Finance Act for 2013 and 3rd Amended Finance Act for 2012 / Taxation of individuals
Contribution and disposal of shares (Art.18 LFR)
The scheme, consisting of contribution of shares by a taxpayer to a company subject to corporate tax controlled by him, and then of disposal of these shares by the receiving company, is now constrained by law.
The contribution operation entitled the contributor to a suspension of taxation thus avoiding a personal burden of taxation on the capital gain. This suspension of taxation is now replaced by tax deferral which will automatically apply subject to re-investment.
Henceforth this deferral of taxation regime will be terminated and the capital gain on the contribution will be taxable, especially if disposal by the receiving company is carried out within 3 years from the date of the contribution, except if the disposing company reinvests at least 50% of the disposal income from the sale of shares in an economic activity within 2 years following the disposal.
The measure is applicable to share contributions made from 14th November 2012.
Gift and disposal of shares (Art.19 LFR – censored)
The Constitutional Council censored the provisions of the Act relating to donation followed by disposal of shares on the grounds that they led to inequality in relation to public burdens.
Disposal of temporary usufruct (Art.15 LFR)
Before the entry into force of the new provision, proceeds of disposals of temporary usufruct were subject to individual income tax in the capital gains category, thus helping in special circumstances to avoid taxation of this capital gain.
The gain arising from the first disposal of temporary usufruct shares or usufruct on property will now be subject to individual income tax to the progressive rate under the taxable scheme applicable to potential incomes from the shares or the property (under the category of real estate income regarding disposal of a property asset or under distributed incomes for shares and securities).
The measure is applicable on disposal of temporary usufruct made from 14th November 2012.
Exit tax (Art.22 LFR)
The exit tax system has been adjusted to take account of the taxation reform on capital gains on disposal of shares provided for in the Finance Bill for 2013 to the purpose of which is to tax these capital gains at progressive rate of income tax and maintain the 19% flat-rate for entrepreneurs subject to compliance with certain conditions.
These new provisions apply to transfers of tax residence outside France made from 1st January 2013.
Under the new legislation, taxpayers who have transferred their tax residence outside France between 28th September and 31st December 2012 and who have requested the suspension of taxation must constitute before 31st Mars 2013 an additional security in order to ensure collection of the income tax calculated at 24% flat rate (from Finance Bill for 2013), equivalent to the difference between this tax amount and the amount of additional security set to ensure collection of the tax initially calculated at 19% flat rate.
Reduction « wealth tax/SME » (Art.25)
The period of 16 months within which the FCPI and FIP can reach their quotas of investment is increased to 24 months for payment received by subscribers related to subscription made from 1st January 2013.
Tax on capital gains on real estate assets (Art.70 LFR)
A new tax is established on capital gains on real estate assets, which concerns capital gains over 50,000 Euros. This tax is calculated on a progressive tax scale from 2% to 6% relating to the amount of the gain. A smoothing taxation scheme is created in order to avoid thresholds effects.
Nevertheless, this tax should not apply either to capital gains on building plots nor to tax-exempt gains such as those made from the sale of main residence.
The new tax applies to capital gains on disposal of real estate assets made from 1st January 2013, excluding those for which a sale commitment with a definite date has been acquired before 7th December 2012.
Requests for information about credit on bank accounts (Art.8 LFR)
The tax authorities may now request, on a legal basis, information from the taxpayer if the amount of the credits entered on his bank account exceeds double the amount of the reported incomes or if the amount exceeds the amount of the declared incomes by at least 150,000 Euros.
The measure is applicable to requests from 1st January 2013.
Funds held abroad (Art.8 LFR)
From 1st January 2013, assets held in bank accounts or life-insurance contracts abroad may be taxed in the case the taxpayer has not adequately answered to a request of information or justification sent by the tax authorities.
Furthermore, the tax authorities can request from third-parties disclosure of bank account or life insurance contracts held abroad and not reported by their owners.
Finally, the prescription period is increased from 6 to 10 years when a taxpayer has not disclosed that he holds abroad a bank account, a life-insurance contract or rights in a trust.
Reform of wealth tax (Art. 13 LF)
The threshold of the wealth tax will be 1,300,000 € and the tax will be imposed at the following rate:
Fraction of the net taxable value of assets
Applicable scale (in %)
Less than 800,000 €
Over 800,000 € but less than or equal to 1,300,000€
Over 1,300,000 € but less than or equal to 2,570,000 €
Over 2,570,000 € but less than or equal to 5,000,000
Over 5,000,000 € but less than or equal to 10,000,000
Over 10, 000,000 €
Only debts corresponding to taxable assets will be deducted as liabilities.
Tax reduction for families is abolished.
Moreover a cap mechanism of 75% of the incomes will be re-introduced.
These measures apply with respect to wealth tax 2013.
Freeze of the scale of the individual’s income tax and creation of a new 45% income tax bracket (Art. 3 LF)
The scale of the individual’s income tax will not be upgraded.
Furthermore, a new 45% tax bracket will apply to income over EUR 150,000 per part of family allowance.
This measure applies with respect to income tax applicable to income perceived in 2012.
Cancellation of a special contribution of 75% by the Constitutional Court (Art. 12 LF)
In its December, 29th 2012 decision, the Constitutional Court has cancelled the special contribution of 75% affecting earned income over EUR 1,000,000 per beneficiary.
This measure would apply to earned 2012 and 2013 income.
Reduction of the overall ceiling for tax shelters (Art. 73 LF)
The overall ceiling for tax shelters will move to 10,000€ per year and per household, whereas actually it amounts to EUR 18,000 + 4% of the household taxable income.
For investments made overseas and capital subscriptions to specific French cinematographic and audiovisual companies (SOFICA), the overall ceiling will amount to EUR 18,000. Following the Constitutional Court’s decision on December, 29th 2012, the ceiling will not be increased by 4% of the household taxable income.
Certain measures are not taken into account for the overall ceiling.
This measure will apply with respect to income tax applicable to income perceived in 2013.
Abolition of withholding tax on dividends and income from dividends and fixed income investments (Art. 9 LF)
Interests and dividends will henceforth be taxed only on the progressive income tax scale.
Following the December, 29th 2012 decision of the Constitutional Court of 29 December 2012, this measure will not apply to persons, who were subject to withholding tax in 2012.
The deduction of 40% on dividends is maintained. On the other hand, the fixed deduction of EUR 1,525 or EUR 3,050 is abolished.
These measures will apply as of taxation on income perceived in 2013.
Furthermore, a mandatory but non-dischargeable withholding tax at 21% flat-rate is implemented from January 1st 2013.
Taxation on progressive income tax scale of capital gains on disposal of shares (Art. 10 LF)
Capital gains on disposal of shares made in 2012 are taxed at 24% flat-rate instead of 19%,. Thus the overall taxation is increased to 39.5%, taken into account social contributions at 15.5%, except option for the entrepreneurs’’ taxation at 19% flat-rate.
The capital gains on disposal of shares made as from January 1st 2013 are taxed at flat-rate of income tax and no more at 19% flat rate.
A general tax allowance for duration of ownership is implemented in order to encourage the holding of shares.
However, this measure is not applicable to capital gains made by entrepreneurs who will transfer shares of their company. The benefit from 19% flat rate for entrepreneurs is maintained subject to comply with conditions relating to the activity of the company which shares are disposed, the duration of holding of shares and to their percentage of shareholding.
Conditions of tax exemption applicable from January 1st 2013 to entrepreneurs who transfer shares of their company and who reinvest thereafter the capital gain are modified. Thus the reinvestment period of the amount of the capital gain net of social contributions is decreased to 24 months (instead of 36 months).
The amount that must be reinvested is decreased from 80% to 50% but as soon the reinvestment is achieved, the seller looses the benefits of tax deferral on the capital gain which was not reinvested.
The specific allowance for retiring SME managers is extended until December 31st 2017.
Non-resident taxpayers who hold more than 25% of voting rights and who realize capital gains on disposal of shares are still subject to the withholding tax at an increased rate of 45% (instead of 19%) from January 1st 2013.
Payments made in non-cooperative State or territory (Art. 9 LF)
The withholding taxes rate on income or capital gains made in a non-cooperative State or territory (NCST) or paid to individuals or legal entities domiciled or established in a NCST moves from 50 to 75%.
This measure is applicable from January 1st 2013.
Reduction of the deductible rate of CSG [generalized social contribution] from capital income (Art. 9 LF)
The rate of partial deductibility of CSG on capital income becomes 5.1% (instead of 5.8% currently) 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 (Art. 11 LF)
Gains from exercise of stock options and allocations of free shares will be no more taxed at flat rates of 18% (and 30%) but will be taxed at the progressive rate of the income tax.
These gains will be subject to CSG (7, 5%) and CRDS (0,5%) applicable to activity’s income.
CSG on gains from exercise of stock options and allocations of free shares is partially deductible.
This measure applies to gains and advantages occurring from 28th September 2012.
The Constitutional Court has cancelled the provision aiming to increase the rates of the salary contribution applicable to these gains.
Capital gains on immovable assets (Art. 15 LF –Censored)
In its December, 29th 2012 decision, the Constitutional Court has cancelled, the provision aiming to abolish, from 1st January 2013, any tax allowance for duration of ownership for calculation of capital gains on building plots.
The Constitutional Court has cancelled the provision which allowed to tax these capital gains from 1st January 2015 on progressive rate of income tax.
The Constitutional Court has cancelled provision which has established the application special tax allowance of 20% supposed to apply in 2013 on net taxable capital gains (i.e. notably after taking into account the deduction for duration of ownership).
Housing investments (Art. 77, 80 et 81 LF)
This takes 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.
The tax reduction rate is fixed at 18% for housing located in mainland France and spread over 9 years.
It should be noted that the Scellier measure is maintained for housing acquired in the first quarter of 2013 if the taxpayer committed him/herself to achieving the investment before December 31st 2012.
The “Censi-Bouvard” or “LMNP” measure applicable to real estate investments in a professional rental activity of furnished properties is extended.
Extension of the measure concerning income tax reduction for subscription of SME’s capital (Art. 74 et 75 LF)
The measure will apply to payments made until December 31st 2016.
It should be noted that the ability to carry forward for 5 years the part of the tax reduction which exceeds the global ceiling is established.
Contacts: Should you have any additional question please contact :
Laurence Clot, Attorney at law Partner, Tax
Rébecca Feliman, Attorney at law, Tax
Vaea Pery, Attorney at law, Tax
Anton Chyrkov, Attorney at law, Tax
Jenna Scaglia, Attorney at law, Tax