Submitted in the Council of Ministers held September 28th, 2012
Introduction of a new tax bracket at 45%
The personal income tax progressive scale will include a new tax bracket at 45% for income above a threshold of 150,000 Euros per share of the family quotient. The new tax rate should be applicable to income received in 2012. As a reminder, under the scale applicable to income received in 2011, a maximum 41% rate was applicable to the taxable income exceeding 70,830 Euros.
End of flax tax rates for dividends and interest
Dividends and interest currently benefit from an election to a flat tax rate for personal income tax amounting to 21% for dividends and 24% for interest (respectively 36.5% and 39.5% with additional social contributions of 15.5%). It is contemplated that such income be taxed under the progressive scale for dividends and interest received in 2012, social contributions remaining applicable: thus the maximum tax burden would be up to 60.5%. Such measure would be completed with an advance payment obligation, withheld at source, and implemented in 2013 for an amount corresponding to the current flat tax. Therefore dividends and interest received in 2012 and subject to the flat tax would be taxed for a remaining amount due in 2013.
The current tax allowance of 1,525 Euros or 3,050 Euros, depending on the personal situation of the recipient, applicable to dividends under the ordinary progressive scale would be abolished as from 2012. Finally, the deductible portion of the general social contribution would be lowered from 5.8% to 5.1% (the general social contribution is included in the computation of additional social contributions amounting to 15.5%).
End of flat tax rates for capital gains on share disposals
Capital gains on share disposals currently benefit from a flat tax rate for personal income tax amounting to 19% amounting to an overall tax rate of 34.5% with social contributions. It is contemplated that capital gains be taxed under the progressive scale for sales carried out in 2012, social contributions remaining applicable (so a maximum tax burden up to 60.5%). In order to mitigate this change, sales carried out in 2012, 2013 and 2014 would benefit from a favourable regime. In addition, a mechanism of a tax allowance would be implemented in order to take into account a holding period (up to 40% for a holding period of 12 years) computed as from January 1st, 2013. The favourable regime benefiting managers of SMEs in the event of retirement remains applicable.
End of flat tax rates for acquisitions gains on stock-options and free shares
Flat tax rates are currently applicable to acquisition gains on stock-options (ranging from 18% and 41% depending on the amount received) and on free shares (30%), social contributions being due in addition. It is contemplated that these acquisition gains be taxed under the progressive scale; thus they would be subject to a maximum tax burden up to 60.5%. In order to mitigate the impact of this measure, tax due on this income would be computed under a system allowing a limit on the tax burden for taxpayers below the maximum tax brackets. This measure would be applicable to acquisitions gains taxed at the time of share disposals carried out in 2012.
Exceptional contribution of 75%
An exceptional contribution would be computed on the portion of income from activities exceeding 1,000,000 Euros per beneficiary. Actually such contribution would amount to 18%. Added to the contemplated tax bracket of 45%, to the current contribution of 4% on high incomes and the social contributions on activities income (8%), the overall tax rate would amount to 75%. This measure would be implemented only for two years for income received in 2012 and 2013.
Additional tax allowance on real estate capital gains
Capital gain on real estate assets other than land would benefit from an additional tax allowance of 20%, only on the income tax but not on the social contributions, after the application of the current tax allowance for holding period. Such new tax allowance would be applicable only for personal income tax which remains at 19% (computation of social contributions of 15.5% remains unchanged). This measure would be applicable for sales carried out as of the enactment of the Finance Act. However the exemption on capital gain on the sale of main residence remains applicable.
Return to a progressive scale for wealth tax
The current taxation under a single flat tax rate of 0.25% or 0.50% depending on the amount of taxable net assets would be abolished. A progressive scale would be applicable to taxpayers whose taxable net assets exceed a threshold of 1,310,000 Euros, ranging from 0.50% (for taxable net assets exceeding a threshold of 800,000 Euros) to 1.50% (for taxable net assets exceeding a threshold of 10,000,000 Euros). This measure would be applicable as from January 1st, 2013. A mechanism capping the amount of tax to 75% of the income would be implemented.
Limitation of the tax deduction of interest
Interest on loans is currently fully deductible for corporate income tax except in certain cases e.g. application of thin-capitalization rules. It is contemplated, as a principle, to cap the portion of deductible interest to 85% for fiscal years 2012 and 2013 and 75% as from 2014. Therefore, any interest paid to a third party or to an affiliate company would be subject to the limitation. Members of a French tax consolidated group would be concerned but only in relation to interest paid to third parties out of the tax consolidated group. This measure would not be applicable when interest is less than 3,000,000 Euros.
Amendment to the carry forward mechanism
Currently, losses can be carried forward up to 1,000,000 Euros plus 60% of the profit exceeding this amount. For fiscal years closed as from December 31st, 2012 the carry forward of losses is limited to 1,000,000 Euros plus 50% of the profit exceeding this amount. This measure has no impact on the time under which losses can be carry forward which remains unlimited. This measure would be applicable as of the enactment of the Finance Act.
Amendment to the taxation of long term capital gains on shares
Companies making long term capital gains on shares currently enjoy favourable taxation treatment as corporate income tax is computed on only 10% of the net capital gain. It is contemplated that the corporate income tax be computed on 10% of the gross capital gain preventing companies from offsetting their long term capital losses against their long term capital gains. This measure would be applicable to disposals carried out as of the enactment of the Finance Act.
Amendment to the advance payments mechanism of corporate income tax
The scope of companies subject to the fifth advance payment of corporate income tax advances would be increased since it will now concern companies whose turnover meets or exceeds a threshold of 250,000,000 Euros, instead of 500,000,000 Euros currently. In addition, the computation rules of this advance payment would be modified in order to accelerate the payment of corporate income tax due (e.g. it should be equal to 75% of the estimated corporate income tax due for companies whose turnover does not exceed 1 billion Euros, instead of 66% today). This measure would be applicable to fiscal years opened as from January 1st, 2013.
Amendment to the research tax credit
The research tax credit will be extended to innovation expenditures engaged by SMEs at an ulterior stage of the conduct of research and development when carrying out certain activities such as of conceptions of new products prototypes. These expenditures, relating to amortization of capitalized assets, would be taken into account for the computation of the tax credit up to 400,000 Euros per year under a rate of 20%. However, the higher tax credit rates applicable to the first two years of election for the research tax credit are abolished. These measures should be applicable to expenditures contracted as of the enactment of the Finance Act.
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