French Tax ( Capital Gains Tax - Stamp Duty - Dividends ) - September 2013

An update of French tax issues including confirmation of CGT rules, social charges, possible stamp duty increases and information on the launch of PATRIM

*** UPDATES ON FRENCH TAX LAWS ***

Since writing this article below, further information is now available, which 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 below.

Changes to capital gains tax rules confirmed

First announced last July, the proposed changes to the capital gains tax (CGT) rules for the disposal of French immovable assets have now been confirmed and voted in as part of the 2014 Budget measures. In the hope to reactivate the sluggish French property market, the government has introduced the following:

i) A full exemption from the 19% (or 33.33%) capital gains tax after 22 full years of ownership through an amended taper relief system to replace the 30 year holding period - note, however, that the new lower taper relief rates will, in some cases, lead to an increased taxable gain
ii) A specific taper relief in respect of the gain subject to the extra social surcharges "CSG CRDS and PS" to procure a total exemption from these extra charges after 30 years of ownership
iii) An exceptional extra 25% reduction of the taxable gain for sales completed between 1 September 2013 and 31 August 2014.

For further information please visit www.bdo.gg (French tax/Current French tax rates).

A possible increase in stamp duty

The French Government announced in July, that it will increase the maximum rate departments may levy in respect of French property purchase registration duties (droits de mutation à: titre onéreux) from 3.8% to 4.5%. This does not necessarily mean that all departments will decide to increase their rate to the full maximum. In those who do, this will push the registration duties to a total of 5.8% instead of 5.09%. This measure is supposed to be temporary for 2014 and 2015.

So far, it seems unlikely that the signing of conditions (compromis de vente) prior to the announcement or date of effect will mean the application of the lower rate should the department in question decide to increase its levy from 1 January 2014.

If you are in the process of buying or selling a property you will need to check with your notaire if the local department where the property is situated has decided to take advantage of this increase in earnings.

PATRIM to be launched: Website for French property owners

A Decrêt was issued on 2 August 2013 to define the conditions of how a website dedicated to French home owners may be used. The site will enable property owners in France to compare the sale values of similar properties found locally, for the purpose of declaring the market value of their French assets in preparation for wealth tax, death duties, gifts tax and any other levies which requires this sort of information.

The site will be available with the same registration of credentials as for online filing and this will give individuals access to the register of property transactions and cadastral information. The taxpayer will indicate property location, the period of transactions, and to refine the result of the research it is possible to add queries on price, years of build, type of materials, levels, number of levels and rooms, lift, land area, number of outbuildings and so on.

It should be noted that the search is traceable and kept for one year by the administration which keeps the date and time of the search, the purpose, and the individual's registration details. Access to this service is limited to 50 searches per every three months.

Dividends and interest taxation - the new rules and what they mean in practice

A summary of how the new payment on account due on interest and dividends is to operate, is long overdue. This new system applies from 1 January 2013 but there are still a number of uncertainties on the way this is to be implemented. Nevertheless, below is a summary so that those concerned may consider or take appropriate action.

Background

Historically, dividends and interest were subject to two charges:

i) Income tax at scale rates or by option, at the set prélèvement libératoire rates of 21% for dividends and 24% for interest
ii) A total of 15.5% of social surcharges (known under the acronyms of CSG, CRS and PS).

The tax at source at the set rates was a finite liability. The interest or dividends taxed at source were still reported on the income tax return to be taken into account for the worldwide net taxable income figure stated on the assessment as "Revenu Fiscal de Référence (RFR)". This reference figure is used for all sorts such as eligibility of local tax reductions or for certain special tax credits, dispensations etc.

The option for taxation at source (prélèvement libératoire) was finally extended to EU dividends and interest. However, in practice very few taxpayers ever opted for this system. Indeed, unlike their France-based counterparts, financial establishments outside France are rarely geared up to levy French taxes at source and pay these over to the French Treasury.

No tax at source but now a payment on account

Hungry for increased cash flow, the French government decided that, with effect from 1 January 2013, it would scrap the taxation at source option and turn these rates (21% for dividends and 24% for interest) into payments on account. The levy and the extra 15.5% social surcharges are due by the 15th of the month which follows the distribution date. The same penalties and interest charges are due for late payment as in the context of income tax. In 2013 the French Government is therefore receiving the tax in respect of 2012 and 2013 for certain investment income.

If the amount due exceeds 1,500 Euros it must be paid by transfer to the Trésor at the Banque de France or an extra 0.2% may be due.

The relevant forms

All dividend-paying companies are concerned by the new measure and need to levy the charge on the dividends they distribute using Form 2777 or 2777 D. Form 2778-DIV-SD is used if the taxpayer carries out the formality and essentially where the company is registered outside France. Form 2778-SD is the one to use in respect of interest.

These amounts are later reported on the return of income, added to the rest of the taxpayer's income and assessed at scale rates. Any excess amount paid on account is normally refunded but not before the return has been processed. In theory, it could therefore take as long as 18 months to get a refund on any overpayment.

Dispensations

Thankfully, there are dispensations depending on the taxpayer's RFR (see above) in the penultimate year. For instance, the 2011 RFR is the reference for the application of the 2013 levies.

50,000 Euros (single) or 75,000 Euros (couple), for the payment on account in respect of dividend.

25,000 Euros (single) or 50,000 Euros (couple), for the payment on account in respect of interest. If the total interest received is below 2,000 Euros, taxpayers can simply report this on their income tax return rather than apply the new payment in advance.

Taxpayers wishing to be dispensed must normally send their request to the France-based paying establishment before 30 November in the year preceding the one in question. Dispensation requests for 2014 therefore need to be sent off before 30 November 2013. This deadline was extended to 31 March 2013 in respect of 2013 payments. An establishment which, if asked by the tax authorities, cannot produce the taxpayer's dispensation request is fined 150 Euros.

Conversely, taxpayers who have filed such a request under false pretences are liable to pay a fine of 10% of the payments on account missed.

The dispensation does not seem to be a requirement where the financial establishment is abroad, but the above taxable income conditions must strictly apply.

Examples


Dividends

On a gross dividend of 1,000 Euros the tax will be:

Tax at source on account: 1,000 Euros @ 21% = 210 Euros and CSG, CRDS & PS: 1,000 Euros @ 15.5% = 155 Euros (of which 5.1% is deductible the following year).

Dividend added to the taxable income: 1,000 Euros less 40% and less deductible CSG @ 5.1%: 549 Euros.

Assume a marginal rate of 45% which would result in 549 Euros @ 45% = 247 Euros.

Deduct the tax at source 247 Euros - 210 Euros = 37 Euros is the extra tax payable.

Total tax on the 1,000 Euros dividend: 155 Euros + 210 Euros + 37 Euros = 402 Euros.

Dividends from outside France: These are taken into account after the deduction of any tax at source but increased by the tax credit as stated in the double tax treaty. So for 1,000 Euros of UK dividend the taxable basis would be 1,112 Euros.

Interest

On a gross interest of 1,000 Euros the tax would be:

Tax at source on account: 1,000 Euros @ 24% = 240 Euros and CSG, CRDS & PS: 1,000 Euros @ 15.5% = 155 Euros (of which 5.1% is deductible the following year). Total charge paid on account: 395 Euros.

Interest added to the taxable income: 1,000 Euros (less deductible CSG @ 5.1%): 949 Euros.

Assume a marginal rate of 45% which would result in 949 Euros @ 45% = 427 Euros.

Deduct the tax at source 427 Euros - 240 Euros = 187 Euros is the extra tax payable.

Total tax on 1,000 Euros interest: 155 Euros + 240 Euros + 187 Euros = 582 Euros.

Other recent changes which have led to a harshening of the tax on investment income


1. The loss of the annual tax free allowance of 1,050 Euros (single) and 3,050 Euros (couple) for dividends.
2. The reduction from 5.8% to 5.1% of the deductible portion of the CSG.

Dividends received by a gérant majoritaire (managing director with majority shareholding) in excess of 10% of their holding in the share capital, are now treated as extra remuneration and subject to social security contributions.

Still to Come?

François Hollande's desire to align the taxation of investment income to that of employment income is starting to take shape and there are now increased fears that the 40% tax free allowance on dividends will eventually disappear.

2012 Tax Assessments

A number of you will have, by now, received your tax assessments with a payment deadline of 15 September. These include the CSG, CRSD and PS charges. The recoverable de minimis of 61 Euros now applies to income tax and social charges combined. From next year, the payments on account of one third (due in February and May) will also include the social charges. Taxpayers may still opt for monthly direct debits (which would also include the social charges).

About the author

This article was provided by BDO Limited, formerly 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, Catherine Le Pelley or Kirsty Green at french.tax@bdo.gg, or telephone +44 1481 724561. Alternatively visit their website www.bdo.gg and click on French Tax.

DISCLAIMER

This document has been prepared as a general guide. It is not a substitute for professional advice. Neither BDO 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. BDO Limited, a limited liability company registered in Guernsey, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. BDO Limited does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

Additional articles which may be of interest:


French Tax - July 2013
French Tax Budget for 2013
French Tax End of Year Summary - December 2012
French Trust Laws and French Tax - November 2012
French Tax Changes in July 2012
Capital Gains Tax in France on Property
Tax in France
French Wealth Tax
Inheritance Tax in France and the Assurance Vie or PCP (Private Client Portfolio Bond)
Holiday Homes in France - how to avoid Capital Gains Tax when you want to sell

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