French Tax Bulletin - July 2012

The projet de loi de finances rectificative pour 2012 was released on 4th July and contains a number of measures which will necessarily affect individual taxpayers.

As expected, areas such as wealth tax, inheritance and gift tax have been revisited by the new Government with a view to generating more income.

French income and property gains received by non-residents of France are also targeted and may now be liable to French social surcharges known under the acronyms of CSG, CRDS and PS and adding up to an extra 15.5%.

Wealth Tax

The Budget creates a contribution exceptionelle in respect of 2012 and, therefore, with a retrospective “bite” for taxpayers whose net taxable assets are over €1.3 million.

This exceptional contribution will simply be calculated on the scale rates applicable last year and will be payable by 15th November 2012. For ease of reference, below is the scale and rates that would be used to calculate the extra charge:

2011 Wealth Tax Rates

Net Taxable Asset Value

Rate %

Less than €800,000


Between €800,000 and €1,310,000


Between €1,310,000 and €2,570,000


Between €2,570,000 and €4,040,000


Between €4,040,000 and €7,710,000


Between €7,710,000 and €16,790,000


Above €16,790,000 1.80

The 2012 wealth tax paid by taxpayers so far would, of course, be set against the new tax.

A wealth tax reform is planned for the 2013 Budget and is likely to be presented in the Autumn.

Increase in Death Duties and Gift Tax

This increase will be effected through the reduction of the tax-free allowance for transfers between ascendants and descendants from €159,325 to €100,000.

The French tax authorities will also be able to reassess gift tax up to 15 years in arrears, rather than 10 years, when lifetime gifts are made between the same parties.

Non-Resident Taxation

This proposal has already sent shock waves through the media as it plans to subject non- residents to the 15.5% French social surcharges on their French rental income or real estate gains.

Up until now, these charges applied to residents only. Known as CSG, CRDS and PS for Contribution Sociale Generalisé, Contribution au Remboursement de la Dette Sociale and Prélèvements Sociaux they were essentially set up to “plug” the social security deficit.

A portion of the CSG applicable to income is deductible for French income tax purposes (currently 5.8%).

Non-residents are unlikely to benefit from this deduction as they would have to be taxed at scale rates (barème) as opposed to the set 20% minimum rate.

Nevertheless, this is not specified in the text and it is an area that will need to be clarified.

As these charges do not entitle the payer to any French benefits, they should really be treated as an extra income tax charge with no nil rate band and no allowances for dependants.

For non-residents who are currently assessed at the minimum rate of 20% on their net rental income, this would mean a total tax rate of 35.5%.

The rate on capital gains varies depending on whether the vendor is EU resident or not. EU residents currently pay a 19% tax rate. This would therefore increase to 34.5%. Non-EU residents are assessed at 33?% so their total rate would increase to 48.8%, almost half of the capital gain arising on the sale of the property consisting of the French tax charge. To make matters worse, the measure would apply to rentals received from 1st January 2012.

As far as capital gains are concerned, the new rates would apply to gains realised from the entry into force of the law, and possibly as early as the end of July.

It is unclear at this stage how residents of non-double tax treaty partner countries exposed to French income tax on a notional income basis (Art. 164c of the CGI) will be affected, if at all. Currently, the notional income attributed to these individuals is determined as three times the annual unfurnished rental value of the property. The taxable basis may be pro-rated to reflect the fact that the property might not have been available all year round if it is tenanted. The text refers to income and gains from real estate and does not seem to include “revenu forfaitaire” or notional income, but this needs to be clarified.

New Law on Trusts

There is still no news of the long awaited décrêt or instruction on the filing obligations of trustees introduced by the new French tax law on trusts passed last year. As a reminder, trusts in existence as at 31st July 2011 with French assets and/or French beneficiaries or settlors would need to be reported by the trustees. The filing deadline and tax forms remain unconfirmed.

In addition to the personal taxation and trust measures detailed above, there are a number of proposals which will adversely affect French businesses.

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This document has been prepared as a general guide. It is not a substitute for professional advice. Neither PKF (Channel Islands) Limited nor its directors or employees accept any responsibility for loss or damage incurred as a result of acting or refraining to act upon anything contained in or omitted from this document. PKF (Channel Islands) Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

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French Tax Bulletin - July 2012
The projet de loi de finances rectificative pour 2012 was released on 4th July and contains a number of measures which will necessarily affect individual taxpayers. As...

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