The amended Government Finance Bill for 2012, presented on 4 July, contains different measures increasing the taxation of individuals:
Individuals who are not French residents for tax purposes are liable to pay social contributions (CSG-CRDS) on their property income and capital gains on property realised in France
This is an unexpected measure resulting in an extra tax of 15.5%
Until now, social contributions (CSG-CRDS ...) were only due from individuals who were resident in France for tax purposes. This will no longer be the case once the ammended Government Finance Bill for 2012 is in force.
This extra tax of 15.5% for individuals who are not French residents for tax purposes will concern:
- Real Estate revenue as of 1 January 2012, i.e. rent coming from buildings located in France owned directly or via a company not subject to corporate tax and subject to the French progressive income tax schedule.
- Capital gains on property resulting from transfers occuring on or after the date of entry into force of the law, i.e. end of July / beginning of August. This refers to capital gains currently subject to the levy under Article 244 bis A of the French Tax Code, i.e. capital gains on disposals of real estate assets located in France and, depending on tax treaties, on disposals of shares in French or foreign companies whose asset is mainly made of real estate assets located in France. Considering the rate of the levy under Article 244 bis A (19% or 33.33% depending on the State of residence, and 50% for non-cooperative States), the overall rate of tax will therefore be 34.5%, 48.83% or 65.5%.
Note: Capital Gains realised by individuals are exempt after 30 years' possession. This exemption also applies to social contributions. However, it is expected that there will be an overhaul of the regime for capital gains on property between now and the end of the year which will lead to a reduction in the length of time prior to exemption (22 years instead of the current 30). It is not yet known if this improvement will be offset elsewhere (e.g. by the non-application of the exemption for social contributions, as is the case for other regimes which offer exemption following the expiry of a time period).
A measure which is compatible with tax conventions and European law?
Social contributions (CSG, CRDS) have a dual nature, that's to say (i) tax (decision of the Conseil Constitutionnel for this) and (ii) social levy (because of their allocation for the financing of social security regimes, as ruled by the European Court of Justice).
This double nature brings into question the compatibility of this extension of the field of social contributions with, on the one hand, international tax conventions and, on the other hand, European law.
In terms of tax conventions, they should not prevent the application of the social contributions as regards revenues and capital gains taxed in France.
However, the question appears more complicated when looking at the compatibility of this measure with European law, notably the principles of free movement, freedom of establishment and the rules on the application of social security regimes to European residents. Indeed, the application of this measure might result in an obligation for non-residents to have their taxes assessed by two national social security regimes (the French regime and the regime for their State of residence). There is some case law on this matter, but it does not resolve the issue.
Establishment of a 'one-off tax on wealth' for those liable to pay wealth tax in 2012
As it was not possible to modify the wealth tax schedule 2012 (ISF), the government decided to establish a one-off contribution based on wealth, applicable only in 2012. The government is hoping to recover €2.3 billion.
The establishment of a tax specific to the ISF allows the government to return a posteriori to a higher ISF schedule without incurring sanctions from the Conseil Constitutionel on the grounds of non-retroactivity of the more severe tax laws.
It should be noted that for 2013, the government is considering greater reform of the ISF and should be integrating it into the Amended Government Finance Bill presented at the end of September.
This is a contribution due from all taxpayers liable to the ISF in 2012
This concerns those whose net value of taxable assets exceeds €1.3 million. The taxpayers who have transferred their fiscal residence outside of France between 2 January and 4 July 2012 will equally be subject to the tax, but only on the net value of their assets situated in France (and subject to this value exceeding €800,000).
This is calculated by applying the ISF base for 2012, the progressive ISF schedule for 2011 then deducting from this result the amount of ISF for 2012
ISF schedule in 2011 (for information): Click here to see the table.
The ISF 2012 attributable to the one-off tax will be the amount of ISF before imputation of the ISF reductions (reduction for investment in small-medium companies...).
As an example, for a taxpayer with a net value of taxable assets at ISF of €5 million, the situation will be as follows:
- ISF 2012 paid on 15 June: €25,000 (rate of 0.5%)
- One-off payment: €14,435 (€39,435 – €25,000)
Obligations to declare and deadlines
Taxpayers whose net value of taxable assets on the 1st January 2012 is estimated between €1.3 and €3 million will not have to take any particular action as the one-off payment will automatically be added to the amount of wealth Tax collected. Individuals who transferred residence to outside of France before the 5 July 2012 and whose net asset value for their assets situated in France is less than €800.000 should make a claim to avoid paying the contribution.
Taxpayers who on 1 January 2012 have net value of taxable assets of more than €3 million will receive a specific notification in October 2012.
In the two situations described above, payment of the one-off tax will take place before 15 November 2012.
New tougher laws on gifts and inheritance tax
The laws on gifts and inheritance tax were already subject to a first reform in July 2011 with a notable increase in the rate of tax, removal of most of the deductions related to living gifts, which were linked to the age of the donor, and an increase in the recall timeline of previous gifts in the succession (from 6 to 10 years).
The amended Government Finance Bill for 2012 foresees the following tougher measures:
- Decrease of €59,325 (from €159,325 to €100,000) of the abatement applicable for gifts and inheritance tax on the part of each ascendent coming back to each of the children living or represented. However, the exemption from inheritance tax of the surviving partner is maintained.
- Increase from 10 to 15 years of the fiscal recall timeline for gifts given between the same people. In the same time, the mechanism for spreading adopted during the passage of the recall timeline from 6 to 10 years evoked above is deleted.
Following this reform, for a period of 30 years, a relative will only be able to make exempt gifts to his child of up to €200,000 (against €477,975 before the reform). Taxation is therefore heavier for large inheritances and gifts. Subject to being correctly prepared, transfers of companies are still protected from the reforms and can be realised at a low tax rate under certain circumstances.
These new measures apply to gifts and inheritance as of the date of entry into force of the new law, that's to say, in principle, end of July / beginning of August.