French Tax Changes 2016
During December, the following legislation has entered into force:
- the Loi de Finances 2016;
- the Loi de Finances Rectificative 2015(I); and
- the Loi de Financement de la Sécurité Sociale 2016
Shown below is a summary of our understanding of the principle changes.
INCOME TAX (Impôt sur le Revenu)
The barème scale, which is applicable to the taxation of income and gains from financial assets, has been revised as follows:
|Up to €9,700||0%|
|€9,701 – €26,791||14%|
|€26,792 – €71,826||30%|
|€71,827 – €152,108||41%|
|€152,109 – plus||45%|
The above will apply in 2016 in respect of the taxation of 2015 income and gains from financial assets.
WEALTH TAX (Impôt de Solidarité sur la Fortune)
There are no changes to wealth tax. Therefore, taxpayers with net assets of at least €1.3 million will continue to be subject to wealth tax on assets exceeding €800,000, as follows:
|Fraction of taxable Assets||Tax Rate|
|Up to €800,000||0%|
|€800,001 to €1,300,000||0.5%|
|€1,300,001 to €2,570,000||0.7%|
|€2,570,001 to € 5,000,000||1%|
|€5,000,001 to €10,000,000||1.25%|
|Greater than €10,000,000||1.50%|
CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)
Gains arising from the disposal of financial assets continue to be added to other taxable income and then taxed in accordance with the progressive rates of tax outlined in the barème scale above.
However, the system of ‘taper relief’ still applies for the capital gains tax (but not for social contributions), in recognition of the period of ownership of any company shares, as follows:
- 50% for a holding period from two years to less than eight years; and
- 65% for a holding period of at least eight years.
This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.
In order to encourage investment in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:
- 50% for a holding period from one year to less than four years;
- 65% for a holding period from four years to less than eight years; and
- 85% for a holding period of at least eight years.
The above provisions apply in 2016 in respect of the taxation of gains made in 2015.
CAPITAL GAINS TAX – Property (Plus Value Immobilières)
Capital gains arising on the sale of a maison secondaire and on building land continue to be taxed at a fixed rate of 19%. However, a system of taper relief applies, as follows:
- 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and;
- 4% for the twenty-second year.
Thus, the gain will become free of capital gains tax after twenty-two years of ownership.
However, for social contributions (which remain at 15.5%), a different scale of taper relief applies, as follows:
- 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
- 1.6% for the twenty-second year; and
- 9% for each year of ownership beyond the twenty-second year.
Thus, the gain will become free of social contributions after thirty years of ownership.
An additional tax continues to apply for a maison secondaire (but not on building land), when the gain exceeds €50,000, as follows:
|Amount of Gain||Tax Rate|
|€50,001 – €100,000||2%|
|€100,001 – €150,000||3%|
|€150,001 to €200,000||4%|
|€200,001 to €250,000||5%|
|€250,001 and over||6%|
Where the gain is within the first €10,000 of the lower level of the band, a smoothing mechanism applies to reduce the amount of the tax liability.
The above taxes are also payable by non-residents selling a property or building land in France.
SOCIAL CHARGES (Prélèvements Sociaux)
To date, social charges have been levied to fund certain social security benefits in France, as well as the compulsory sickness insurance schemes.
Hence, if you are resident in France, these are charged on your worldwide investment income and gains, even though this does not give any automatic right to French social security benefits and health cover. The current rate is 15.5% and the charges are also payable by non-residents on French property rental income and capital gains.
As has been widely publicised, on 26th February 2015, the European Court of Justice (ECJ) ruled that France could not apply social charges to ‘income from capital’, if the taxpayer is insured by another Member State of the EU/EEA. Income from capital includes investment income on financial assets and property rental income, as well as capital gains on financial assets and real estate.
Fundamental to this decision was the fact that the ECJ determined that France’s social charges have sufficient links with the financing of the country’s social security system and benefits. EU Regulations generally provide that people can only be insured by one Member State. Therefore, if the person is insured by another Member State, they cannot also be insured by France and thus, should not have to pay French social charges on income from capital.
In the main, the ECJ ruling affects people who have retired to France and hold a Certificate S1 that has been issued by another Member State, as well as those people who work in another Member State, but live in France.
On 27th July 2015, the Conseil d’Etat, which is France’s highest court, accepted the ECJ ruling, which paved the way for those people affected to reclaim social charges that had been paid in 2013, 2014 and 2015. Happily, this also included residents of any EU/EEA State who had paid social charges on French property rental income and capital gains.
In order to circumvent the ECJ ruling, France has amended its Social Security Code. In doing so, it has removed the direct link of social charges to specific social security benefits that fall under EU Regulations. The changes take effect from 1st January 2016, which means that social charges continue to be applicable at the rate of 15.5% on income from capital.
EXCHANGE OF INFORMATION UNDER COMMON REPORTING STANDARD:
2016 brings a new era in global automatic exchange of information between tax authorities.
Close to 60 countries are ‘early adopters’ of the OECD’s Common Reporting Standard (CRS), including all EU States (except Austria) and the popular offshore jurisdictions of the Isle of Man, Guernsey, Jersey & Gibraltar. As such, these early adopters start collecting information from 1st January 2016 to share by the end of September 2017.
Other countries, including Austria, Switzerland, Monaco, Australia, New Zealand and Canada have committed to start sharing data in 2018.
In the EU, the CRS has been brought into effect through the EU Directive on Administrative Cooperation in the Field of Taxation, which was adopted in December 2014. The scope of information exchange is very broad, including investment income (e.g. bank interest and dividends), pensions, property rental income, capital gains from financial assets and real estate, life assurance products, employment income, directors’ fees, as well as account balances of financial assets.
No-one is exempt and therefore, it is essential that when French income tax returns are completed, taxpayers declare all income and gains – even if this is taxable in another country by virtue of a Double Taxation Treaty with France.
It is also obligatory to declare the existence of bank accounts and life assurance policies held outside of France. The penalties for not doing so are €1,500 per account or contract, which increases to €10,000 if this is held in an ‘uncooperative State that has not concluded an agreement with France to provide administrative assistance to exchange tax information. Furthermore, if the total value of the accounts and contracts not declared is at least €50,000, then the fine is increased to 5% of the value of the account/contract as at 31st December, if this is greater than €1,500 (€10,000 if in an uncooperative State).
11th January 2016
This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.