Tax Alert France – October 2012

05 October 2012

Laurence Clot, Rébecca Feliman, Vaea Pery

Individual’s taxation provisions of the Draft Finance Bill for 2013


Taxation of individuals


Reform of wealth tax

The threshold of the wealth tax should be 1,310,000 € and the tax should be imposed at the following rate:


Fraction of the net taxable
value of assets


Applicable scale
(in %)


Less than 800,000 €


0


Over 800,000 € but less than or equal to 1,310,000€


0,50


Over 1,310,000 € but less than or equal to 2,570,000 €


0,70


Over 2,570,000 € but less than or equal to 5,000,000


1


Over 5,000,000 € but less than or equal to 10,000,000


1,25


Over 10, 000,000 €


1,50

A system of deductions should be implemented allowing to smooth taxation for taxpayers with assets worth between 1,310,000€ and 1,410,000€.Only debts corresponding to taxable assets should be deducted as liabilities.Moreover a cap mechanism should be re-introduced.  The applicable ceiling should be 75%.

Creation of a new 45% income tax bracket

A new 45% tax bracket should be applied to income over 150,000€ per part of family allowance.This measure should apply with respect to income tax applicable to income perceived in 2012.

Establishment of a special contribution of 75%

All earned income over 1,000,000 Euros per beneficiary should be concerned by a special contribution of 75%.This measure should apply to earned income perceived in 2012 and 2013.

Freeze of the scale of the individual’s income tax

The scale of the individual’s income tax should not be upgraded.

Lowering of the ceiling of dependents' allowance set against tax

The ceiling of family’s allowance should be fixed at 2.000 € per half part (instead of 2.336 €).This measure should apply with respect to income tax applicable to income perceived in 2012.

Reduction of the overall ceiling for tax  shelters

The overall ceiling for tax shelters should move to 10,000€ per year and per household, whereas actually it amounts to 18,000 € + 4% of the household income.The current ceiling should be maintained, however,   for investments made overseas.This measure should apply with respect to income tax applicable to income perceived in 2013.

Abolition of withholding tax on dividends and income from fixed income investments

Interests and dividends should henceforth be taxed only on the progressive income tax scale.The deduction of 40% on dividends should be maintained. On the other hand, the fixed deduction of 1,525 € or 3,050€ should be abolished.These measures should be applied as of taxation on income perceived in 2012.Furthermore, a two stage taxation system – withholding advance payment, then taxation on the progressive income tax scale should be implemented from 2013.

Taxation on progressive income tax scale of capital gains on disposal of shares

The capital gains on disposal of shares made as from January 1st 2012 should be taxed at flat-rate of income tax and no more at 19% flat rate.A quota system as well as tax allowance proportional and progressive mechanism should be implemented in order to mitigate the progressive effect of income tax and encourage the holding of shares.This measure should apply to capital gains made from 1st January 2012.However, this measure should not apply to capital gains made by entrepreneurs who will transfer shares of their company. The benefit from 19% flat rate for entrepreneurs will be maintained subject to comply with conditions relating to the duration of holding of shares and to their percentage of shareholding.Finally, conditions of tax exemption applicable to entrepreneurs who transfer shares of their company and who reinvest thereafter the capital gain should be more flexible.

Reduction of the deductible rate of  CSG [generalized social contribution] from capital income

The legislation should reduce the rate of partial deductibility of CSG on capital income by harmonising it with the rate applicable to earned income, i.e. 5.1% (instead of 5.8% currently).This measure should apply with respect to income tax applicable to income perceived in 2012.

Taxation on progressive income tax scale of gains from exercise of stock options and allocations of free shares

Gains from exercise of stock options and allocations of free shares should not be taxed at flat rates of 18% (and 30%) but should be taxed at the progressive rate of the income tax.The quota allowance provided under general law mitigating the progressive effect of income tax should nonetheless be applied to stock held for over 4 years. CSG on gains from exercise of stock options and allocations of free shares should become partially deductible.This measure should apply to transfers occurring from 1st January 2012.

Abolition of tax allowance for duration of ownership applicable to capital gains on building plots

From 1st January 2013 capital gain on building plots is to be determined without taking into account any tax allowance for duration of ownership. Furthermore capital gains on disposal of building plots, made from 1st January 2015 will be subject to progressive rate of income tax but a withholding down payment of 19% should be paid on the date of transfer. The capital gain is to be taxed from the following year according to the progressive income tax rate.

Special tax allowance of 20% on capital gains on real estate assets other than building plots

A special tax allowance of 20% should be applied from 2013 on net taxable capital gains (i.e. notably after taking into account the deduction for duration of ownership).It should be noted that this allowance should be applicable solely to income tax and not to social contributions.

New fiscal measures aiming to encourage social housing investments

This should take the form of an income tax deduction for taxpayers  who, between 1st January 2013 and 31st December 2016,  acquire or have built new, or similar, accommodation, which they undertake to lease unfurnished, for use as a principal residence  for a period of at least nine years.  This deduction should be also applicable to subscription of shares in real-estate investment companies   (SCPI) making the same type of investments.The tax deduction is to be calculated either on the basis of the cost price of the accommodation subject to a ceiling per square metre of living area, or on the basis of 95% of the subscription price subject to an overall annual ceiling of 300,000€.The tax reduction rate is to be fixed at 18% and spread over 9 years.

Contacts: Should you have any additional question please contact :

Laurence Clot, Avocat Associée, Fiscalité – Attorney at law Partner, Tax
laurence.clot@twobirds.com

Rébecca Feliman, Avocat, Fiscalité - Attorney at law, Tax
rebecca.feliman@twobirds.com

Vaea Pery, Avocat, Fiscalité - Attorney at law, Tax
vaea.pery@twobirds.com

Anton Chyrkov, Avocat, Fiscalité - Attorney at law, Tax anton.chyrkov@twobirds.com

Authors