The Amended Finance Bill for 2011 has now been definitively adopted, with the Senate giving its seal of approval to the version of the Bill adopted by the National Assembly on 7 September.
Following an unusually quick passage through the Senate and National Assembly, enactment of the Bill is expected within 15 days of its submission to the Government, barring a possible referral of the Bill to the Constitutional Council.
The key measures which have been adopted, from a tax perspective, are discussed below.
Carry-forward of tax losses
The new provisions set out that tax losses carried forward will be available to offset the first €1m of taxable profits arising in future periods and 60% of taxable profits in excess of this.
Carry-back of tax losses
Tax losses will now only be available for carry-back to the fiscal year immediately preceding that in which the losses arise and up to a maximum of €1m. Any unused surplus will be carried forward and used as set out above. In addition, the election to carry back tax losses must be filed prior to the deadline for submission of the tax return for the loss-making period.
The overall tax losses of a French tax group, as well as pre-entry tax losses of the individual members of the group will be attributed, whether carried forward or carried back, in the same manner and within the same limits as those set out above.
The new rules regarding tax losses will be applicable to fiscal years ending after the entry into force of this Act.
French participation exemption regime
The French participation exemption in respect of capital gains is to be reduced from 95% exemption to 90% - this change in the rules will be applicable to gains realised in fiscal years commencing from 1 January 2011. Based on the standard French corporate income tax rate of 34.43%, this will result in an effective tax rate on such gains of 3.44%.
Worldwide tax consolidation regime
The Worldwide tax consolidation regime, which enables relevant companies to offset losses arising overseas to shelter taxable profits arising in France, will cease to be available for fiscal years ending on or after 6 September 2011.
Luxury hotel tax
The luxury hotel sector faces the introduction of a new tax on turnover – under the new rules, turnover relating to hotel rooms which have a nightly rate in excess of €200 or more will be subject to an additional tax of 2%. The administration of this tax (reporting and payment) will mirror that of the VAT regime and will be applicable to all income for which VAT is due on or after 1 November 2011.
Tax on insurance contracts
The rate of tax on insurance agreements (TSCA) applicable to so-called solidaires et responsables insurance contracts is to be increased from 3.5% to 7%. The rate of TSCA applicable to other health insurance contracts has also been increased from 7% to 9%. These increases will apply to insurance premiums and contributions due on or after 1 October 2011.
Capital gains on real estate
Under existing provisions, capital gains arising on the disposal of privately held French real estate (e.g. a second home), if subject to tax, would be calculated by reference to the difference between the cost price and sale price, and then reduced by 10% for each year of ownership in excess of five years. As a result, for properties held for over 15 years (i.e. for ten years following the fifth year), any capital gain arising on disposal would be free of income tax (at 19%) and social contributions (at 12.3%, to be increased to 13.5% - see below).
The new rules which have been introduced have the effect of doubling the required time frame to benefit from such a total exemption, from 15 years to 30 years.
Under these new rules, capital gains arising on the disposal of properties within the first five years of ownership will be fully subject to tax, as was the case under the old rules. A relief of 2% per year will be available for each year of ownership in excess of five years, and this rate of relief will be raised to 4% a year for each year of ownership beyond the seventeenth year. Where properties are held for more than 24 years, the rate of relief will be increased to 8% per year of ownership.
The revised rules will apply to disposals made on or after 1 February 2012.
Capital gains realised on the sale of a principal residence will continue to be tax-exempt.
Social contribution on income from property and investment products
The rate at which social contributions are applied to income from property and investment products has been increased from 2.2% to 3.4%.
The overall rate of social security contributions (CSG, CRDS and associated charges) on income from assets and savings (real estate income, capital gains and real estate securities, interest, dividends, life insurance products etc.) is therefore increased from 12.3% to 13.5%.
This increase will be applicable from 1 January 2011 for income from property and investment products acquired or recorded on or after 1 October 2011.