Residents of France for tax purposes are liable to French income tax on all their French or foreign income regardless of their nationality.
Personal income tax: the tax is assessed on the basis of the different income received by a tax household comprising the taxpayer, his/her spouse and dependent children. The actual tax rate depends on the size of the household according to a progressive scale from 0 to 45%.
The assessment conditions include a large number of provisions that enable tax liability to be tailored to personal circumstances. Besides deductions, there are a battery of tax credits such as the tax reduction for employing a home help and the tax credit for childcare expenses.
Arrangements that are income-category specific mean that tax rates can be lowered. For instance, taxation of bonus shares has been reduced for recipients.
There is also a highly advantageous exemption regime for expatriate employees in France.
30% flat-rate levy
The 2018 Budget Act reformed the tax treatment for investment income by creating a single flat-rate levy.
Tax breaks as from 2018 :
For French residents : the 30% flat-rate levy (of which 12.8% for income tax and 17.2% in social levies) applies to investment income including dividends, interest and capital gains on the disposal of securities and shares.
The 40% allowance on dividends and similar income does not apply. However, taxpayers may opt for taxation under the progressive income tax scale, in which case, the 40% allowance can apply.
For non-residents : the withholding tax applicable to capital gains on the disposal of shares deriving from “substantial interests” (i.e. above 25%) has been lowered to 12.8%.
Tax regime for expatriate employees in France
The tax scheme for expatriate employees provides for partial tax exemption for part of the income, expatriation bonuses and compensation related to assignments carried out abroad of foreign employees and senior managers taking up positions in France. It also provides benefits in terms of liability for property wealth tax (IFI).
To bolster its appeal, this temporary regime (maximum of eight years in addition to the year of arrival in France) has been enforced and completed. There is now an exemption on payroll taxes.
For more information : Accueil > International Particulier > Je viens ou je reviens en France > Taxation for those arriving in or returning to France > Special expatriate tax regime
Expatriate staff called upon to work for a limited period in a company based in France must carry on their activity as salaried employees, or as senior managers treated in the same way for tax purposes.
They must be residents of France for tax purposes as from the date when they take up their duties in France.
They must not have been residents of France for tax purposes during the five calendar years prior to their taking up their duties in a company based in France.
Workers remain eligible for the tax regime for expatriate employees even if they change position within a group of companies based in France or change company within the same group whether to carry out similar duties or not.
Barring exceptions, the exempted compensation must be stipulated in the beneficiary’s employment contract or letter of assignment.
The regime grants exemption from income tax for both earned income and some income from assets from foreign sources.
Earned income: Certain compensation items relating directly to professional activity in France, such as the expatriation bonus, are exempted either for their actual amount, or if the individual so elects, for a fixed amount of 30% of net foreign compensation. Moreover, when the employee travels abroad in the direct and sole interest of the French company, a portion of the compensation relating to the assignment abroad may also be tax exempt.
The Finance Act for 2017 introduced a new provision : remunerations which are within the scope of the expatriates' scheme are exempt from payroll taxes. The purpose of this measure is to supplement the scheme applicable to expatriate employees by an incentive measure on the taxation of employers.
Income from assets: A tax exemption is granted on 50% of total income from investments, capital gains on the disposal of securities and company shares held abroad. At the same time, capital losses that may be suffered on these securities are taken into account at 50% of their value.
Property wealth tax (IFI): Wealth tax has been abolished and replaced by property wealth tax. The taxable threshold (€1.3 million) and the progressive tax scale remain the same. Unlike the wealth tax, the scope of the tax base is limited to the taxpayer’s property assets in France or abroad. For individuals who have transferred their tax residence to France and, provided they were not residents of France for tax purposes during the five calendar years prior to the year when they transferred their residence, assessment for property wealth tax is restricted to property located in France. This temporary exemption applies until 31 December of the fifth year following the year of the transfer. This measure also applies irrespective of the reason for becoming resident of France for tax purposes (changing job, retirement, etc.).
For more information, please consult the official documentation: BOI-RSA-GEO-40-10-20
Allocation of bonus shares
Listed or unlisted joint stock companies may allocate bonus shares to all or part of their workforce.
An Extraordinary General Meeting (EGM) must adopt a resolution authorising the board of directors or management board to allocate bonus shares. The resolution sets the vesting period after which the share allocation becomes final. The period may not be less than one year.
The EGM also sets the minimum period during which the beneficiaries must keep the shares before selling them. The EGM is not bound to stipulate a minimum retention period, however, the aggregate term of the vesting and retention periods may not be less than two years.
Following these periods, the shares may be freely sold.
[Vesting period Final allotment Mandatory retention Sale
Minimum of one year No Minimum
Minimum blocking period of two years ]
Shares may be allocated to employees or senior managers under the terms set by the rules governing the company’s allocation plan. Allocation may be conditional upon presence in the company, seniority, individual performance levels or the company’s earnings.
For the issuer: The employer’s contribution is 30% on bonus shares (subject to certain conditions; exemptions for SMEs apply). It is due the month after vesting. Since December 31, 2017 the rate is lowered to 20%.
The expenses incurred by the company for the allocation of bonus shares and capital losses on buying back its shares may be deducted from taxable income.
For employees and corporate officers: The recipient of bonus shares is taxed both on the gains from vesting and the capital gains on disposals. The tax is owed for the year of sale.
- Gains from vesting are calculated taking the share price on the vesting date.
- Capital gains on disposals are the difference between the sale price and the share price on the vesting date.
- shares awarded as of December 31, 2017: the share of the acquisition gain of free shares exceeding € 300,000 over one year is taxed according to the ordinary rules of wages and salaries whereas the share of the acquisition gain not exceeding € 300,000 is subject to the progressive income tax scale after a relief of 50%.
- shares awarded between December 2016, 31 and December 30, 2017, the share of the acquisition gain of free shares exceeding € 300,000 over one year is taxed according to the ordinary rules of wages.
- shares awarded between December 31, 2016 and August 8, 2015, legislation has brought taxation of gains from vesting into line with taxation of capital gains on disposals. In practice, both these gains are subject to the progressive income tax scale under the arrangements applying to capital gains on the disposal of securities. If applicable, they are eligible for relief for length of ownership of securities. The vesting date is the starting point for the ownership period. Relief for length of ownership is 50% of the gains from vesting when the shares have been held for at least two years and 65% when they have been held for at least eight years (there may be more advantageous conditions for SMEs).
Social levies of 15.5% on income from assets also apply, with the general social security contribution (CSG) being partially deductible. Any capital losses on the disposal of securities are deducted from the amount derived from the allocation of the bonus shares.
If the procedure and blocking period are not complied with, the gains from vesting will represent additional compensation that is taxable in the wages and salaries category as from the vesting date.
MAJ le 14/03/2018