Finance Act for 2014 and Amending Finance Law for 2013 Taxation of Individuals

08 January 2014

The Finance Act for 2014 was adopted by the French Parliament on December 19th 2013 and was published in the French Official Journal on December 30th 2013.

By way of decision n°2013-685 DC of 29th December, 2013, the Constitutional Council (Conseil Constitutionnel) censured several provisions of the law.

Individual Income Tax

Scale
  • All the limits of the individual income tax brackets are revaluated of 0,8%. The limit of the discount is increased from €960 to €1 016.
Family quotient
  • The law provides a general lowering of the family rate threshold. It is lowered from €2 000 to €1 500 per additional half-unit. For single parents raising children alone, the threshold family rate is lowered from €4 040 to €3 540 for the unit corresponding to the first dependent child.
Wages and salaries
  • The employer’s contribution to mandatory and collective agreements protecting against risks arising from illness, maternity or accident is taxed as a salary as from the taxation of 2013 incomes. 
Movable property incomes

Share savings plan (PEA) and “SMEs (PME)-mid-cap companies (ETI)” share savings plan 
  • From January 1st 2014, the share savings plan threshold is increased from €132 000 to €150 000 (€300 000 for a married couple). A new kind of share savings plan is created: the “SMEs-mid-cap companies” share savings plan with a threshold limited to €75 000 (€150 000 for a married couple). This share savings plan can be combined with the classic share savings plan. Securities concerned by this new plan are shares and bonds issued by European mid-cap companies and shares and bonds issued by UCITS. 
  • Note that preferred shares and bonds or subscription rights or attribution rights cannot be placed in a share savings plan (see below).
Capital gains
  • The principle of progressive scale taxation for capital gains on securities is generalized. The allowance rates for holding period are increased (50% after a 2 year holding period and 65% after an 8 year holding period). Two derogating deductions are created. An allowance with an increased rate of between 50% after a 1 year holding period and 85% after an 8 year holding period. This measure is intended to promote creation and development SMEs. An allowance of €500 000 is also created for capital gains realized by managers on retirement. These measures apply to capital gains realized from January 1st, 2013, however, some provisions should enter into force only in 2014. 

  • The rate of allowance for holding period of a movable property (pleasure ships, race horses, wines, and alcohol or nonprecious metals) is reduced from 10% to 5% per year of detention after the second year. Thus, the capital gain shall be exempted when the movable property is held for over 22 years. 

AMENDING FINANCE LAW FOR 2013

The Amending Finance law for 2013 was published in the French Official Journal on December 30th 2013.

Life-insurance

New reporting obligations
  • From January 1st 2016, new reporting obligations are applied to insurance companies (when contracts are concluded in France) and to policyholders (when contracts are concluded outside France) concerning life insurance contracts and capitalization contracts. Insurance companies or policyholders are bound to declare the settlement or the ending of these contracts and the annual amount of premiums or the purchase value of these contracts. 
Life insurance contracts
  • The law creates two new contracts: “euros-croissance” contracts and “vie-génération” contracts. The “vie-génération” benefits from a 20% allowance concerning the tax on death capital. These contracts should be constituted of, at least, 33% of targeted assets (social housing, venture-capital, mid-cap companies). 
Movable property incomes and capital gains

Share saving plans
  • From January 1st 2014, preferred shares and bonds or subscription rights or attribution rights cannot be placed in a share savings plan. Securities placed in a share savings plan before this date can stay in the plan.
Exit-tax 
  • The law modifies the scope of the exit-tax in order to comply with European law. The threshold of holding 1% of a company’s profit is increased to 50% and the threshold in absolute value is reduced from €1 300 000 to €800 000. This threshold consists of assessment of all securities and equity rights and not only in shareholding. The holding period for tax deduction or tax refund is increased from 8 years to 15 years. Save for some exceptions, these measures should apply to tax residence transfers realized from January 1st 2014.
Wealth tax / individual income tax reductions
  • The investment quotas for venture capital trusts dedicated to innovation and proximity investment funds, which shares trigger the right to an individual income tax or wealth tax reduction, are increased from 60% to 70%. Moreover, investment deadlines are extended; quotas have to be reached within 3 years and 8 months after creation of the fund at the latest. 

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