The French parliament has approved the amended Finance Bill 2013 and the new Finance Bill 2014. The bills include changes to corporate taxation, individual taxation and indirect taxes. Some of these important measures are described below.
Changes in corporate taxation
- The exceptional corporate income tax contribution, due by companies whose turnover exceeds EUR 250 million, is increased from 5% to 10.7% for fiscal years closing on or after 31 December 2013. As a result, the corporate income tax rate for aforementioned companies increases from 33.3% to 38%.
- French taxable entities will no longer be able to deduct interest payments to related entities if the interest is not sufficiently taxed at the recipient. A tax rate of 8.33% (25% of the French corporate income tax rate of 33.3%) is sufficient. Taxation at the recipient does not actually have to take place: non-taxation due to e.g. deductible losses at the recipient, poses no problem for deductibility at the French entity.
- An additional exceptional tax has entered into force. The tax, at a rate of 50%, will be levied from companies paying salaries that exceed EUR 1 million. The tax to be levied is capped at 5% of that years turnover.
- In case of business restructuring that involved a transfer of function or risks between linked entities and a decrease of 20% of the transferring firm’s operation result, that transferring firm must prove it has received an at arm’s length price. This applies for national and international transfers.
- Companies whose turnover of assets amount to at least EUR 400 million, are owned by 50% or more by such a company, or own
- 50% or more of such a company must keep their transfer pricing documentation at the disposal of the tax authorities at all times. This includes general documentation about the group, specific information about the company, an annual return on transfer pricing and as of 1 January 2014: rulings from foreign tax authorities related to other companies of the group.
- For fiscal years ending on or after 31 December 2013, the deadline to file the balance statement of the corporate income tax is set at 15 May instead of 15 April for companies whose fiscal year ends at 31 December.
Changes in individual taxation
- As of 1 January 2014, an exit tax on unrealised capital gains on shares is due if the individual transfers their tax residence outside of France and has been a French tax resident for at least six of the ten years prior to his departure and owns at least 50% (2013: 1%) of the shares in a company (or owns shares that are worth EUR 800,000 or more (2013: EUR 1.3 million).
- The French personal income tax rates have been reviewed for the year 2013. The progressive rates had not been reviewed since 2011.
- Private individuals will now pay 45% personal income tax on all income above EUR 151,200.
- A 25% exemption applies on capital gains realised on real estate (except for construction sites) between 1 September 2013 and 31
- August 2014. For built real estate located in an urban area with at least 50,000 inhabitants, the tax relief mentioned above applies until 31 December 2016, if the buyer intends to demolish the building and rebuilt residential premises.
- As of 1 January 2014, the period during which the owner of real estate (construction sites excluded) has to pay income tax on the value of the land has been decreased from 30 years to 22 years. Social contributions will still have to be paid during 30 years.
- As of 1 January 2014 the exemption on capital gains for qualifying non-residents has been capped at EUR 150,000.
Changes in indirect taxation
- Two out of four French VAT rates have been changed as of 1 January 2014:
- The standard rate of 19.6% has gone up to 20%
- The intermediate rate of 7% has gone up to 10%
- The reduced rate of 5.5% remains unchanged
- The reduced rate of 2.1% remains unchanged.
- As of 1 January 2014, the Minister of Finance has the authority to deny the reverse charge mechanism in the case of VAT fraud ('VAT carousel fraud'). The reverse charge mechanism applies for construction work sub-contracting agreements entered into force as of 1 January 2014.