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2017 French Finance Act - individual tax
New tax measures who will impact your French tax situation

Catherine Terry – January 11, 2017


The year 2017 will be crucial for France due to the Presidential Elections this summer.

Indeed, the lack of visibility and the complexity of the French tax system impose that the next President will have to take major decisions concerning the wealth tax (ISF) and the simplification of the French income tax system to attract foreign investors in France.

We have highlighted below the new French tax measures provided by the 2017 Finance Act which will be applicable on your 2016 & 2017 income.

2016 Income: French personal income tax rates and social tax remain inchanged

The 2016 French income tax brackets have been slightly increased by the 0.10% inflation rate but the 2016 tax rates remain unchanged.

 

 2016 Tax brackets for single  Rates
 Up to  € 9,710  0 %
 From € 9,710 to € 26,818  14 %
 From € 26,818 to € 71,898  30 %
 From € 71,898 to € 152,260  41 %
 Over  € 152,260  45 %

Married couple will start paying income tax on taxable income exceeding € 27,400 and single taxpayer on taxable income exceeding € 14,600.

The 3% & 4% “exceptional contributions” on high income remain unchanged.
They are levied at 3% for taxable income over € 250,000, and 4% over € 500,000 for single taxpayers. For married taxpayers, at 3% for taxable income over € 500,000, and4% over € 1,000,000.

The 15.50% social tax called «Prélèvements Sociaux » remain unchanged.
Thanks to the De Ruyter European Court Case, please note that you have until the end of December 2017 to claim for the refund of the PS paid in 2015 on 2014 income.
We would be pleased to assist you.

20% income tax reduction in favor of middle class taxpayers applicable next month  

A 20% tax reduction is introduced for taxpayers whose so-called “reference tax income” (“revenu fiscal de reference”) is lower than € 18,500 for a single person and€ 37,000 for jointly taxed couples.
This tax rebates will be promptly applicable on the 2016 estimated tax payments due this February.
This tax reduction will particularly impact the taxpayers the year of arrival and year of departure from France for which they benefit from the annual tax brackets and tax rates.

 


Implementation of a general income tax withholding system (PAYE system) in 2018

A withholding tax system (a system similar to the PAYE system) will be implemented as from January 1, 2018.

The scope of income subject to the new withholding tax system is very wide and covers most categories: employment income, pensions, replacement income, annuities, self-employment income (industrial and commercial, non-commercial, agricultural) and rental income.
For employees who are not paid by a French company, their foreign employer will
be required to operate and remit this withholding. This is a significant change for companies who have expatriate employees in France.

Taxpayers will still be required to file an income tax return, and pay any difference in tax. Any excess income tax withheld or paid would be refunded by the tax authorities.

To avoid a double tax burden in 2018 (since the income tax is currently paid in France during the year following the year during which it was earned), the income tax normally due in 2018 on income for 2017 would be “cancelled,” except for the tax due on “exceptional income.” A relatively extensive list of what would be deemed to be “exceptional income” has been listed. Furthemore a French income tax return reporting the 2017 income will be required.

Anti-abuse measures will also be put into place in order to avoid an artificial shift of income from 2018 to 2017

Our comments
With the Presidential Elections, there is an uncertainty in the application of these tax provisions.
Few candidates for the next Presidential Elections have already indicated their opposition to the withholding tax system and have stated that they would repeal this system if they were to be elected.
In France, the individual income tax system is viewed as being extremely complex. Consequently, the implementation of the proposed rules would give rise to practical difficulties for both employers and individual taxpayers and for companies with expatriates assigned to work in France.

Tax incentive for the impatriates tax regime: Extension of the impatriate duration and exemption from payroll tax of the impatriate premium

The “impatriate” regime, to encourage foreign investments and relocations in France, basically provides an exemption from income tax on the additional compensation paid or granted to executives moving to France and also an exemption from imposition of the wealth tax on foreign assets.

The Finance Law of 2017 provides that period during which impatriates can benefit from the specific favorable regime is extended until 31 December of the eighth year (8th year), instead of the fifth year as originally proposed, following the beginning of their business operations and functions in France.

Also, the payroll tax imposed on certain taxpayers (including banks and insurance companies) that are not fully subject to value added tax (VAT) and that is assessed on the compensation paid to employees will not apply with respect to the additional compensation paid to executives relocating and moving to France.

This exemption will apply to compensation paid as from January 1, 2017.

A new tax regime has been adopted for “free shares” granted under the “Macron” tax regime

A favorable regime applicable to the granting of “free shares” (RSUs)—as introduced in 2015 by the legislation known as the “Macron Act”—has been modified by the Finance Law. The changes are viewed as not being taxpayer-favorable, and include measures such as:

• The benefit from a grant of “free shares” will be subject to income tax at progressive income rates, but eligible for a rebate on an annual amount of gain of € 300,000 (depending on the period that has lapsed since the granting of the shares).

• The excess portion of the gain over € 300,000 will be taxable as a salary and will also be subject to social contributions due on salaries (versus those contributions that would be due on passive income such as dividends or capital gains). Furthermore, such excess portion will be subject to a specific 10% contribution (which previously had been repealed by the Macron Act).

• The tax liability of the company granting the “free shares” will be increased from 20% to 30%.

These modifications will apply to the tax treatment of grants of “free shares” made pursuant to a decision of the shareholders’ meeting after December 30, 2016.

Tax credit for household employee expenses extended to all taxpayers including the retirees

This measure concerns mainly the retirees who until now could only benefit from a tax reduction which was not reimbursable when the income tax liability was lower than the reduction amount. Retired persons will now be able to benefit from a refund of tax.

Extension of the tax incentives for rental investment

Special investment programs called “Pinel” and “Censi-Bouvard” for students and senior citizens residences are extended up to December 31, 2017.

The conditions initially set forth in order to benefit from this tax reduction have not changed.

The tax reduction equals 20% of the expenses paid, capped at € 22,000 per housing.

The tax credit for renewable energy efficiency is extended until December 31,2017

Specific conditions must be met.

Wealth tax or « Impôt de Solidarité sur la Fortune »

The 2017 ISF tax brackets and rates remain unchanged.

If the worldwide net assets exceed € 1,300,000, French wealth tax or ISF will be assessed on the assets as from € 800,000, at progressive tax rates from 0.50% to 1.50% as follows:

 2017 Tax brackets  Rates
 From  € 800,001 to € 1,300,000  0.50 %
 From € 1,300,001 to € 2,570,000  0.70 %
 From € 2,570,001 to € 5,000,000  1.00 %
 From € 5,000,001 to € 10,000,000  1.25 %
 Over  € 10,000,000  1.50 %

An anti-abuse clause has been set up to address certain schemes used byindividual taxpayers to reduce their liability for the wealth tax under the scheme of the « bouclier fiscal ».

Our comments
ISF and the next French Presidential Elections

Italy and now Portugal have introduced the wealth tax (ISF) tax in their countries.
2017 will be crucial for France to find out whether ISF will be maintained.
Indeed the candidate of the right side for the next Presidential Elections has already informed that he will abolish the French wealth tax.
Other candidates have mentioned that they will at least drasticly reduce it.
I will of course keep you posted.


 


Other important income tax measures set up as from January 1, 2017

Common Reporting Standard is now in force

The global automatic exchange of information regime under the Common Reporting Standard is now in force as from January 1, 2017.

The French tax authority will receive information on every resident of France, without having to ask for it.

If you live in one country and have assets in another, your information will be shared between countries. Your local tax authority will automatically receive information on the financial assets you own overseas, without asking for it, and regardless of whether they have any questions about your tax affairs.

There has never been a better and right time to consider whether you are fully tax compliant in France.

Cross-border tax planning can be complex, so you need to ensure you are declaring income and paying tax in the right country.

Reinforcement of the penalties on the non-disclosure of foreign bank accounts and foreign life insurance policies

Failure to disclose your non-French bank account generates a tax penalty of 80% assessed on the tax deriving from the income generated by the account, only if the income has not been declared.
If the income has been declared but not the foreign bank account, the penalty amounts to € 1,500 per bank account non-declared and € 10,000 if the account is located in a tax haven country.

Failure to disclose your non-French life insurance policy generates a tax penalty of 80% assessed on the tax deriving from gain generated by the insurance policy, only if the income has not been declared.
If the income has been declared but not the foreign insurance policy, the penalty amounts to € 1,500 per contract non-declared and € 10,000 if the contract is located in a tax haven country.

Caution - Online payment is required as from January 1, 2017 for amounts over € 2,000

Any tax liability exceeding € 2,000 in 2017 will have to be paid online through the French tax authorities website « impôts.gouv.fr » or through automatic debit on the taxpayer’s French bank account.
A penalty of 0.2% of the amount involved will be charged in case the payment is not made online.
Caution: This will concern the 2016 estimated tax payment which will be due by February 15.

Electronic filing requirement

Taxpayers whose 2015 annual taxable income exceeds € 28,000 will have to electronically file (e-file) their 2016 French income tax returns due in May or June 2017 either through the French tax authorities web site « impôts.gouv.fr » or through the professional EDI online system validated by the French tax authorities and used by the « avocats ».

In case the tax return is filed by paper, a penalty of 15 Euros per Tax Form is charged only as from the second year.

As an exception, paper filing will remain possible for taxpayers not in a position to e-file.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.
No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Catherine Terry, Avocat, does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

This publication (and any extract from it) must not be copied, redistributed or placed on any website, without Catherine Terry prior written consent.


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