Individual income tax rates in France are progressive up to 40%.
The following table gives the rates of tax for 2010 assessment of 2009 income:
Bracket of taxable income Tax Rate (%)
0 – 5,875 0
5,875 to 11,720 5.5
11,720 to 26,030 14
26,030 to 69,783 30
Over 69,783 40
Income tax is payable by French residents on non-exempt income derived from all sources (worldwide income). Non-residents are only required to pay tax on Frenchsourced income.
French law establishes three criteria, any one of which is sufficient to indicate that an individual is resident in France for tax purposes:
- habitual residence of the person or family
- principal place of residence (more than 183 days in a calendar year)
- professional activity or centre of economic interests
Income tax is payable on assessable income less allowable deductions.
Assessable income includes property income, industrial or commercial profits, certain directors' remuneration, agricultural profits, wages, salaries, pensions and life annuities, non-commercial profits and investment income. Allowable deductions include expenses incurred in performing the duties of an office of employment, interest on loans and pension contributions. There are other deductions such as an allowance paid to members of the taxpayer's family and investment incentives.
The family quota or coefficient system mitigates the effect of the progressive nature of the tax rate scale. A single person with no dependents has a coefficient of one and pays tax on their actual taxable income. By comparison, a married couple with two children has a coefficient of three and pays tax by dividing their income first by three, calculating an amount due as if they were single, and then multiplying the amount due by three.
The tax return due before March (year Y) relates to the income derived in the previous year (year Y-1) and the tax is paid in three instalments in year Y (15 February, 15 May and 15 September).
The first two instalments are calculated simply as one-third of the tax paid in the previous year and the third represents the balance of the liability. Alternatively, the tax payer can elect to pay his tax monthly.
Interest paid for the purchase of the principal property of the taxpayer is deductible from the personal net taxable basis.
The sale of a French situs property (or of shares in a deemed French real estate investment company) is subject to capital gains taxation as follows:
- European community resident: progressive exemption; total exemption after 15 years. The capital gain is taxed at a rate of 16% (like French residents but without social contributions).
- All other non-French residents: no exemption applies. The capital gain is taxed at a rate of 33.3% (if the sale of the property is made by a non-French corporate structure, the taxable gain increases by 2% each year).
As from 1 January 2008, gains from the sale of long-term business assets (e.g. held for at least two years) are subject to a flat rate of tax of 18%.
Capital gains on any immovable property are exempt if the sales price does not exceed EUR 25,000 or the asset concerned is the taxpayer's principal residence.
Wealth tax is assessed on individuals whose net wealth exceeds EUR 790,000 for the fiscal year 2010. French residents are subject to wealth tax on worldwide assets, while the tax basis for non-residents is limited to assets situated in France. The main categories of taxable assets are as follows: real estate, furniture, other personal property (including jewellery, cars, yachts, aeroplanes and horses), shares and bonds, the redemption value of life insurance contracts, debts owed to the taxpayer and interest accrued thereon.
Wealth tax return must be filed by 15June. The tax is payable upon filing of the return. The rates of tax range from 0.55% to 1.8%.
Tax shield (bouclier fiscal): the total household annual direct tax liability (personal income tax, wealth tax and local property taxes for the principal residence) may not exceed 50% of the tax household revenue of the preceding year. If it does, a corresponding refund is granted upon request.
Inheritance tax is paid by the inheritors of the estate of a French resident or the French assets of a non-French resident. Since 1 January 1999, inheritance tax is also due by the French resident inheritors on all the estate of a non-French resident.
The tax is due on all property transferred by will, by intestate succession or donation before death. A declaration giving a description and valuation of the assets received must be sent to the Administration within six months of the death. The rates of tax range from 5% to 60%.
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 are generally deemed to be ordinary income. As from 2007, no tax is due on gains relating to participation shares. Under the participation exemption, 95% of the gains derived from the disposal of qualifying shares are exempt from tax. The remaining 5% is taxed in the normal manner. Shares qualifying for the participation exemption are those where:
- the parent has held at least 5% of the subsidiary's capital for at least two years; or - no minimum participation is required when the parent controls the subsidiary and the shares have a base cost of at least EUR 22.8m.
In addition, proceeds from the licensing of patents, patentable inventions and associated manufacturing processes qualify, subject to certain conditions, for a reduced capital gains rate of 15% although they constitute royalty income in the strictest sense. From 26 September 2007, the reduced rate also applies to the disposal of such patents, except between related companies. Such disposals are classed as producing 'long term' gains or losses.
A net long-term loss can generally only be carried forward to offset long term capital gains arising in the following ten years.
BRANCH PROFITS TAX
There are four bases of assessment.
(1) The normal system which is territorial and applies to each company individually. Foreign branch profits are exempt from corporate tax. French branches of foreign companies will generally only be taxed in France on French-sourced income.
(2) The integrated basis (95% owned subsidiary taxation).
(3) The consolidated basis (50% owned subsidiary taxation).
(4) The worldwide income basis (subsidiaries excluded).
The latter two systems can be adopted only with the consent of the French Government and have been used very rarely.
FRINGE BENEFITS TAX (FBT)
Goods and services provided to employees are considered as salaries paid in kind, liable to social contributions and income tax.
Various taxes are levied by the Government for the benefit of the local government agencies. The three most important are as follows.
This is based on 50% of the rental value of real estate owned by the taxpayer.
LICENSE BUSINESS TAX
This is based on the rental value of the fixed assets used by the business. The tax rates of tax applicable are determined by the local communities of the area.
This is a tax on the occupation of property based on the rental value of the property reduced by an allowance for the number of dependants of the occupant.
These include the following minor and indirect taxes:
Tax rates vary from 4.25% to 13.6% based on the level of remuneration paid to employees. This tax is payable by companies which are not subject to VAT on at least 90% of their turnover.
Payable at the rate of 0.5 % on total annual gross wages and salaries (for companies having more than 250 employees, the rate is 0.6%).
EMPLOYERS' TRAINING TAX
All employers with between 10 and 20 employees pay a contribution of 1.05% of total annual wages and salaries as an investment into vocational training programmes. The rate is 1.60% where there are more than 20 employees. The rate is reduced to 0.55% where there are fewer than ten employees.
CONSTRUCTION PARTICIPATION TAX
All employers with ten employees or more must pay a minimum of 0.45% of total gross wages and salaries for the construction of social dwellings.
COMPANY CAR TAX
Companies pay a tax based on the number of cars registered in France which they own, rent for more than one month or are used by their employees for their professional needs and who drive more than 15,000 km per year. Non-polluting vehicles are exempt from this tax.
This is 0.16% of the annual turnover.
RATES OF STAMP OR TRANSFER DUTIES
As from 6 August 2008, the rate of transfer duties on the selling of shares is set at 3%. The rate is however capped to EUR 5,000 for transfer of corporation shares such as SAS, SA.
In addition, for the transfer of shares other than corporation and real estate company shares, the taxation basis is reduced by an amount of EUR 23,000.
DETERMINATION OF TAXABLE INCOME
Taxable income is determined on the basis of the accounting results. When a tax rule diverges from an accounting principle, adjustments are made to the accounting results.
Business profits are defined as gross trading profits less manufacturing, administrative and selling expenses. All expenses incurred in the conduct of business are deductible if they are directly related to achieving the corporate purpose of the French corporation.
Some items such as company car tax are non-deductible. Some items such as the organic tax are deductible in the year they are paid. Special rules apply in respect of the categories listed below.
Fixed assets are generally written off over their normal useful life. The straight-line method is the most commonly used. Companies can choose the declining-balance method to compute depreciation although certain assets are excluded from this. Assets acquired for a cost of less than EUR 500 excluding VAT can be totally written off in the first year.
The cost of cars exceeding EUR 18,300 (EUR 9,900 for the most polluting cars) cannot be depreciated (i.e. only the amount up to EUR 18,300/9,900 is eligible for tax depreciation allowances). Other items can be written off at specified rates, depending on their effective life and their date of purchase. A company can elect not to take all the depreciation to which it is entitled if it so wishes but the depreciation claimed on its assets in total must be at least equal to the depreciation that would have been claimed on the same assets on a straight-line basis.
Stock may be valued at each year end at cost price, market selling value or replacement cost. On the balance sheet, inventories must be shown at cost price. If market value is lower, a reserve for depreciation of inventories must be disclosed separately as a deduction from cost.
Cost is defined as the actual purchase price or actual production cost (excluding financial charges) or, if lower, the price at which the goods may be sold. FIFO or the average cost method must be applied. LIFO is prohibited.
CAPITAL GAINS AND LOSSES
See 'Capital gains tax' above.
Dividends received by a French parent company from its French or foreign subsidiaries are taxed on 5% of their amount, including the foreign tax credit, if it exists. To qualify for this treatment, the parent must have held 5% of the subsidiary's capital for at least two years.
With effect from 1 January 2004, losses can be carried forward indefinitely, unless the company has changed its effective business activity or merged. A net long-term loss can generally only be carried forward to offset long-term capital gains arising in the following ten years.
Losses can be carried back against the undistributed taxable income of the three preceding years. The corporation tax paid in the preceding years is not immediately repaid to the company when this option is exercised but the company becomes entitled to a tax credit. It can be used to pay its corporation tax liabilities arising in the following five years. If the credit is not used during the five years, the tax is repaid by the Administration.
FOREIGN SOURCED INCOME
Profits attributable to subsidiaries not established in an EU country and paying a low rate of tax are presumed to be distributed in France and subject to corporate tax in France, providing more than 50% of the shares are owned by the parent company. A tax credit is granted for corporate tax paid in the country where the subsidiary is established.
Fittings for treating polluted water or air or anti-noise pollution equipment can be fully written off in the first 12 months.
In certain privileged 'priority zones', companies created to carry out new industrial, commercial or even, under certain terms, non-commercial activities are exempt from corporation tax during the first two years of their operation. They are also exempt from tax on 75%, 50% and 25% of their profits for the next three years respectively. The exemptions also apply to local business taxes, reduced transfer taxes and accelerated depreciation.
Various tax incentives are available to enterprises operating in Corsica, Overseas Departments and specified disadvantaged urban and suburban zones. Expenditure on research, development and training also qualifies for special treatment.
FOREIGN TAX RELIEF
Foreign tax paid on dividends, royalties and interest may be allowed as a credit against the French tax due from a French resident under a double tax treaty (or by way of deduction under domestic law when received from a non-treaty country).
Where a French company holds 95% or more of the shares of one or more French companies, the group may elect to be taxed as a single entity, i.e. the subsidiaries are treated as branches of the parent company and corporate tax is payable only by the parent company. Therefore, profits and losses of group companies may be offset.
Under the system of the 'consolidated profit', the profits and losses of all controlled branches, subsidiaries and partnerships in France and abroad are consolidated.
Control is defined as 50% of the voting shares. Both systems are subject to Ministry of Finance approval.
RELATED PARTY TRANSACTIONS
Pre-tax income indirectly transferred abroad either through an increase or decrease of purchase or sales price, or by any other means, to an enterprise established outside France which controls or is controlled by the French corporate taxpayer may be added back to taxable income by the Tax Authorities.
Groups of companies may obtain an advance transfer pricing agreement from the French Ministry of Finance.
Withholding tax must be deducted from dividends, interest and royalties paid to nonresidents to the extent they are not franked. See section I below for more details.
In principle, inbound non-resident investments in France are free of prior review unless they are in a sensitive economic sector where prior authorisation must be obtained from the French Treasury.
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.
Income Tax Rate
Corporate Tax Rate
Sales Tax / VAT Rate
Last Update: Nov 2010
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