For the past decade, France has not been an award-winner in the field of taxation. Yet, a new era has come with a charm offensive from the French government to attract high-net worth individuals.
Review of a well-written screenplay:
Scene 1: implementation of the “pay-as-you-earn” (PAYE) system as of 2019 and exemption of 2018 income tax
Unlike most countries, French income tax is not currently withheld at source, but is paid directly by taxpayers to the French tax authorities the year after the income is received. As of January 2019, in order to reconcile earnings and corresponding taxes, tax will be paid the same month income is received. As a transitional measure to avoid double taxation situation in 2019 – taxation of income received both in 2018 (under the current system) and 2019 (under the PAYE system) – no tax will be levied in 2019 on income received in 2018. In practice, taxpayers, among which newcomers, will still report their 2018 income in 2019 but will be granted a tax credit up to the income tax that should have been paid. However, the tax-credit will only be granted as regards ordinary income –i.e. mostly salaries– while 2018 non-recurring income as well as capital gains and investment income will be excluded from its scope.
Scene 2: a tax incentive package for newcomers
France provides for a specific tax incentive where a newcomer (i) takes up an employee position in France, either as they are directly hired by a French company or assigned to a French affiliate by their foreign employer; (ii) has not been a French tax resident at any time for the previous five years; and (iii) becomes so upon taking up their position. If not as delightful as French wine, this tax incentive is quite enticing as it entitles newcomers to an eight-year income tax exemption of both “inward bonus”, which may be a contractual “welcome bonus”-or a flat 30% of yearly standard salary if more profitable- and income received as compensation for days worked abroad for the French company. In practice, a newcomer who takes up an employee position in 2018 will be granted the tax exemption until the end of 2026. There are limitations which will need to be reviewed with an adviser but this tax incentive may lead to income tax being cut in half, and consequently to a maximum 26.5% effective tax rate, assuming that contribution on high income is to be levied.
Scene 3: a tax relief on foreign investment income (dividend, interest and capital gains)
For the same eight-year period, newcomers are granted a 50% tax relief on investment income cashed in abroad. This tax relief can be combined with the newly implemented flat 30% tax on investment income, resulting in a rather friendly 23,6% tax (the rebate applies only on a share of the new flat tax).
Scene 4: a wealth tax exemption of foreign real estate assets
As of January 2018, wealth tax has been restricted to real estate assets, held directly or indirectly (it previously covered all types of assets). Foreign real estate assets held by newcomers will be wealth-tax freed for a five-year period. In practice, a newcomer who settles down in France in 2018 will be granted the tax exemption until the end of 2023.
Well, this whole plan, if yet not as glamourous as the Cannes Festival, undoubtedly shows that France is ready to roll out the red carpet.
For more information, contact CMS Francis Lefebvre
Authors: Rosemary Billard-Moalic and Dimitar Hadjiveltchev