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French Income Tax- Proposed Tax Reforms


The French finance bill for 2018 issued on twenty seven September 2017 contains helpful measures for each people and firms. Creating sensible on President Macron’s campaign pledge, the bill contains 2 main reforms that might have an effect on individuals: the termination of the wealth tax and therefore the introduction of a final 30% flat tax on capital financial gain (i.e. dividends, interest and capital gains). The wealth tax would get replaced by a tax levied solely on material possession (real property), and therefore the 30% flat tax would replace this progressive rates (up to 45%) that are levied on capital financial gain, and the social levies (15.50%). the subsequent measures moving corporations aim to create the French company tax atmosphere a lot of attractive:


Reduction of corporate – income tax rate

The corporate Corporate-Income Tax Rate would be step by step reduced to 25 % by 2022. the speed reduction would be contact the amount from 2018 to 2022 but—contrary to measures enclosed within the 2017 finance law—each annual step to attain the 25 % rate would apply to any or all corporations and to any or all Taxable-profits. However, keeping in line with company expectations, the speed reduction adopted beneath the 2017 finance law would be maintained for 2018: a 28 % rate would apply to the primary EUR 5,00,000/- of profits for all corporations (with the remaining profits subject to the 33.33 % Standard rate). In 2019, the quality rate would drop to 31 %  (but the 28 %  rate still would be applicable on profits below EUR 5,00,000/- ). The 31% rate would be reduced to 28 % in 2020 (applicable on the complete quantity of ratable profits), 26.5% in 2021 and eventually 25% in 2022. The 3.3% social surcharge that applies in bound circumstances would still apply to the Corporate-Income Tax , transportation the 25% Standard rate in 2022 to an efficient rate of 25.80%.


Elimination of 3% surtax on profit distributions

The 3% surtax on benefit circulations has been the objective of serious feedback since it was presented, and has offered ascend to claims that the expense was in opposition to EU law, assess settlements and the French constitution. The surtax, forced on French substances subject to corporate wage assess, is collected on most profit appropriations at the level of the French payer, albeit certain dissemination are absolved.


In 2016, the French constitutional court dominated that the exemption from the surtax that applied solely to distributions created among a French tax-consolidated cluster desecrated the constitution, and as a result, the Govt. broadened the scope of the exemption (for previous coverage, see the tax alerts dated 5th October, 2016 and 23rd December 2016). Additionally, the European Commission has initiated associate infringement procedure against the surtax. Finally, on 17th May, 2017, the Court of Justice of the European Union control that dividends distributed by a French company that represent a distribution of dividends the corporate antecedently received from associate EU subsidiary can not be subject to the 3.00% surtax, as a result of this could be a style of a double taxation prohibited by the EU parent subsidiary directive. The French government currently has announced that it intends to get rid of the 3% surtax for dividends paid as from 1st January, 2018.


Elimination of Carrez rule

The anti-abuse rule called the “Carrez” rule would be abolished. Introduced in 2011, the Carrez rule limits the deductibility of interest expenses with reference to the acquisition by a French company of a stake in another company. beneath the rule, the deduction of connected finance costs is disallowed for associate 8 Year period if the French acquiring company is unable to demonstrate that it effectively created the choices with reference to the participation which it effectively exercises management over the acquired  company.


Changes in  tax credit for competitiveness and employment (CICE)

The CICE was introduced in 2013 as a method to cut back the cost of using staff. The Tax Credit, supported the wages associate entity pays to its workers over the year, presently is 7 % of gross payroll on the portion of remuneration that doesn’t exceed 2.50 times the national minimum remuneration. The CICE generates a due against the French treasury that will be offset against the entity’s Corporate-Income Tax  liability, or refunded post 3 years. The finance bill would scale back the CICE from 7.00% to 6.00 % as from 1st January, 2018, then eliminate the credit altogether in 2019, substitution it with a discount of the employer’ share of Social Security contributions.


Abolition of enlargement of scope of financial transactions tax (FTT)

The 2017 finance law extended the scope of the FTT to use to intraday transactions as from one Jan 2018. (Intraday transactions are considered as speculative and that they create a risk to Financial- markets.) The effective date of the extension was delayed to 2018 to permit affected parties adequate time to update their systems and procedures. The finance bill for 2018 provides that the extension of the scope of the FTT would be abolished before the amendment becomes effective.


Abolition of top payroll Income tax bracket

A payroll tax applies to companies that don’t seem to be subject to VAT, or wherever a minimum of 90% of an entity’s annual turnover was exempt from VAT within the previous year. Banks and insurance firms square measure the most teams tormented by the payroll tax. The tax is assessed on the gross salaries of staff at the subsequent rates:

4.25% on salaries up to EUR 7,721;

8.5% on the portion of the earnings between EUR 7,721 and EUR 15,417;

13.6% on the portion of the earnings between EUR 15,417 and EUR 152,279;

20% on gross salaries more than EUR 152,279.

The payroll tax is deductible for company income tax purposes. The highest payroll income tax bracket (i.e. 20.00% rate) would be abolished for salaries paid as from 1st January, 2018. The marginal rate then would be 13.60% on salaries exceptional EUR 15,417.


Author`s Comment

The finance bill is anticipated to be approved at the end of December 2017, subject to confirmation by the constitutional court.

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