Choosing a tax-friendly post-Brexit location - Germany

Tax attractiveness is a key factor in Brexit relocation. 

France, Germany and Luxembourg are often considered as potential post-Brexit locations, and each country has taken steps to appeal to UK companies in the banking, financial and insurance sectors.

In France, President Macron’s government is committed to positioning Paris and the wider French financial market as Europe’s key post-Brexit financial centre. Tax measures have been introduced to appeal to individuals and companies.

Individuals

1. Softening taxation on financial assets – a flat-rate withholding tax of 30% was introduced in 2017 as a final tax rate applicable to most investment income and gains, including interest, dividends and capital gains. The wealth tax on financial assets was abolished and replaced by a real estate wealth tax, which is only applicable to real estate assets, except for those assigned to a professional activity.
2. Extending the inpatriates tax regime – this provides for a range of specific and generous tax incentives for people who move to France for professional purposes. Inpatriate tax incentives comprise three main exemptions that apply during an eight-year period after the qualifying individual has settled in France. Key measures include:
   • the inpatriation premium received during the employee’s stay in France is exempt from income tax. Employees may elect to estimate this premium to 30% of their net remuneration.
   • passive income from foreign sources – essentially financial income, as real estate income is out of the scope – benefits from a 50% income tax exemption.
   • non-French real estate properties are exempt from real estate wealth tax. The exemption lasts for five years after settling in France.

The 2019 Finance Bill has introduced another incentive for inpatriates, making them eligible to benefit from the 30% flat-rate tax on carried interest, if certain conditions are met.

Companies

For companies, the key Brexit relocation measure is a progressive reduction of corporate income tax rates. For example, the current rate of 33.3% is reduced to 31% for qualifying companies in 2019, reducing further to 28% in 2020, and finally to 25% from 2022.

While France has made commendable efforts to improve its tax competitiveness, there is still work to be done. On company taxation, for example, the next step forward would be to authorise the amortisation of goodwill – France is one of the last countries in the EU where it is still not allowed.