France: Finance bill– Taxation of individuals January 2019

By its decision #2018-777 DC of December, 28th 2018, the Constitutional Council did not censor any major provisions.

Impatriates tax regime: employees seconded to France may assess their exempted impatriation premium on a flat-rate basis (article 6)

Previously reserved for individuals recruited directly abroad by a company established in France, the option for the flat-rate assessment of the impatriation bonus was extended to individuals called by a foreign company to a company established in France. 

As a reminder, eligible persons may benefit from a 30% exemption of their remuneration as part of this flat-rate assessment.

This provision applies to individuals taking up their duties as of or after November, 16th 2018.

Softening of the Dutreil-transmission pact (article 40)

Announced under the PACTE law, the so-called Dutreil pact mechanism is relaxed by the Finance Act which: 

• lowers the thresholds of financial rights by half (i.e. from 20% to 10% for listed companies and from 34% to 17% for non-listed companies;
• enables a single person to make a collective retention commitment;
• extends the "deemed-acquired" benefit in the event of indirect holding;
• softens the conditions under which securities may be contributed to a holding company or exchanged in the context of a public exchange offer;
• partially maintains the exemption applicable in the event of a transfer of part of the securities to another signatory to the pact;
• eases the annual reporting obligations.

However, one provision is more restrictive as it extends the obligation to maintain holdings at each level of interposition beyond the collective retention commitment for the duration of the individual commitment.

Flat-rate taxation of occasional capital gains on the sale of bitcoins and other digital assets (article 41)

The Finance Bill for 2019 specifies the taxation of gains made on the occasional sale of digital assets, including crypto-currencies as of January, 1st 2019.

Thus, gains made by individuals on the occasional sale of such assets are subject to a flat-rate taxation of 30%.

However, the activity of purchase/resale of digital assets carried out on a regular basis is taxed under the BIC category. The mining activity is taxed under the BNC category. 

Carried interest earnings accrued before installation in France may be subject to flat-rate taxation (article 42)

Gains and distributions received in respect of carried interest shares by specific employees and managers of foreign-incorporated funds are in principle subject to the French salary and wages regime. 

Employees and managers moving between July, 11th 2018 and 31 December 31st, 2022, may now apply the tax regime for capital gains on the sale of securities and social rights (i.e. 30%). 

To do so, the beneficiary must be part of the investment entity's managers, specific conditions must be met for the securities’ acquisition and the investment entity must be incorporated outside France. 

However, it should be noted, that this scheme cannot be combined with the impatriate regime.

The scope of the earnings subject to flat-rate taxation is specified (article 44)

As from the 2018 income tax year, are now subject to flat-rate taxation of 30% all gains on securities (and no longer only those arising from the sale of securities, rights and similar securities) as well as gains resulting from an "IFI-donation".

In addition, gains accrued in the event of withdrawals or redemptions made on a PEA before the end of the fifth year and as of January, 1st 2019 are now taxed under common law conditions (i.e. flat-rate taxation of 30%).

The French wealth tax (IFI) is subject to certain adjustments and clarifications (article 48)

The Finance Bill increases the restrictions on debt deductibility, adds temporary adjustments to the IFI-donation reduction, and clarifies the applicable litigation rules.

The exit tax relief period on unrealised capital gains is reduced (article 112)

For the transfers of tax domicile outside France taking place as from January 1st 2019, the exit tax system is largely simplified. 

The exit tax relief period is reduced from 15 to 2 years (or to 5 years for taxpayers whose total value of securities exceeds € 2.57 million at the date of transfer).

Both the reporting obligations and the suspension of payment’s conditions are softened. 

Transfer contribution - the conditions for reusing the transfer’s proceeds are modified (article 115)

The economic reinvestment condition is modified. In fact the Finance Bill increases the minimum threshold for reinvestment from 50% to 60% of the sale’s proceeds. 

However, the reinvestment’ scope is broadened to include subscriptions to private equity funds (FCPR, FCPI, SLP, SLR...).