to IFA. IFA is the minimum tax liability a corporation has to pay even if it does not generate fiscal profits. The amount of the IFA depends on the turnover ranging from EUR 0 (turnover under EUR 400,000) to EUR 110,000 (turnover higher than EUR 500,000,000). IFA has not been considered as a tax advance but as an expense deductible from the taxable result of the company. Payment is due on 15 March in respect of the previous year.

Capital Gains Tax

Capital Gains Tax for non-residents is charged at 33⅓% where there is no double tax treaty with France. It is reduced to 19% for individuals living in a country which has a tax treaty with France. How the net taxable gain is calculated varies depending on individual circumstances. Currently, the application of a 10% taper relief per year of ownership (after the fifth) effectively leads to an exemption of the gain when the property has been owned by individuals for over 15 years. However, from 1 February 2012, the taper relief will be as follows: 0% for the first five years, 2% between 5 and 15 years, 4% between 17 and 24 years and 8% thereafter. In practice this means that a property will have to be held for 30 years or more for the gain to be totally exempt. The €1,000 taxable gain reduction applicable per owner has already been abolished.
 

It is important to note that this new harsher taper relief system applies from 25th August 2011 in relation to properties transferred into a family owned Société Civile Immobilière “SCI”.

From 1st November 2011, the sale of shares in any property holding companies or entities holding French or foreign real estate must be reported within a month via a French notaire.

This harsher regime for capital gains tax on second homes affects individuals with French holiday homes as well as French residents who own second homes in France or abroad.

In addition to the 19% rate, French residents are subject to the social charges at 13.5%.

Companies that pay corporation tax are subject to a different regime with a depreciation of the acquisition cost which in effect increases the taxable gain with each year of ownership. Both individuals and entities resident outside France and selling French real estate must appoint a fiscal representative in France to deal with their capital gains tax requirements when disposing of a French asset with a value in excess of €150,000.

Inheritance and Gifts Tax Rates

Transfers between spouses or members of a PACS agreement are exempt from French inheritance tax. However, lifetime gifts between spouses attract gifts tax after an allowance of €80,724:

Band of Value For gifts made in 2011, €

Rate of Tax, %

Less than 8,072

5.00

8,072 to 15,932

10.00

15,932 to 31,865

15.00

31,865 to 552,324

20.00

552,324 to 902,838

30.00

902,838 to 1,805,677

40.00

1,805,677 Upwards

45.00

Transfers (though lifetime gifts or succession) between parents and children are taxed on the following sliding scale after a tax-free allowance of €159,325:

Band of Value, €

Band of Value, %

Less than 8,072

5.00

8,072 to 12,109

10.00

12,109 to 15,932

15.00

15,932 to 552,324

20.00

552,324 to 902,838

30.00

902,838 to 1,805,677

40.00

1,805,677 Upwards

45.00

Transfers between siblings benefit from a €15,932 tax free abatement and the excess gives rise to the charge below although under strict conditions, certain transfers between siblings can be totally exempt.

Band of value

Rate of Tax, %

Less than €24,430

35.00

€24,430 upwards

45.00

The above rates also apply to transfers to nieces and nephews who inherit in lieu of their parents, but the €15,932 tax free allowance is shared. For direct transfers to nephews and nieces the rate is 55% after a €7,967 allowance per person.

Transfers of assets to other relations up to the fourth degree are taxed at 55% after the general tax free allowance of €1,594. All other transfers, i.e. to other relatives or unrelated individuals are taxed at 60% after the same small tax-free allowance.

The gift tax allowance for lifetime gifts from a grand-parent to a grandchild is €31,865. It is fixed at €5,310 for lifetime gifts made by a great-grandparent.

France vat (french VAT) rates

Standard rate of VAT (TVA) in France is 19.6%.

In general, all economic activities conducted in France are subject to VAT (sales of goods, supplies of services and intra-community acquisitions).

The 19.6% VAT rate applies to all operations other than those that are expressly exempt or subject to the reduced rate (5.5%) or to the special rate (2.1%).

The taxpayer is liable for VAT on sales but may offset against this amount any VAT included in the purchase of goods, equipment and services.

VAT returns must be remitted monthly, except for small enterprises subject to the 'official estimation rules'. They produce an annual return or, if subject to the 'simplified tax basis', they only produce a quarterly return.
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Source: http://www.lost-in-france.com/living-in-france/finance/810-the-french-tax-system-at-a-glance
http://www.taxrates.cc