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France: Living There - Tax Issues

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INDIVIDUAL TAXATION

French residents are taxed on their global income.

French residents are taxed on a household basis, at progressive rates. The mode of calculation is somewhat strange, and emphasizes the familial nature of French society. The household’s net taxable income is divided by the number of family members, calculated according to the so-called ‘family coefficient rules’ (e.g., a two parent family with two dependent children would result in the gross family income being divided by 3. The figure arrived at is taxed at the scale rates. Then the resulting amount is re-multiplied by whatever number was arrived at.

INCOME TAX

The following income tax rates apply for income earned in 2007:

Wealth Tax

Wealth tax is an annual tax that applies once French assets exceed €770,000.

CAPITAL GAINS TAX

New rules were introduced in 2004. EU residents and residents of France now pay 16% on the net gain, after deduction of acquisition and improvement costs (the default deductions under these two headings are 7.5% and 15% respectively, but if invoices can be produced, more may be allowable). For both residents and nonresidents, discounts of 10% a year are allowed after the fifth year of ownership, with the effect that after 15 years no gain is chargeable to tax.

Properties which have been used as a principal residence from the date of purchase, or for a minimum of five years, are exempt from CGT.

French residents pay an extra 11% over and above the CGT, in French National Insurance, making their effective CGT rate of 27%. Old age pensioners and invalids, even if nonresident, are exempt from CGT.

Those who own their properties through a Société Civile Immobilière (SCI) (which is not subject to corporation tax) are, as shareholders, individually liable for payment of CGT. This also applies to companies subject to French corporation tax, though in addition, for such companies the purchase price will be reduced in value by 2% every year.

The Notaire instructed to act on the sale is a public official, and as such he is obliged to act as the tax collector, and will withhold the tax due on the gain.

PROPERTY TAX

Property Taxes

There are two types of property taxes in France, the taxe d'habitation and the taxe foncière. Whoever actually resides in a building is obliged to pay the tax d'habitation. Generally, rental leases also provide that the tenant will reimburse the landlord for the taxe foncière, which is otherwise payable by the owner of the property. The tax foncière is a combination of tax for the building (taxe foncière bâtie) and for the land (taxe foncière non bâtie).

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