French Tax News - Further reforms - August 2011

French Government prepares further tax reforms.

The French Prime Minister, François Fillon, today announced new reforms which are expected to be put in place shortly.

This “economic plan” is expected to bring in an additional 12 billion euros to the French state next year.

One of the main proposed changes which would impact clients investing in French properties is the modification of real estate capital gains tax, (with an exception for the principal home). It is proposed to abolish the allowance of 10% per year (above five years) with immediate (from 24 August 2011) and retroactive effect. However, capital gains will be calculated taking into account historical inflation rates. Due to the significant public resistence to this reform the government is currently reviewing it, and considering other alternatives, such as reducing the rate of the allowance. If enacted this reform is likely to imply some changes in our advice when structuring clients investing in France.

Other proposed changes include:

Instauration of a 3% “high income” tax based upon incomes above approximately €500,000. This could also concern non-residents with French taxable income such as profit income or rental income;

An increase of 1.2% on social charges for securities income (interests, dividends). This rate will be applied to 2011 incomes;

A reduction in employers' advantages regarding overtime work concerning low salaries only;

A reduction in tax incentives which benefit French residents when investing in specific new real estate property, in overseas investments and ecological equipment;

An increase in the tobacco sales price of 6% in October 2011 and a further 6% in 2012. An increase in the alcohol sales price of 90 cents per litre (wines, rums and regional products are not included). Soft drinks will also be taxed, as a measure to prevent obesity;

Private health insurance taxes would be doubled and raised to 7%, with a higher rate of 9% applied to so-called “irresponsible” private insurers;

French corporate taxation of prior losses will be aligned with German system; and

The Employment Savings contribution due by employers will be raised from 6 to 8%;

These reforms will be proposed to French Parliament next week to be discussed in September, but none of them is yet applicable, or accepted.

24 08 2011