France - Year-end tax changes affecting corporations, individuals, VAT rates 

Changes affecting corporations, VAT rates

Among the measures included in the legislation affecting corporations and the value added tax (VAT) are provisions that:

• Introduce a competitiveness tax credit of 4% of eligible expenses, to be based on a company’s payroll
• Limit a company’s tax loss carryforwards (no limit on profits up to €1 million and up to 50% (down from the current 60% limit) of profits exceeding the €1 million threshold)
• Further limit the deduction of interest under the thin cap rules, so that 15% of net interest expenses are not deductible (25% beginning in 2014)
• Provide for increased taxation of capital gains on qualifying participations for French corporate taxpayers, and of capital gains on substantial participations of foreign taxpayers
• Amend the rules for when contribution of receivables triggers taxable profit
• Impose tax on contribution of shares by foreign taxpayers
• Impose tax on the transfer of headquarters or a permanent establishment from France to another EU Member State
• Reduce the rates available for the R&D tax credit
• Increase the amounts of corporate income tax installment payments for large corporate taxpayers
• Extend the 5% “exceptional” contribution of corporate income tax through 2015
• Modify the value added tax (VAT) rates
• Reducing the “reduced VAT rate” imposed on food, energy, etc., from 5.5% to 5%
• Increasing the VAT rate imposed on restaurants, residential repairs or construction, etc. from 7% to 10%
• Increasing the standard VAT rate from 19.6% to 20%

Changes affecting individuals

Among the provisions affecting individual taxpayers are measures that:

• Introduce an increased marginal rate, with an additional tax bracket of 45% on net taxable income exceeding €150,000
• Introduce an “exceptional” additional contribution of 18% (which, with the 45% rate, the existing 4% exceptional tax on high income earners, and the 8% social security contribution, results in an overall tax rate of 75%)
• Repeal the flat-rate tax on dividends and interest
• Amend the taxation of capital gains and shareholdings
• Amend the tax regime for capital gains on real estate sales
• Revise the rules for contribution of shares by individuals and on gifts (donations) of shares followed by the sale of the shares
• Change the rules for the taxation of stock options and “free shares”
• Increase the wealth tax rate to 1.5%, up from 0.5%, on individuals whose net assets have a value of €1.3 million or more

Read a December 2012 report [PDF 219 KB] prepared by FIDAL*: Year-end tax changes: Finance Act for 2012 and 3rd Corrective Finance Act for 2012 (December 20, 2012)

For more information, contact a tax professional with FIDAL*

Olivier Ferrari, Tax Partner

+33 (0)1 55 68 14 76

Patrick Seroin, Tax Partner

+33 (0)1 55 68 15 93

Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York

+1 212-954-8605

* FIDAL is an independent legal entity that is separate from KPMG International and its member firms.