As explained in the January 2017 edition of Insights, the end of the year in France is always marked by a fiscal legislative process to amend the current year's finance law and to draft the law for the upcoming year.1
The present article summarizes the main changes to the individual and corporate tax regimes under both the Amended Finance Law for 2017 and the 2018 Finance Law2 - the first of French President Emmanuel Macron's five-year term - and recent case law relating to the treatment of trusts for French wealth tax purposes.
French Wealth Tax
The French wealth tax is currently applicable to the worldwide assets of French residents having a net worth in excess of 1.3 million and to certain French-situs assets belonging to nonresidents whose net worth is in excess of this threshold. As of January 1, 2018, the French wealth tax will only be applicable to real estate or certain real estate rights.
Individual Income Tax Rates
Individual income tax rates have been adjusted for inflation by 1%. The new income tax brackets will be as follows:
Withholding Tax and Flat Tax
The introduction of a withholding tax-based system - announced last year3
3 - has been delayed by one year, and will now come into effect on January 1, 2019.
In addition, a flat tax of 30% will be applied as of January 1, 2018, on financial income (i.e., dividends, interest, and capital gains realized on the disposition of assets generating such income). The components of the flat tax are broken down as follows:
12.8% of income tax 17.2% of social charges4 As a result, passive-type income that is subject to the flat tax is not taxed at graduate rates but at an overall 30% rate, no matter the tax bracket of the recipient. Taxpayers will be able to elect out of this regime and be subject to ordinary income tax rates as calculated under current law. This would enable them to take advantage of so-called abatements on dividends and share sales.
Corporate Income Tax Rate
The current general French corporate income tax rate is 331/3%. It will be gradually decreased as follows:
In 2018, the first 500,000 of taxable income will be subject to a 28% rate, with the excess still taxed at the current 331/3% rate. By 2019, the excess over 500,000 will be taxed at 31%. In 2020, all taxable income will be subject to a 28% rate. This will be further decreased to 26.5% in 2021 and to 25% in 2022. The 15% tax rate applicable to small- and medium-sized entities will continue to be applicable....