French Tax Bulletin - Part I

PKF (Guernsey) Ltd outline some recent changes in the French tax system, and highlight 2008 French Tax deadlines

French Tax Changes

1. New Law: Modernisation de l’Economie

1.1  From 1 January 2009, taxpayers assessed under the Micro-BIC and Micro-BNC regimes may elect to pay their income tax (including social surcharges CSG, CRDS and PS), and social security charges at source. The liability paid at source is final. However the income thus assessed still needs to be declared and included in the barème computations to determine the overall rate of tax applicable to the other sources of income. In addition, the income taxed at source will be included in the taxpayer’s revenu de référence and for the application of the bouclier fiscal.

It is the local URSSAF office that will collect the levies and the option can only be granted if the taxpayer registers for a levy at source of social security contributions and social surcharges (CSG, CRDS and PS) under a micro-social regime. Many non-professional landlords will not necessarily be registered for mainstream social security. Such an option would bring them into the scope of these charges in respect of those earnings. It is not yet known how this would sit with the existing health cover that taxpayers in this situation may already have in place.

Another consideration, concerns non-resident taxpayers. Technically non-residents should not be liable to these social charges and as a result the option may not be opened to them. We are awaiting confirmation on this point from the tax legislator’s office. 

The taxation at source regime is subject to a double limit:

The first limit to apply is the one for the general Micro regime. This will now be revised every year and is fixed as follows with effect from 1 January 2009:

• €80,000 instead of currently €76,300 for trading activities and for rentals of lodgings
• €32,000 for all other services

The second limit is fixed by reference to the amount of the barème’s 3rd band i.e. €25,195. This applies per person thus the turnover of a married couple must not exceed €50,390 in 2007 for the taxation at source to apply in respect of 2009 income. This limit is increased by €12,597.5 (half of the 3rd band’s limit) per extra half family share of the household. 

The rates of tax at source are as follows and apply to the total turnover:

• 1% for trading activities and for rentals of lodgings
• 1.7% for all other services
• 2.2% for non-commercial profits

The election for this tax regime must be made in writing before 31/12/2008 to apply to 2009 income. Regrettably, in the first year of application, taxpayers will effectively be paying the tax in respect of their previous year’s earnings and current earnings. For instance, if the taxation at source applies to 2009 income, the tax payments will take place throughout 2009, as well as the liability due in respect of 2008 income.

1.2 Minimum record-keeping rules for Micro businesses have been clarified.  They must be in a position to provide the administration with details of income and expenditure in the form of a livre-journal.  Entries must be made in chronologic order.

1.3 Companies such as SA, SARL, and SAS are now able to opt for a fiscally transparent tax regime (in the same sense as the one applicable to SCI) for a maximum period of five years. During that period, profits will be subject to income tax in the hands of the relevant shareholders and in proportion to their holdings. The main interest for the shareholders is the immediate use of losses against the rest of their income.

1.4 The tax exemption regime for SUIRs (Sociétés Unipersonnelles d’Investissement à Risque) was abolished with effect from 1 July 2008.  Entities created before that date and within the required conditions continue to benefit from the favourable regime over a total period of 10 years.

1.5 From 1 January 2008, expatriates who are working for a France-based employer may benefit from a temporary tax exemption in respect of the extra remuneration they receive directly for their expatriation (prime d’impatriation). If the amount cannot be precisely determined the administration allows an exemption on the basis of 30% of the pay. To qualify the employee must not have been tax resident in France for the five preceding years. The exemption is valid up to 31 December of the fifth calendar following the start of the employment. The regime may apply to self-employed individuals but under strict conditions and subject to prior authorisation of the Ministry of Finance.

1.6 In addition to the above, expatriates who are working for a France-based employer may benefit from a 50% exemption of tax on certain foreign sources of income, namely investment income, royalties from literary and artistic rights or from patents or trademarks and gains on investments. The income must originate from a territory which has signed a double tax treaty with France containing a clause of assistance. Nevertheless the exempted portion of income or gain remains liable to the 11% social surcharges (CSG, CRDS and PS).

1.7 A similar exemption was also put in place for remuneration paid to an employee sent to work abroad (outside France) on a temporary basis. 

2. Other Recent or Proposed Changes

2.1 A new version of the France-UK double tax treaty was signed on 19 June 2008. This has not yet been ratified and thus it is not effective. At this stage, there is no set date for its entry into force. The main changes are explained below.

2.2 The tax-free investment disposal limit for capital gains tax on investments is fixed at €25,000 for 2008.

2.3 The CMU contribution limit for CMU de base is fixed at €8,774 for the period from 1 October 2008 to 30 September 2009.

2.4 Gains on disposals of investments are now taxed at 18% from 1 January 2008, that is to say a total charge of 29% inclusive of social surcharges (CSG, CRDS and PS).

2.5 The French authorities have recently confirmed that to assess the exemption conditions in respect of the taxation on notional income (Article 164c of the CGI), they would take into account the liability to French social surcharges (CSG, CRDS and PS) described at the end of this bulletin. For further information on this tax please refer to the second part of this bulletin, which will follow next week.

2.6 Trust and fiducies are now specifically included in the definition of French property-owning entities which may be liable to the annual 3% tax. It should be noted that companies and trusts established in a non double tax treaty partner country such as the Channel Islands, Isle of Man, Gibraltar, Hong Kong, BVI etc are liable to this tax every year unless less than 50% of their assets is made up of French real estate.

2.7 Entities registered in EU countries or those which have signed a double tax treaty with France containing a clause of administrative assistance and a clause of equal treatment may now be exempt from the 3% tax if the total value of the French asset(s) is under €100,000 or represents less than 5% of the value of the entity’s total immovable assets.

2.8 The deductible portion of the Contribution Sociale Généralisée (CSG) is included in the taxes taken into account for the application of the bouclier fiscal.

2.9 Reference exchange rate as at 31 August 2008 => € 1.2422/£1.

2.10 A draft Law on a new minimum income system, Revenu de Solidarité Active “RSA”, to replace the Revenu Minimum d’Insertion “RMI”, was recently presented to Parliament.  Although this law concerns the Code Social it would have a tax impact as it is proposed to install yet another social levy to join the CSG, CRDS and PS at 1.1% on all unearned income and gains from the sale of investments. This would bring the total extra charges to 12.1% instead of 11% currently on most investment income and gains. It would also apply to the increase in value received from 1 January 2009 on most investment schemes (such as PEA, PEL etc). If voted in, the extra charge will be taken into account for the bouclier fiscal. 

2008 French Tax Deadlines

15 February 2008 - Payment of 2007 income tax instalment calculated by reference to the 2006 liability.

29 February 2008 - Filing deadline for SCI 2007 income form 2072 (may be extended)

15 May 2008 - Payment of 2007 income tax instalment calculated by reference to the 2006 liability.

16 May 2008 - Filing of 3% tax form 2746 for certain foreign companies and entities owning French real estate and payment of the tax for those liable. Postponed to 15 September.

31 May 2008 - Deadline for the filing of 2007 French income tax return for French tax residents.  This may be extended if the return is filed electronically or by agreement with the local tax authorities.

15 June 2008 - Filing of wealth tax return and payment of liability for French residents.

30 June 2008 - Deadline for the filing of 2007 non-resident French income tax return for residents of Europe, Mediterranean Littoral, North America and Africa.

15 July 2008 - Deadline for the filing of 2007 non-resident French income tax return for residents of Central and South America, Asia, Australia and other countries. Filing of wealth tax return and payment of liability for residents of Europe, Mediterranean Littoral, North America and Africa.

31 August  2008 - Filing of wealth tax  return and payment of liability for residents of Central and South America, Asia, Australia and other countries.

Aug/Sept 2008 - Final payment or refund of 2007 income tax liability after deduction of the instalments paid in February and May.

15 September 2008 - Filing of 3% tax form 2746 for certain foreign companies and entities owning French real estate and payment of the tax for those liable.  Postponed from 16 May.

Article Added Friday, 10 October 2008

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