An Accountants Advice On The Wealth Tax Changes In France
Whereas previously, the government had talked of abolishing the tax altogether, it has settled for a less politically controversial increase in the threshold at which the tax becomes payable, from EUR 800 000 to EUR 1 300 000. Also, the previous six-band rate structure is scrapped in favour of just two bands 0.25% on total net taxable assets of between EUR 1.3 million and EUR 3 million, and 0.5% on assets of more than EUR 3 million. These are discrete bands, so that once the upper threshold is exceeded, the taxpayers whole wealth is taxable at the higher rate. Similarly, whereas a taxpayer with taxable assets of EUR 1 300 000 would pay no tax, one with taxable assets of EUR 1 300 001 would in theory pay EUR 3250. To avoid two sudden jumps at both thresholds, there is a smoothing mechanism for taxpayers with taxable assets of between EUR 1.3 million and EUR 1.4 million and also for those with taxable assets of between EUR 3 million and EUR 3.1 million.
These new thresholds and rates apply as from 1 January 2012.
Existing exemptions and reliefs will still apply, but shareholders loans to an SCI (socit civile immobilire a special type of property-holding company often used to invest in French property, especially by non-residents) will no longer be deductible for wealth-tax purposes.
For 2011, the new EUR 1.3 million threshold also applies, but otherwise the existing rate bands are unchanged.
Under the existing rules, rates range from 0.55% to 1.8% and the bands are cumulative. The deadline for returns and payment, normally 30 June, has been extended to 30 September 2011 in the case of 2011 returns.
Wealth tax is payable on a persons net taxable assets as at 1 January of the relevant tax year. For residents of France, the tax extends to worldwide assets, whereas for non-residents, only assets situated in France (second homes, for example) are taxable.
Other changes to personal taxation include abolition of the bouclier fiscal (tax shield) under which a Frenchresident taxpayers aggregate liability to income tax, social security contributions on investment income, wealth tax and property tax on the taxpayers principal residence could not exceed 50% of the previous years taxable income.
Second-home tax dropped at last moment
In a surprise move, another element of the tax reform, a new tax on non-resident owners of second and holiday homes in France was dropped from the Bill before it was presented to the upper house of the French parliament, the Senate.
The government announced the decision on 20 June, after the tax had already been approved by the lower house, the Assemble Gnrale. The new tax would have been charged at 20% of the homes theoretical annual rental value on all non-resident owned property, except for the principal residence. It would have replaced an income tax on three times the annual rental value of French property, payable only by residents of countries outside the European Union which do not have an appropriate tax treaty with France (see also below).
There were doubts as to whether the tax would have been compatible with European law, as there appeared to be no exemption for residents of other EU Member States.
These new thresholds and rates apply as from 1 January 2012.
Existing exemptions and reliefs will still apply, but shareholders loans to an SCI (socit civile immobilire a special type of property-holding company often used to invest in French property, especially by non-residents) will no longer be deductible for wealth-tax purposes.
For 2011, the new EUR 1.3 million threshold also applies, but otherwise the existing rate bands are unchanged.
Under the existing rules, rates range from 0.55% to 1.8% and the bands are cumulative. The deadline for returns and payment, normally 30 June, has been extended to 30 September 2011 in the case of 2011 returns.
Wealth tax is payable on a persons net taxable assets as at 1 January of the relevant tax year. For residents of France, the tax extends to worldwide assets, whereas for non-residents, only assets situated in France (second homes, for example) are taxable.
Other changes to personal taxation include abolition of the bouclier fiscal (tax shield) under which a Frenchresident taxpayers aggregate liability to income tax, social security contributions on investment income, wealth tax and property tax on the taxpayers principal residence could not exceed 50% of the previous years taxable income.
Second-home tax dropped at last moment
In a surprise move, another element of the tax reform, a new tax on non-resident owners of second and holiday homes in France was dropped from the Bill before it was presented to the upper house of the French parliament, the Senate.
The government announced the decision on 20 June, after the tax had already been approved by the lower house, the Assemble Gnrale. The new tax would have been charged at 20% of the homes theoretical annual rental value on all non-resident owned property, except for the principal residence. It would have replaced an income tax on three times the annual rental value of French property, payable only by residents of countries outside the European Union which do not have an appropriate tax treaty with France (see also below).
There were doubts as to whether the tax would have been compatible with European law, as there appeared to be no exemption for residents of other EU Member States.
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