France Summary Guide
Taxation of Business People in France
Taxation of Individuals In France
There has traditionally been no formal Pay As You Earn (PAYE)
tax system in France (although the ‘auto-entrepreneur’
system has changed this somewhat, see below).
The French income tax regime takes into account the family
situation (ie spousal earnings, family size, etc), and a number
of deductions are permitted, after which the taxable income
is calculated by dividing the net amount by: one (for a single
person without children), two (for a married couple without
children), 2.5 (for a married couple with one child). Each
additional child adds another 0.5.
Once the taxable income has been calculated, tax at between
0% (on income below EUR5,852) and 40% (for income in excess
of EUR69,505), in progressive bands.
Capital Gains Tax (CGT) for individuals is payable on profits
from investments at 18% (with the exception of those held
for more than eight years). CGT is also payable on the sale
of property (except the owner’s main residence). The
formula for calculating the tax base is complex but EU residents
pay 16% of the taxable profit. There are additional social
security charges on these gains usually in the region of 12%.
Other types of moveable property (with the exception of furniture,
cars, and household goods) may also be subject to CGT, although
at a reducing rate according to the length of time that the
property has been held, reducing to nil after 12 years.
A Wealth Tax is payable for those individuals with a net
wealth in excess of EUR790,000, ranging between 0.55% and
1.80%.
There is a ‘tax shield’ (bouclier fiscal) in
place, which prevents the direct tax liability of individuals
from rising above 50%, but this has been under attack politically
for some time, and it seems likely that its days are numbered.
Taxation of Business People in France
Self-employed individuals (sole traders) will pay income
tax at the Personal Income Tax rates.
Personal Income Tax returns must be filed annually, for the
previous tax year (which is normally the calendar year). Payments
can be made in either three instalments (or alternatively,
via monthly direct debit payments for ten months) throughout
the year. These regulations apply to employed and self-employed
persons.
A self-employed individual must pay social security contributions
towards health care, invalidity, pension and family allowances.
Self-employed persons are not covered by unemployment benefit.
Payments are made to the Regime Sociale des Travailleurs Independants
(RSI), a French government agency. Depending under which tax
regime a self-employed person has registered with, social
contributions are a tax- deductible business expense. Total
contributions can be as high as 45% of net profits, with contributions
for pensions the highest at 23%.
The relatively new (introduced in 2009) auto-entrepreneur
regime, simplifies the administrative and tax system for the
self-employed person (or self-contractor) considerably; with
regard to the tax aspects, the qualifying independent (see
below for requirements) would have been exempted from the
business tax, or taxe professionelle for the first three years
of the business, if they were eligible to pay it; this is
no longer an issue, however, as the tax no longer exists (as
of January 2010). In addition, auto-entrepreneurs can request
to be taxed under the ‘micro-fiscal simplifié’
system, under which they pay income tax (on a monthly or quarterly
basis) at the following rates:
- Resellers of goods or materials: 1%
- Commercial or Industrial businesses: 1.7%
- ‘Liberal’ professionals: 2.2%
As stated above, this effectively permits the micro-business
owner to ‘pay as they earn’. Auto-entrepreneurs
cannot charge or claim value-added tax (or TVA), and must
include the following declaration on all invoices: ‘TVA
Non-applicable, Article 293 B du CGI’.
Taxation of Companies In France
Corporation Tax for incorporated companies is generally charged
at a flat rate of 33.3% on profits, although there are exceptions
– see below. SMEs pay a reduced rate of 15% up to EUR38,120
of profits. To qualify for this reduced rate, a company must
have fully paid up share capital and must be predominantly
owned by individuals, not business entities. Larger companies
(defined as having a turnover of EUR7,630,000, and taxable
profits of more than EUR2,289,000) pay tax at a higher rate
(usually around 34.43%). This is called the ‘Contribution
Sociale Additionnelle’.
Companies must pay tax due by quarterly payments.
Depending on the nature of the business, tax may be levied
under a different, simplified tax regime; the BIC (Bénéfices
Industriels et Commerciaux) or BNC (Bénéfices
non Commerciaux. These systems operate in a similar way, with
some differences in allowances.
The thresholds for these regimes are:
BIC (Resellers and providers of furnished accommodation):
EUR763,000
BIC (Providers of Services): EUR230,000
BNC: EUR76,300
Even simpler regimes (the Micro-BIC and Micro-BNC) are available,
as – from 2009 – is the auto-entrepreneur regime.
The standard rate of VAT in France is 19.6%. A reduced rate
of 5.5% applies to some food products, public transport and
publishing. A third, special rate of 2.1% applies to some
types of medicine, and to newspapers.
Receipt of dividends from French companies can either be
subject to a withholding tax of 18%, or declared and factored
in when calculating tax liability for the purposes of the
progressive personal income tax regime.
Until January 1, 2010, businesses (and certain professions)
were also obliged to pay a local business tax (the taxe professionnelle),
based on the rental value of their fixed asset base buildings,
land, moveable assets, etc). However, this has replaced by
the contribution économique territoriale (CET), which
is calculated on rental value and value added, in relation
to the same assets.
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