The Finance Bill for 2025 was published on October 11, 2024. It includes tax measures eagerly awaited by individuals and businesses alike.
Here is a selection of the most significant measures of the Finance Bill, including the introduction of a minimal income tax mechanism on high income earners, an exceptional contribution on the profits of large companies, a tax on capital reductions by large companies following the buyback of their own shares, and the postponement of the abolition of the tax on added value of businesses.
1. Increased personal income taxation
Minimum taxation of high-income earners (Art.3)
Taxpayers domiciled in France whose tax household income exceeds €250,000 for a single taxpayer, or €500,000 for taxpayers subject to joint taxation, would be subject to an additional contribution to ensure effective minimum taxation of 20%.
The definition of the taxable income under the new rule is particularly complex. The main idea underlying the draft rule is that such income should be different from the income taxable under the ordinary tax rules, insofar as it would not take into account most base reductions which normally apply.
The contribution would apply to income received from 2024 until 2026.
2. Other measures of interest to individuals
2.1. Determining tax residence in France (art.23)
The French Supreme Court (“Conseil d’Etat”) had ruled that the notion of tax domicile outside France triggering the withholding tax on wages paid by French employers must be assessed in the light of the legal provisions set out in domestic legislation, independently of “tax residence” within the meaning of international tax treaties (CE, February 5, 2024, n° 469771, Sté Axa Group Opérations).
In a press release dated April 29, 2024, the tax authorities had stated that the principle of primacy of treaty law over domestic law should remain in force and that they were not ready to implement the Supreme Court’s ruling.
Article 23 of the Finance Bill therefore amends Article 4 B of the French tax code to state that persons who meet at least one of the domicile criteria set out in domestic legislation cannot be considered as having their tax domicile in France if they are not considered to be resident in France under a double taxation treaty.
2.2. Disposal of housing units rented on a furnished, non-professional basis (art. 24)
For the purposes of determining the capital gain or loss on the sale of a property that has been let on a non-professional furnished rental basis, any depreciation deducted during the rental period would be deducted from the purchase price. According to the bill's explanatory memorandum, this measure would apply to capital gains arising from sales taking place on or after January 1, 2025.
3. Increased corporate taxation
3.1. Exceptional contribution on corporate income tax for large corporations (art.11)
Companies with sales in France of €1 billion or more would be subject to an exceptional and temporary contribution, payable for the two consecutive financial years ending on or after December 31, 2024.
The same rule would apply to corporate tax groups, in which case the group turnover would be calculated by adding together the sales of all the companies in the group. The contribution would then be payable by the parent company.
Tax reductions and credits, as well as tax claims of any kind, would not be offset against the exceptional contribution, which would not be deductible from taxable income.
The contribution would be proportional to the amount of corporate income tax due and its rate would depend on the turnover amount:
- For taxpayers with sales greater than or equal to €1 billion and less than €3 billion, the contribution rate would be 20.6% for the first financial year ending on or after December 31, 2024, and 10.3% for the second financial year ending on or after the same date.
- For taxpayers with sales of €3 billion or more, the contribution rate would be 41.2% for the first financial year ending on or after December 31, 2024, and 20.6% for the second financial year ending on or after the same date.
Lastly, the contribution would be paid spontaneously to the competent public accountant, no later than the payment of the corporate income tax settlement balance. No advance payments would have to be made.
3.2. Tax on capital reduction by cancellation of shares resulting from a company's repurchase of its own shares (art. 26)
Companies headquartered in France with individual or consolidated sales (excluding tax) in excess of one billion euros in the last financial year would be subject to a tax on capital reductions resulting from the cancellation of shares following certain share buybacks.
For the purposes of this rule, sales would be assessed at the level of the consolidated group as defined by the French Commercial Code. This calculation method differs from that used for the purposes of the exceptional corporate income tax contribution for large companies.
Only capital reductions carried out on or after October 10, 2024 would be covered.
Capital reduction operations carried out with a view to allocating shares to employees and managers, or for the purpose of facilitating a merger or demerger by buying back and cancelling shares representing no more than 0.25% of the amount of the share capital, would be excluded from the scope of that tax.
The tax would be based on the amount of the capital reduction and a fraction of the sums which, for accounting purposes, have the character of capital-linked premiums.
The tax rate would be 8% and would not be deductible.
3.3. Exceptional contribution on the operating income of major shipping companies (art.12)
Companies benefiting from the flat-rate tax regime for shipping companies set out in article 209-0 B of the CGI (tonnage-based taxation) and with sales of €1 billion or more would be liable for an exceptional contribution for the two consecutive financial years ending on or after December 31, 2024. In the case of integrated groups, the tax would be payable by each company that individually meets the aforementioned sales condition.
The tax base would be equal to the operating income for the portion corresponding to the operations for which the option for the favourable tonnage tax regime has been exercised.
The tax rate would be set at 9% for the first financial year ending on or after December 31, 2024, and at 5.5% for the second financial year ending on or after the same date. As with the exceptional corporate income tax, tax reductions and credits, as well as tax receivables of any kind, would not be deducted from the exceptional tax, nor would it be deductible from taxable income.
It would be paid spontaneously to the relevant public accountant no later than the payment of the corporate income tax settlement balance.
4. Other measures of interest to companies
4.1. CVAE: further postponement of its abolition (art. 15)
The bill provides for a further postponement of the abolition of the CVAE (tax on added value of businesses), which was due to take place in 2027.
The 2024 CVAE tax rates would thus be maintained from 2025 to 2027 (with a maximum rate of 0.28%). This rate would then be reduced to 0.19% in 2028, 0.09% in 2029, with the complete abolition of the CVAE scheduled for 2030.
4.2. Tax consequences of the legal reform of mergers and similar operations (art. 17)
The preferential corporate income tax regime for mergers would be extended to the new case of mergers without exchange of shares introduced into French commercial law by an Ordinance of May 24, 2023.
In practice, the new rule would apply to cases where the shares are held by the shareholders of the merging companies in the same proportions in all the companies concerned, when these proportions are maintained at the end of the transaction.
Furthermore, in the event of a partial division, as introduced into domestic law by the aforementioned ordinance, the allocation of shares in the transferee company to members of the transferring company, either directly by the latter or via the transferring company, would not be considered as a taxable distribution.
These measures would apply retroactively to transactions filed with the commercial court clerk's office on or after July1, 2023.
4.3. Reform of Pillar 2 rules (art. 13)
The regime set out in the French tax code for the purpose of transposing Directive (EU) 2022/2523 on ensuring a global minimum level of taxation of 15% for multinational enterprise groups and large-scale domestic groups in the Union would be adjusted.
For financial years ending on or after December 31, 2024, the administrative guidances published by the OECD, the purpose of which is to specify or clarify the application of the GloBE model rules, would be transposed into domestic law to ensure that the minimum taxation system set up under French law complies with the OECD corpus and is thus recognized by our partners.
Administrative guidelines published in 2023 and not yet incorporated into French law would be taken into account, but not those published on June 17, 2024. The changes would notably concern the methods for determining the deduction based on substance, the rules for applying the domestic minimum top-up tax and the safe harbour regime relating to this tax. Clarifications would also be provided regarding the transitional safe harbour regime.
The rules for apportioning the domestic minimum top-up tax in respect of constituent entities located in France belonging to the same group would also be modified.
5. Measures to ensure consistency or conformity with EU law
5.1. VAT: adjustment of the scope of reduced VAT rates on heating-related operations (art. 10)
From January 1, 2025, the scope of reduced VAT rates will be adjusted to bring French legislation into line with developments in EU law.
As a result, the scope of the 5.5% reduced rate applicable to heat supply (French tax code, art. 278 0 bis B) would be aligned with the provisions of article L 211-2 of the Energy Code, and would include, in particular, ambient energy.
With the same objective in mind, work involving the supply or installation of a boiler likely to use fossil fuels would no longer benefit from the reduced rate of 10%, provided for certain work carried out in dwellings completed at least two years ago, and would henceforth be taxable at the standard rate of 20%.
5.2. Administrative cooperation in tax matters (art. 14)
Article 14 provides for the transposition of the provisions of Council Directive 2023/2226 of October 17, 2023 (DAC 8), which impose new information collection and reporting obligations on service providers and operators of digital assets (crypto-assets and e-money).
Designed to meet the objectives of automatic and mandatory exchange of information for tax purposes between EU Member States, the scheme aims to identify digital asset transactions, the accounts used and their holders. The new obligations would apply to transactions carried out on or after January 1, 2026.
A number of changes have also been made to the scope of the reporting obligations of lawyers in connection with the declaration of cross-border devices (DAC 6), the reporting obligations of online platforms (DAC 7) established outside the European Union, and the organization of the sharing of information collected with customs and anti-money laundering and anti-terrorist financing authorities.
