Law & Numbers - News Tax

Private assets tax reform in France

09.09.2011 (France)

The amended finance law for 2011 about the private assets tax reform was published on July 30th, 2011, after review by the Constitutional Council (Decision dated July, 28th, 2011 n° 2011-638). The provision of the law softens the taxation of holding private assets while increasing the tax cost of gift and inheritance.

TAXATION OF HOLDING PRIVATE ASSETS

- Tax shield

The abolishment of the tax shield is effective as of January 1st, 2013. It will apply to the 2010 revenues and may be claimed for the last time in 2012. Transition provisions apply for the related reimbursement in 2011 and 2012.

- Wealth tax

Full exemption up to ¤ 1.3 million as of 2011.
Taxpayers with a net taxable private assets over ¤ 1.3 million must file their wealth tax return by September 30th, 2011. Computation will be made according to the current wealth tax schedule.

Starting 2012, two rates will replace the current tax schedule:
- Taxpayers with net taxable private assets between ¤ 1,3 and 3 million will be taxed at a rate of 0,25% on the whole value of their private assets. However a rebate for assets between ¤ 1,3 and 1,4 million will apply. They will benefit from simplified tax filing obligations.
- Taxpayers with net private assets over ¤ 3 million will be taxed at a rate of 0,5% on the whole value of their private assets. However, a rebate for assets between ¤ 3 and 3,2 million will apply.

The computation of the wealth tax basis will remain the same.
Exemption of professional assets is softened. For example, the minimal 25% shareholding is now fulfilled with voting right only. It is no longer necessary to have both 25% of voting rights and dividend rights.

Moreover, the minimum 25% voting rights requirement is softened after a capital increase (conditions apply).

TAXATION OF PRIVATE ASSETS TRANSMISSION

- The tax rate of the two last brackets applicable to inheritance and gifts to direct ascendants or descendants, as well as donations between spouses or partners bounded by a PACS, are raised from 35 to 40% and from 40 to 45%. It applies to private assets between ¤ 0.9 and 1.8 million and more.

- Removal of the rebate on gift tax according to the age of the donor. The only rebate which will remain is a 50% rebate on gift tax for donation of a business when the donor is less than 70 years old and beneficiaries are bound by a Dutreil shareholder agreement ("pacte Dutreil").

- The tax break on gift up to ¤ 159 325 per child and per parent will now only apply every 6 years instead of every 10 years. A transitional period applies to gift made during the last 10 years.

- The tax rate applicable to the apportionment of assets increases from 1,1% to 2,5% as of January 1st, 2012.

- The tax rate applicable to the taxable piece of life insurance proceeds over ¤ 902 838 will be raised from 20% to 25%. Moreover, insurance life proceeds will be taxable, should the policy holder or the beneficiary (conditions apply), be French tax resident at the death of the policy holder. This applies even when the policy holder was non resident at the time of the subscription.

EXIT TAX

Taxpayers owning at least 1% of a corporation or a shareholding which value exceeds ¤ 1.3 million will be subject to a 19% exit tax on the deferred gains when transferring their residence outside France. This measure will apply to transfers as of March 3rd, 2011.

Payment will be automatically freezed for transfers within the EU and EEE.

TAX ON NON RESIDENTS' SECONDARY HOME

This project was dropped.

TRUSTS

The French tax code includes now a definition of the trust !

According to article 792-0 bis, I-1 of the French tax code : "A trust is a legal relationship existing in a country other than France between a settlor, either through an inter vivos deed or a testamentary deed, aimed at transferring assets or rights on property to a trustee who holds this property for the benefit of one or several beneficiaries or for a specific goal."

Transfers of property via a trust is now subject to inheritance or gift tax depending the kindship between the settlor and the beneficiary.

When the transfer does not qualify as a donation or a succession according to French tax law, a specific transfer tax will apply, even though the assets or rights are transferred at the death of the settlor or later.

Starting January 1st, 2012, the whole assets or capitalized rights within the trust will be subject to a annual specific wealth tax at a rate of 0,50% when the settlor and the beneficiaries are French tax residents. For non French tax residents, the wealth tax would apply only to the assets located in France. The taxation will be due by the trustee, and, if not, by the settlor or the beneficiaries.

This taxation would however not be due on the assets and rights within the trust if they are already reported by the settlor or the beneficiary(ies) for wealth tax purpose. Spendthrift trusts and pension fund trusts will not be subject to this annual specific wealth tax.

OVERSEAS INVESTMENTS

A tax rebate applies to some overseas investments called FIP DOM (Local Funds for French overseas districts like Guadeloupe, Martinique, Saint Barthélémy, Saint Martin, Mayotte). This tax rebate will benefit to income earned in 2011 (taxable in 2012).

The maximum yearly tax rebate for investments in low income housing overseas remains at ¤ 40 000 or 15% of the taxpayer's taxable income.

SHIELD ON PROPERTY TAX

Starting 2012, the property tax due on the main residence will be capped at 50% of the taxable income.





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