French Tax Changes in 2011

An overview of the French tax changes introduced in 2011

*** BDO / PKF MERGER ***

Since this article was written and links to subsequent articles added, PKF and BDO companies have merged, effective from 10 April 2013. The French tax team remains unchanged and now operates within the BDO Guernsey office. It is apparent already that this merger offers great opportunities to extend the ranges of services and assistance they can offer to their clients.

New contact details:

Tel: +44 1481 724561
Fax: +44 1481 711657
Email: french.tax@bdo.gg
Website: www.bdo.gg - click on French Tax

The original article and additional links follow:

Are your French taxes in order for 2012?

So far, 2011 has been a productive year for the French Tax Legislation Office. Indeed, with two "Lois de Finances Rectificatives" for 2011 and more recently the 2012 draft law, the approved and proposed changes they have introduced will necessarily affect both French residents' overall tax affairs and non-French residents holding French properties whether directly or indirectly. Below is an outline of the main changes, the impact of which may need to be carefully considered prior to their effective dates:

1. Wealth Tax limit increase

The wealth tax limit was increased from 800,000 Euros to 1,300,000 Euros with effect from 1st January 2011. Individuals exposed to the tax had until 30th September 2011 to file the wealth tax return and pay the tax. At the same time the authorities decided to increase the penalties for late filing from 5% to 10%. The new wealth tax rates shown below will apply from 1st January 2012:

Taxable Wealth

From 1,300,000 to 3,000,000 Euros - 0.25%
Above 3,000,000 Euros - 0.50%

2. Changes to taper relief on the sale of second homes

The taper relief on the sale of second homes has been heavily amended. Normally, any gains arising from the sale of second homes were exempt after fifteen full years of ownership. Now with the new taper relief the exemption is only possible after thirty years of ownership.

The amended taper relief rates reducing the taxable gain will apply for sales completed from 1st February 2012 and are set as follows: 0% for the first five years, 2% between five and fifteen years, 4% between seventeen and twenty four years and 8% thereafter.

Unfortunately, the 1,000 Euro reduction from the taxable gain applicable per owner has been cancelled with immediate effect. In addition, the new taper relief rates apply from 25th August 2011 in relation to properties transferred into family owned Société Civile Immobilière (SCI).

3. New rules for share transfers in property holding entities

From 1st November 2011, all share transfers in any property holding entities holding French or foreign property must be reported within a month via a French notaire. This requirement will concern French residents owning foreign property through an entity but also non-French residents holding French property via a holding company.

4. New rates of social charges

The French social surcharges known as CSG, CRDS and PS have undergone a further increase as the "prélèvement social" (PS) element is now set at 3.4% instead of 2.2%. This means that most investment income, including the proceeds of French or foreign life assurance policies, and any taxable property gain received by French residents will now suffer an overall charge of 13.5%.

5. Asset value band change

The upper bands of asset values in respect of French gifts and estate duties have increased to 40% and 45% respectively.

6. Changes to pension rules

Pension lump sums are now subject to French income tax when received by a French resident taxpayer even if originating from a foreign pension scheme.

7. New French law on trusts

A new French law on trusts was published on 30th July 2011. It introduces a definition of trusts and a disclosure requirement from 1st January 2012 by trustees of settlements which hold French assets or the settlors or beneficiaries of which are French residents. Anyone in this situation, or looking after such structures, should take urgent advice on the consequences of this new law as it also introduces hefty penalties for any non-compliance.

Conclusion

Unsurprisingly, like many other Governments, the French one is looking for extra funding in every possible way. This has a noticeable effect on the situations of French resident and non-resident taxpayers and tax planning in this context is becoming increasingly challenging.

About the author

This article was written by Virginie Deflassieux, Associate Director - French Tax Services, of PKF (Channel Islands) Limited. For further information, assistance with the preparation of French tax returns or specific advice on the French tax implications of a permanent move to France or French property purchase and structuring, please contact Virginie Deflassieux or Catherine Le Pelley at french.tax@pkfci.com, or telephone +44 1481 727927. Alternatively visit their website (www.pkfguernsey.com) to request free French Tax Bulletins or to order your copy of "Taxation in France, a Foreign Perspective" a complete guide to the French tax system.

Disclaimer


This document has been prepared as a general guide. It is not a substitute for professional advice. Neither PKF (Channel Islands) Limited nor its directors or employees accept any responsibility for loss or damage incurred as a result of acting or refraining to act upon anything contained in or omitted from this document. PKF (Channel Islands) Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

*** NEW FRENCH TAX LAWS ***

Further information on French tax can be found on our site using this link:

Moving to France

Please note that information given in the articles found here may supersede the relevant sections above.

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