FRENCH TAX REFORM

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May 2011, the Council of Ministers adopted the Rectifying Finance Bill, which contains measures which will impact non-residents who hold directly or indirectly property in France. This bill will be adopted by Parliament in July 2011. Please keep in mind that some of these measures might be amended by Parliament (it will be discussed in June) and some could be declared unconstitutional or contrary to EU principles or to some Double Tax Treaties.

We have highlighted specifically for you three measures which directly impact non-residents who own property in France.

A new Tax on Second homes owned by non-residents

Non-residents who own, directly or indirectly, property in France for their personal use (i.e. not rented) will have to bear a new tax. The value of this tax will represent 20% of the cadastral value of the property, so expect the equivalent of the value of the Taxe d’Habitation.

Some exceptions apply, mainly for ex-French residents or for non-residents whose French income represents over 75% of their total income. This 20% tax will be implemented on Jan 1, 2012, unless it is qualified as discriminatory or not in accordance with some Double Tax Treaties.

Important information for SCI owners (end of fiscal optimization scheme)

So far, shareholders could deduct their personal loans (so-called “Apport en compte courant d’associés”) to calculate the taxable value of their shares for the French Wealth Tax.

A new valuation method will be implemented from Jan 1, 2012 to calculate the 2012 wealth tax: the amount of the loan granted by the shareholder of an SCI to an SCI (directly or indirectly) will not be deductible from its assets.

Please note that this new calculation will not be retroactive (i.e. no reassessment of previous year’s wealth tax).

NB: The amount of bank mortgages will still be deductible from the assets of the SCI

Wealth tax reform:

For 2011, the threshold for the Wealth Tax will be €1,3 million (versus 790.000 in 2010) and the existing tax rates will apply:

Below 800 000 € : 0 %

From 800 000 to 1 310 000 € : 0,55 %

From 1 310 000 to 2 570 000 € : 0,75 %

From 2 570 000 to 4 040 000 € : 1 %

From 4 040 000 € to 7 710 000 € : 1,3 %

From 7 710 000 € to 16 790 000 € : 1,65 %

Over16 790 000 € : 1,80 %

 

However, in 2012, when the total net value of assets is over €1,3 million, it will be taxed from the first Euro at a rate of 0,25%, then at a rate of 0,50% for assets over €3 million

Below 1 300 000 € : 0 %

From 1 € to 3 000 000€: 0,25 %

Over 3 00 000 € : 0,5 %

As a result of this reform, the French Wealth Tax will be both simpler and lighter

Example :

Net value of French assets: 2M€

Wealth tax in 2011: 7.980€

Wealth tax in 2012: 5.000€

Net value of French assets : 4M€

Wealth tax in 2011: 26.555€

Wealth tax in 2012: 20.000€

Net value of French assets : 6M€

Wealth tax in 2011: 52.435€

Wealth tax in 2012: 30.000€

We recommend that your clients who are impacted by such measures contact their advisor for customized advice.

This information was compiled thanks to Novances, Fiscal Consultants based in Sophia Antipolis. Contact us by clicking here if you are interested in getting more detailed information from them.

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