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