Law n° 2012-1509 dated 29 December 2012 published in the official Journal
Main measures ruled unconstitutional:
- increase of social charges bear by the employee on the acquisition gain of stock-options and free shares;
- the 75% income tax;
- reform of real estate capital gains.
Introduction of a new tax bracket at 45% for personal income tax
The personal income tax progressive scale includes a new tax bracket at 45% for income above a threshold of 150,000 Euros per share of the family quotient. The new tax bracket is applicable before the cap of the family quotient.
End of flat tax rates for dividends and interest
Dividends and interest are taxed under the progressive scale (plus social contributions amounting to 15.5%). The tax allowance on dividends amounting to 40% is still maintained. However, the current additional tax allowance for dividends of 1,525 Euros or 3,050 Euros, depending on the personal situation of the recipient, is abolished. Finally, the deductible portion of the general social contribution is lowered to 5.1% (instead of 5.8%). An advance payment obligation is applicable (21% for dividends and 24% for interest), withheld at source, and implemented in 2013.
End of flat tax rates for capital gains on share disposals
The flat tax rate for personal income tax amounting 19% (plus social contributions amounting to 15.5%, making an overall tax rate of 34.5%) is increased for capital gains on share disposals carried out in 2012. The latter are taxed at a global tax rate of 39.5%.
As from 1 January 2013, capital gains are subject to personal income tax progressive scale; leading to a maximum tax burden of up to 60.5% (social contributions remaining applicable). However, the net capital gain is reduced by a tax allowance for the holding period (20% between two and four years, 30% between four and six years, 40% after six years). The favourable regime benefiting managers of SMEs in the event of retirement remains applicable until 30 December 2017.
Favourable regime for entrepreneurs (flat tax rate of 19%)
Capital gains on share disposals benefit, under option, from a flat tax rate for personal income tax amounting to 19% without the tax allowance (plus social contributions amounting to 15.5%, i.e. an overall tax rate of 34.5%). Various conditions need to be met.
First, the company must operate an economic activity. This condition must be met on a continuing basis for at least ten years before the sale. In addition, shares must be held on a continuous basis, directly or not, over five years before the sale. Shares sold must represent 10% of voting and financial rights during at least two years within the ten years before the sale. On the day of the sale, the shares sold need to represent at least 2% of voting and financial rights. Finally, the seller must be a manager or employed continuously over the five years before the sale.
Amendment to the mechanism of deferral taxation applicable to capital gains on share disposals
The deferral taxation treatment granted upon reinvestment of the proceeds remains applicable but is slightly amended. The seller must now reinvest at least an amount corresponding to 50% of the capital gain (net of social contributions) within a 24-month period. However, any portion of the capital gain not reinvested is taxed.
End of flat tax rates for acquisitions gains on stock-options and free shares
The flat tax rates for personal income tax amounting to 18% to 41% are abolished for acquisitions gains on stock-options and on free shares (plus social contributions amounting to 15.5%). Acquisitions gains on stock-options and on free shares are taxed under the progressive scale amounting up to 45% plus 8% of social charges on employment income. This measure is applicable to stock-options and free shares granted as from 28 September 2012.
Return to a progressive scale for wealth tax
The progressive scale is restored for taxpayers whose taxable net assets exceed a threshold of 1,300,000 Euros. The tax rates range from 0.5 % (for taxable net assets between 800,000 Euros and 1,300,000 Euros) to 1.5% (for taxable net assets exceeding a threshold of 10,000,000 Euros). A mechanism capping the amount of tax to 75% of the income is applicable (the amount of tax including, notably, wealth tax, personal income tax and social contributions). This measure is applicable as from 1 January 2013.
Global limitation of the tax deduction of interest
The tax deduction of interest is limited to 85% for fiscal years 2012 and 2013 and to 75% as from fiscal year 2014. Therefore, any interest paid to a third party or to an affiliate company is subject to the limitation. This measure is not applicable when interest is less than 3,000,000 Euros. Members of a French tax consolidated group are concerned by the measure but only in relation to interest paid to third parties out of the tax consolidated group. This new measure only applies after the current mechanisms limiting interest deduction (e.g. thin-capitalization rules). This measure is applicable for fiscal years closed as from 31 December 2012.
Amendment to the carry forward of losses
For fiscal years closed as from 31 December 2012, the carry forward of losses is limited to 1,000,000 Euros plus 50% of the profit exceeding this amount (the variable portion being previously set at 60%). This measure has no impact on the time under which losses can be carried forward, which remains unlimited.
Amendment to the taxation of long term capital gains on shares
The corporate income tax is now computed on 12% of the gross capital gain for long term capital gains on shares. Companies cannot offset their long term capital losses against their long term capital gains in order to reduce the tax liability. This measure is applicable for fiscal years closed as from 31 December 2012.
Amendment to the research tax credit for SMEs
A new research tax credit is created for innovation expenditures engaged by SMEs at an ulterior stage of the conduct of research and development when carrying out certain activities such as conceptions of new products prototypes. These expenditures are taken into account up to a limit of 400,000 Euros per year. The tax credit amounts to 20%.
In addition, the increased tax credit rates (40% and 35%) applicable to the first two years of election for the research tax credit are abolished.
These measures are applicable to expenditures incurred from 1 January 2013.