French tax changes 2012

FRENCH TAX CHANGES 2012 provided by The Spectrum IFA Group

On 28th December 2011, the Constitutional Council approved both the Project de
Loi de Finances Rectificative 2011-IV and the Project de Loi de Finances 2012.
After publication of both texts in the Journal Officiel de la République Française on
29th December 2011, each of the bills was enacted into law on 30th December
2011.
Shown below is a summary of our understanding of the principle changes.
INCOME TAX
There will be a freeze on the income tax barème scale and so the 2011 scale
will continue to apply for 2012 and 2013.
There will be an “exceptional contribution” on high incomes, which will
continue to be applied until the budget deficit has been reduced. The
exceptional contribution will be collected with income tax and will be calculated
as follows:
           Contribution                                                                      Revenu Fiscal de Référence
           Rate
                               Revenu Fiscal de Référence
                                     Single, widowed,                                 Taxpayers subject to
                                       separated or                                            joint taxation
                                 divorced taxpayers

            3%                 > €250,000 and                                             > €500,000 and
                                  <= €500,000                                                  <= €1,000,000

            4%                 < €500,000                                                    > €1,000,000

However, if the revenu fiscal de reference for the tax year in question is
greater than or equal to 1½ times the average of the revenus fiscaux de
reference of the previous two tax years, there will be a mechanism to soften
the impact of the exceptional contribution.
The rate of the prélèvement forfaitaire libératoire, in respect of income from
capital earned from 1st January 2012, is increased from 19% to:
o 24% for bank interest; and
o 21% for dividends.
WEALTH TAX
Despite the fact that the upper house of the Senate, in which there is a
socialist majority, proposed that the entry level for wealth tax should be
reduced again to €800,000 and that the Bouclier Fiscal abolished
immediately, these proposals were defeated.
However, the current wealth tax bands will be frozen until the public deficit
is below 3% of GDP, which is anticipated to be by the end of 2013. Hence,
the bands will remain at:
o €1,300,000 to €2,999,999; and
o €3,000,000 and above
.
INHERITANCE TAX & GIFT TAX
There was also a proposal made to reduce the level of the inheritance and
gift allowances to those that were in force prior to the introduction of the
TEPA law. Fortunately, however, this was defeated.
Hence, the current allowances will be maintained until the public deficit is
below 3% of GDP.
CAPITAL GAINS TAX
The capital gains tax (CGT) rate remains at 19%.
CGT & property
As concerns the sale of a second property, unfortunately, there is no
change to the reformed CGT regime, which comes into effect on 1st
February 2012. Hence, under the new law, the taper relief will be as
follows:
o 2% per annum for each year of ownership beyond the 5th year;
o 4% for each year of ownership beyond the 17th year; and
o 8% per annum for each year of ownership beyond the 24th year.
Thus, the property will be free from capital gains after 30 years and as is
currently the case, the principal residence remains exempt from CGT (and
social contributions) - although there were discussions around the idea of
restricting the relief to a certain amount.
There are, however, two new cases of exemption from capital gains tax for
property sales. The first case concerns the sale of a property that is not the
seller’s principal residence:
o where it is the first sale of the property; and
o the seller has not been the owner of his/her principal residence
(either directly or through intermediaries) during the last four years;
and
o the proceeds of the property sold are invested, within twenty four
months of the sale date, in the acquisition or the construction of a
property, which will become the principal residence of the seller.
The above might be difficult to perceive and on the face of it, appears to be
aimed at French nationals who are living outside of France. Typically, the
person would be living in rented property or perhaps accommodation
provided by their employer and hence, would not own their principal
residence.
However, there is no reason why the reverse cannot apply. For example, a
foreign national coming to live in France, who rents a property for at least
four years and then sells a property (either in France or outside of France,
with the only condition that it is the first sale of the property) and invests
the proceeds into a principal residence.
The second case concerns the sale of the principal residence by an older
person, who leaves this to move into a nursing home (maison de retraite
médicalisée). Until now, the person would only be exempt from capital
gains tax providing that the former principal residence is sold within twelve
months of the date of entering the nursing home (i.e. under the standard
principal residence exemption rules). For the future, the person will be
exempt from capital gains tax for up to two years from the date of entering
the nursing home providing that:
o the proceeds of the sale are used to fund the nursing home costs;
and
o the person is not liable to wealth tax; and
o his/her revenue fiscal de reference is within a certain income
threshold (this is basically the same income threshold that applies
for exoneration from taxe foncièr and taxe d’habitation).
CGT & direct share holdings
The taper relief, applicable to the sale of direct share holdings that have
been owned for at least eight years, which was due to come into effect in
2012, has been replaced by a system of ‘tax deferral’.
The conditions of the new system are fairly detailed and only apply to
cases where the taxpayer (either alone or with members of his family) own
at least 10% of the shares in the business. In addition, the taxpayer is
required to re-invest the proceeds into a new business venture for at least
five years.
NEW RATE OF VAT
The existing lower rate of VAT of 5.5% is increased to 7%, except for
certain goods and services, for example, food, provision of school meals,
goods and services for the disabled, etc.
CORPORATION TAX
For 2012 and 2013, there will be an exceptional contribution of 5% of the
corporation tax due (before deduction of any tax credits and reductions),
from companies with a turnover exceeding €250 million.
FISCAL NICHES
The overall ceiling on fiscal niches is reduced by 10%, as follows:
o with effect from 1st January 2012 (i.e. in respect of income for
2011), the maximum overall limit for tax reductions, tax deductions
and tax credits is €18,000 plus 6% of revenue fiscal de reference
for 2011; and
o with effect from 1st January 2013 (i.e. in respect of income for
2012), the maximum overall limit for tax reductions / deductions /
credits will not be greater than €18,000 plus 4% of revenue fiscal
de reference for 2012.
In addition, there will be a cap of 15% on the total amount of any income
tax benefits.
As concerns investing in Small & Medium Enterprises - whether directly or
in specially designated funds - there is no change to the ISF-PME Scheme.
However as concerns IR-PME, the range of companies in which the
investment can be made, to obtain the income tax deductions, has been
limited.
The Scellier Scheme, which is not included in the overall ceiling for fiscal
niches, will be abolished at the end of 2012. In the meantime, the tax
deductions are as follows:
Year of
property
purchase
                                                       Properties classed as
                                                          “BBC” (bâtiments
                                                      basse consummation)
                                                                                                                            Properties classed
                                                                                                                                as “non-BBC”
2009 & 2010                                             25%                                                            25%
2011                                                           22%                                                            13%
2012                                                          14%                                                               8%
Donations to political parties are capped at €15,000 per annum for the
taxable household.
WHAT LIES AHEAD
It is clear from all of the above that “austerity” is still at the forefront of the French
government’s mind. What is also coming across strongly is the government’s
belief that these measures will bring the deficit under control – i.e. to within 3% of
GDP - by 2013.
2012 is a presidential election year and who knows whether or not the latest round
of changes will still be in place post-election or whether we will be faced with yet
more proposals for change. After having had a total of five budgets during 2011, it
would seem rather odd to have only one budget in 2012, particularly since there
are no proposals to further increase social contributions beyond the current rate of
13.5%!
However, discussions have already commenced on the idea of merging income
tax and social charges. Should this take place, this would be beneficial for those
people living principally on investment capital, but would be detrimental for those
living mainly on pension income, since pension income is not liable to social
contributions providing the recipient is a holder of a Certificate S1 (formerly E121).
On a final note, however, it may make you feel better to know that the President
and the politicians are also on a pay freeze until the country’s deficit is within 3%
of GDP!
5th January 2012
This outline is provided for information purposes only. It does not constitute advice
or a recommendation from The Spectrum IFA Group to take any particular action
to mitigate the effects of any potential changes in French tax legislation.
If you would like to discuss how these changes may affect you, please do
not hesitate to contact your local Spectrum IFA Group adviser.

You can contact Tony Delvalle at;

TONY DELVALLE
15 Rue De L'Engin
24500 Eymet, France
 
06 89 02 84 74
05 47 77 07 16
tony.delvalle@spectrum-ifa.com
 
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