The French government has just introduced its budget bill for 2018 in the National Assembly. The key measures of interest to businesses (I) and individuals (II) are as follows:
I – Measures targeting businesses
Reduction of the standard corporate tax rate (Art. 41)
The standard corporate tax rate would gradually be lowered to 25% according to the following timetable:
- in 2018, the rates as approved in the Budget Act for 2017 would apply, i.e. 28% for up to EUR 500,000 in profits and 33 1/3% thereafter;
- in 2019, the standard rate would be lowered to 31% and the first EUR 500,000 in profits would continue to be taxed at a rate of 28%;
- in 2020, the standard rate would be lowered to 28%, then to 26.5% in 2021 and ultimately to 25% in 2022.
Repeal of the 3% tax on the distribution of profits (Art. 13)
The 3% tax on the distribution of profits introduced in 2012 would be repealed for the distribution of amounts to be paid as from 1 January 2018 in order to align French law with EU law.
Repeal of restrictions on financial expenses associated with the acquisition of participations (Art. 14)
The draft proposes the repeal, as from 1 January 2018, of the rule which prohibits the deduction of financial expenses related to the acquisition of qualifying participations when the company that is acquiring the participations cannot show that the authority to make decisions regarding acquired participations, or to control them, is exercised from France.
Financial transaction tax (Art. 15)
With this measure, the government proposes that the scope of the financial transaction tax should not be expanded to intraday transactions. This extension was supposed to occur on 1 January 2018.
VAT and online press services (Art. 4)
For composite supplies giving access to online press in addition to services enabling access to an electronic telecommunications network, the 2.10% rate applicable to the paper and electronic press would apply to the proportion of the subscription which equals the amounts paid per user by the service provider to purchase these services (this amount should be taken net of the fees the publishers pay to the service provider to give the public access to the said services). The government implicitly reserves the right to challenge the methods operators have used so far to determine this breakdown by presenting the measure as a clarification of the law which gives operators greater legal certainty as of 1 January 2018.
CVAE (contribution on business value-added): Group rate (Art. 7)
To counter the consequences of a decision of the French Constitutional Court on the group rate for the contribution on business value-added (cotisation sur la valeur ajoutée des entreprises, or CVAE), this article aims to apply the consolidation of turnover not only to tax-consolidated companies but to all companies that meet only the capital ownership requirements for belonging to a tax-consolidated group. This provision would apply to the CVAE owed for 2018.
CICE (tax credit for employment and competitiveness)/payroll tax credit (Art. 42 and Art. 43)
Both tax credits would be repealed for compensations paid as of 1 January 2019, at the time the reductions in the Social Security contributions, which will be introduced in the Social Security Budget Bill, would be implemented.
For 2018, the payroll tax credit (for corporate tax-exempt bodies) would be maintained at a rate of 4% while the tax credit for employment and competitiveness (crédit d’impôt pour la compétitivité et l’emploi, or CICE for corporate tax payers), which increased from 6% to 7% on 1 January 2017, would be lowered back down to 6% in order, as stated in the explanatory statement, “to manage the transition from one system to the other”.
Payroll tax (Art. 44)
The payroll tax (levied on wholly or partly non VAT taxable persons) top rate of 20% applied since 1 January 2014 to the portion of compensation exceeding EUR 152,279 would be eliminated for the payroll tax owed on compensations paid as of 1 January 2018.
Certification of cash register software (Art. 46)
In accordance with the announcement made by the Minister for Government Action and Public Accounts on 15 June 2017, the scope of the certification requirement set to take effect on 1 January 2018 would be narrowed to include only cash register software that records payments for “B to C” transactions and to exclude companies that do not perform transactions subject to VAT, either because they come under the exemption scheme or because they only perform exempt transactions.
II - Measures targeting individuals
Repeal of the existing wealth tax and creation of a real property wealth tax (Art. 12)
The wealth tax (ISF) as it exists would be eliminated and replaced by a real property wealth tax (IFI). This new tax, which would apply only to real estate assets not tied to the professional activity of their owner, would have the essential aspects of the ISF’s current characteristics: its threshold, its rate scale, its periodicity, its evaluation rules (subject to certain exceptions), its payment methods (including by means of donations to general interest associations) and even the ceiling rule (in respect of the taxpayers’ income). Taxpayers’ reporting requirements would also be very close to those currently in force for those subject to the ISF.
The primary features of the IFI would be the following:
- a tax base including real estate properties held directly by individuals, as well as shares in companies (regardless of legal status and localisation), at the level of the portion of their value represented by real estate properties or real property rights; all movable assets would therefore be excluded (including shares in companies not holding real estate assets, and other financial assets);
- specific rules for the deduction of debts, with various measures limiting or capping deductions when debts exceed 60% of the value of real estate assets (if this value is greater than EUR 5 million);
- various exemptions focusing in particular on real estate properties or shares of companies whose main activity is real estate, where real estate assets are primarily used in the course of an industrial, commercial, artisanal, agricultural or independent activity.
The IFI would be applicable as of 1 January 2018. Donations and payments made between the ISF filing deadline for 2017 and 31 December 2017 under the ISF-SME rules, donations to general interest associations and subscriptions to the capital of solidarity-based enterprises of social utility would be taken into account to reduce the IFI tax due in the year 2018.
Reform of taxation on capital gains, life insurance gains, dividends and interest (Art. 11)
This article aims to establish a flat-rate tax of 30% (or 12.8% income tax and 17.2% social security tax as planned by the Social Security Financing Act for 2018) for certain revenues from movable capital and certain gains made from 1 January 2018. The Exceptional Tax on High Income would be added if applicable. The option for taxation according to the rules of the income tax scale would be given each year. It would be decided at the time of tax return filing and would be applied globally (foregoing the fixed-rate taxation of any income that could benefit from it). This article modifies the taxation regime for capital gains on movable assets (with some substantial modifications), the dividend taxation regime, the interest taxation regime and the taxation regime applicable to life insurance contracts. The rates applying to non-residents are also modified.
Of particular note are the following measures:
- for life insurance contracts, the flat-rate tax would apply to payments made from 27 September 2017;
- a fixed allowance of EUR 500,000, subject to certain conditions, would be maintained for the gains of directors entering retirement;
- a new reform would apply to the taxation treatment of acquisition gains when free shares are attributed to employees or directors.
Deductibility of the social welfare tax increase (Art. 38)
The 1.7-point increase in the social welfare tax (CSG), which should be part of the Social Security Financing Act for 2018 and which would be applicable as of 1 January 2018, would be fully deductible from the income tax (the CSG would not, however, be deductible in the case of a flat-rate tax).
Extension and modification of the Pinel framework (Art. 39)
The system that aims to encourage investment in rental property through an income tax reduction would be extended by 4 years and refocused on the areas where the housing demand is the strongest.