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Individual taxation

Residence and domicile

How is residence/domicile determined for tax liability purposes in your jurisdiction?

Under Article 4B of the French Tax Code, an individual may qualify as a French tax resident if any of the following criteria are fulfilled:

  • He or she has his or her home in France or has a principal place of abode in France. ‘Home’ is defined as being a place where a taxpayer generally lives, that is his or her habitual place of residence, provided that such a place of residence has a permanent aspect. Whereas, ‘principal place of abode’ refers to the country in which the taxpayer is personally and effectively present for more than six months (183 days) in a calendar year or for less than six months if he or she is present for a substantially greater part of the year in that country than in any other country.
  • He or she carries on a professional activity in France, salaried or not, except if the role is of accessory importance (ie, he or she must dedicate the majority of his or her working time to the activity carried out in France) even if this activity does not represent the main part of his or her income.
  • He or she has the centre of his or her economic interests in France. This is proven through corroborating evidence (eg, the location of main investments, where private affairs are managed, the place which serves as the centre of an individual’s professional life or the place from where the individual derives most income).

Income

Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

Individual income tax is assessed annually on a household’s taxable income and declared the following year. Taxable income consists of annual available income from all sources. Income is identified based on its nature and then allowances and deductions are applied in calculating net taxable income subject to progressive tax rates.

Wage, salaries, pensions and annuities 

Gross earned income includes all amounts and benefits in kind available to the taxpayer. Professional expenses are taken into consideration on a notional basis (10% deduction) or on the actual amount if so chosen by the taxpayer.

Business profits 

Business profits consist of profits from industrial, commercial and craft activities, from certain activities taxed in that category by law.

Non-commercial profits 

Non-commercial profits consist of profits from the profession, office and practice of an individual who does not have trader status and the profits from all occupations, non-profit concerns and sources of profit not falling within any other category of profits or income.

For business profits and non-commercial profits, taxpayers may be taxed either on an actual assessment basis or according to a simplified regime applicable below a certain threshold of revenue (ie, on a notional profit equal to a percentage of turnover). The simplified regime also reduces taxpayers’ accounting obligations.

Agricultural profits 

Agricultural profits include all income that farmers, tenant farmers or working owners derive from the operation of rural property. Depending on the level of farming income, the micro-agricultural regime applies and the taxable income is equal to the average income for the current year and the two previous years, from which a fixed-rate allowance of 87% for expenses is deducted.

Income from real property 

Income from real property (ie, rental income) is determined under either the simplified micro-land regime or the actual regime. Under the micro-land regime, the taxable income from property is determined after deducting a notional 30% allowance.

Investment income 

Investment income (ie, interest, distributions, dividends and similar revenues) are taxed under the flat rate withholding tax system at a rate of 30%, corresponding to 12.8% income tax and 17.2% in social taxes. However, taxpayers with lower income can elect for taxation of all of their investment income and capital gains of a considered year at the progressive income tax rates (an allowance of 40% on dividend income applies). This option is applicable to all the income subject to the withholding tax system without the possibility of making a partial option.

The domestic rate of withholding tax applicable to dividends paid to non-French tax resident taxpayers is also 12.8%.

Non-French residents must file an annual return reporting all their French source income. Certain French source income is subject to withholding tax, which may discharge the income tax liability partly or in full. A non-resident’s tax liability in France must be at least 20% of net taxable income.

French individual income tax is levied at progressive rates. France has a regime of joint taxation for married couples and civil partners.

The progressive tax scale is applied to the taxable income per share, which is based on a coefficient depending on the number of household members. The scale corresponding to one share is as follows:

  • under €9,807, 0%;
  • over €9,807 and less than or equal to €27,086, 14%;
  • over €27,086 and less than or equal to €72,617, 30%;
  • over €72,617 and less than or equal to €153,783, 41%; and
  • over €153,783, 45%.

An exceptional 3% and 4% tax on high income tax payers may apply and is based on reference taxable income and is equal to:

  • 3% for the portion of income between €250,001 and €500,000 for single taxpayers or between €500,000 and €1 million for couples subject to joint taxation; or
  • 4% for the portion of income over €500,000 for single taxpayers or over €1 million for couples subject to joint taxation.

Social security charges apply to all French tax residents. This is charged at a rate of 10.4% on 98.25% of gross salary if it does not exceed €159,928 per year (2018 limit) and 100% of the remaining salary, including benefits in kind and bonuses.

Social security charges on passive income and capital gains is increased by a social tax surcharge, resulting in a total rate of 17.2%.

As a matter of principle, 6.8% of the social security charged is deductible for French income tax purposes.

Losses from one category of income may, in principle, offset profit from other categories and may be carried forward. However, this principle is subject to several limitations (eg, certain losses may be offset only against income from the same category of income in the same year or in the following 10 years).

French tax residents must file annual income tax returns (using Form 2042) generally by the end of May following the end of the relevant tax year, declaring their net income and charges for the previous year.

Capital gains

Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

The 30% flat withholding tax applies to capital gains from the sale of shares and other income and assimilated gains.

The allowances for the holding period that existed before 2018 are eliminated as of 2018, except those that apply to the sale of shares that were acquired before January 1 2018 on specific election. Similarly, under certain conditions, a rebate set at €500,000 applies to capital gains realised by senior executives of small and medium-sized enterprises at retirement.

Capital gains realised by individuals following the sale of real property, real property rights and the disposal of securities of real estate-oriented companies are subject to income tax at a rate of 19%, plus social taxes at a rate of 17.2%.

Some capital gains are exempt from tax, including gains realised from:

  • the sale of the seller’s principal home;
  • the sale of property for less than €15,000; or
  • the first sale of a housing unit other than the seller’s principal residence under certain conditions.

The taxable basis is equal to the difference between the sales price and the purchase price paid by the seller, in addition to certain specified expenses and charges where relevant.

The calculated gross capital gain is reduced by an allowance based on the duration of ownership leading to total income tax exemption at the end of the 22nd year and total social tax exemption after 30 years.

Capital gains on property representing a taxable amount of more than €50,000 are subject to a surtax, the rate of which is between 2% and 6% based on a progressive scale depending on the amount of the taxable capital gain.

Capital gains on property realised by non-resident individuals are taxed at the same rate. Non-residents can enjoy an exemption of €150,000 of net taxable capital gains limited to one residence per taxpayer under strict conditions.

Inheritance and lifetime gifts

Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

In terms of territory, the following are subject to inheritance or gift tax in France:

  • movable or real estate assets worldwide, when the deceased or the donor was a French tax resident;
  • movable and real estate assets worldwide, inherited or gifted from a non-French tax resident, by an heir or donee who is a French tax resident and has been a French tax resident for more than six of the last 10 years preceding the death or the gift; and
  • movable and real estate assets located in France only, when the deceased or donor is a non-French tax resident and the heir or donee is a French tax resident or has not been a French tax resident for more than six of the last 10 years preceding the death or the gift.

The net share received by each heir is decreased by a tax allowance, the amount of which depends on the relationship of the beneficiary with the deceased and is subject to a rate based on a scale depending on the same conditions.

Before applying the allowance, any previous gifts made by the deceased to the same beneficiary should be added to the net share of the beneficiary if the gifts were granted less than 15 years before the death (back-tax rule).

The main allowances for both gifts and inheritances are:

  • €100,000 for direct line inheritances and gifts between siblings;
  • €15,932 for inheritances between siblings; and
  • €159,325 for inheritances and gifts to disabled people.

In addition to those listed above, the main allowances applicable to gifts only are:

  • €80,724 for gifts between spouses;
  • €31,865 per share for all gifts to grandchildren; and
  • €5,310 per share for all gifts to great-grandchildren.

Once allowances have been applied, the excess is taxed at rates ranging from 5% to 45% depending on the value of the inheritance.

An inheritance tax declaration (Form 2705) must be filed within six months or one year following the death, although this depends on whether the death occurred in France. Inheritance tax must be paid at the time of filing the declaration.

A gift inter vivos is, in principle, a notarised act that the notary must file with his or her tax centre within one month from the day of the signature of the act. The tax is paid to the notary who transfers it to his or her tax centre.

Real estate

What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?

The transfer of real estate and real estate rights in return for payment is subject to a real estate registration tax at a rate of 5.8%. The transfer of ownership of real estate rights is also subject to a registration duty at a rate of 0.7%.

Property tax is due by any owner of real estate or land located in France on January 1 of the year of taxation.

Dwelling tax must be paid by any occupier of a residence in France. This tax is levied on the person who occupies the residence on January 1 of a given year.

As of January 1 2018 the French real estate wealth tax is reoriented to cover only real estate assets.

The tax is due when the value of the taxable net assets is equal to or greater than €1.3 million. French tax residents (individuals only) are liable to pay real estate wealth tax on the net value of their household’s worldwide real estate assets, whereas non-French tax residents are liable on the net value of their household’s assets in France only.

The tax applies to all real estate property assets that are not used for professional purposes. In the case of indirect ownership, only the value of the interposed structure representing the value of the real estate property is subject to tax. However, no tax is due if the taxpayer holds less than 10% in an operating company.

A 30% allowance is applicable against the value of the taxpayer’s principal home. 

The taxable basis is the net fair market value of the real estate (eg, taxes relating to taxable real estate assets and loans taken for the acquisition of the real estate) can be deducted from the taxable basis for the real estate wealth tax.

The wealth tax payable is determined by applying a sliding scale with a variable rate from 0.5% to 1.5% of the individual’s taxable assets over €800,000.

The real estate wealth tax has a capping mechanism which applies to French tax residents only, whereby the real estate wealth tax, plus income tax and social tax of a given year cannot exceed 75% of the global income of the previous year.

Any entity (eg, company, trust or similar institution) which directly or indirectly owns real estate assets located in France is subject to an annual 3% tax assessed on the fair market value of the asset. Exemptions are available if the ultimate beneficial owner(s) are disclosed to the French tax administration.

Non-real estate assets

Do any taxes apply to the acquisition and disposal of other assets apart from real estate?

Registration duties apply to shares and stocks. The registration duties rate may be fixed, proportional or progressive depending on the type of deed or legal transaction.

Other applicable tax regimes

Are any other direct or indirect tax regimes relevant to individuals?

An exit tax on unrealised capital gains may apply to taxpayers who cease to be French tax residents, if:

  • they own more than 50% of the stocks of a company or more than €800,000 in shares the day before they leave France; or
  • they have been French tax residents for at least six of the last 10 years.

Payment of the exit tax may be deferred until disposal of the shares which are subject to the tax, either automatically or subject to providing financial guarantee to the treasury. The deferral of payment ends after 15 years of tax residence outside of France, provided that the shares subject to the exit tax are still owned by the taxpayer. Certain other events may affect the deferral of payment of the exit tax.

Planning considerations

Are there any special tax planning considerations for individuals with a link to your jurisdiction?

Subject to certain anti-abusive provisions, income-producing assets can efficiently be held within capitalisation devices (eg, corporations, life insurance or capitalisation products). The income accumulated in such structures is not taxed at the individual taxpayer’s level until the funds are withdrawn from the structure.

This allows for the deferral of income taxation, as well as improving strategies of the capping mechanism under the wealth tax.

Life insurance policies also offer the advantages of:

  • being outside the scope of succession; and
  • providing a capitalisation tool allowing for the deferral of taxation and a potential capping strategy for wealth tax purposes.

Following the withdrawal of the proceeds by the policyholder, only the income portion of the withdrawal is subject to income and social tax. The capital portion of the withdrawal is refunded tax-free. The rate of tax on withdrawals varies depending on the effective duration of the contract or the date of redemption. Social taxes also apply.

Finally, the impatriate regime (which is applicable to employees sent to France to perform professional duties for a limited period of time) provides an exemption from income tax to the end of the fifth year following arrival (or the eighth year for assignments beginning after July 6 2016) for the portion of the salary package compensating for the transfer to France (impatriation premium) and the portion paid specifically for duties performed outside of France for the benefit of the French host company.

The application of the regime must not lead to an exemption of more than 50% of the impatriate’s total compensation. However, the employee may choose to have the total impatriation premium fully exempt from tax, but with a limit on the salary paid for duties performed abroad of 20% of the net taxable salary.

Passive investment income and capital gains from the sale of securities received from a country with which France has entered into a double tax agreement, including a mutual assistance clause, are liable to income tax on only half of the amount. However, social taxes are still due on 100% of the amount.

Impatriates are also exempt from French wealth tax on their real estate assets held outside France for the first five years under specific conditions.

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