French Tax Budget 2022

2022 budget – “Projet de Loi de Finances”

The 2022 French tax budget is rather uneventful and does not contain any substantial changes. Some of the proposals have already been adopted without any amendments, but further reviews are expected before the final voting takes place towards the end of the year. The new barème and set allowance limits applicable to 2021 income are set as follows:

• Barème applicable to 2021 taxable income:

• The tax benefit for each extra half family shares is capped at €1,592 under the “plafonnement” rule.  There are specific capping rules for half shares granted in respect of disabled dependants, parents who have brought up children on their own,  war widows, and army veterans.
• Households which include married or Pacsed (Pacte Civil de Solidarité) children or children with dependants, may benefit from an annual tax-free allowance of €6,042.  The same amount is awarded as a tax deduction if a taxpayer provides support (food allowance) to a child over 18.  The deduction is doubled (€12,084) where the child is a single parent or is married/Pacsed.
• Capping of the 10% annual pension allowance: €3,912 per household, with a minimum deduction of €400.
• Capping of the 10% allowance on salaries: €12,829 per person, with a minimum of €448.  
• Annual allowance for housing a person aged over 75: €3,592
• The deemed total annual income which can trigger a mandatory taxation based on “unexplained” external signs of wealth is updated to €47,863. This is calculated through a notional means-test using deemed income streams and levels for each “sign of wealth”.
• The tax abatement for households with taxpayers who are over 65 years old or disabled will increase to €2,484 where the taxable income falls below €15,560 and to €1,242 for those with taxable income between €15,560 and €25,040.
• The maximum annual charitable donations eligible for a tax credit in respect of donations made to “organisations assisting people in difficulty” is set to €562 for 2022.
• €25,705 is the taxable income limit under which a taxpayer may benefit from a nil rate under the “Pay-As-You-Go” system between 01/01/2022 and 31/08/2022 and this increases to €26,065 from 1/09/2022 to 31/12/2022.
• The minimum income tax rate applicable to French source income received by non-residents of France is set at 20% up to €26,070 and 30% thereafter.
• The withholding tax scale on French source salaries and pensions paid to non-French residents is updated as follows:

• The tax credit for the employment of a home helper could be maintained in respect of certain services provided outside the taxpayer’s home such as the delivery of meals, shopping, laundry, driving services, and video assistance for the elderly or anyone with a disability or chronic health condition, to also cover the services of accompanying children to and from home. The general capping of the tax credit is €12,000, with the following sub-limits:

            - €500 for small DIY jobs;

            - €3,000 for IT assistance;

            - €5,000 for small gardening jobs. 

• Businesses taxed under the simplified Micro regimes may opt for the itemised taxation regime. The election must be made before 1 February of the relevant tax year; this makes it difficult to assess the true benefit of the option as the income for the period is not yet known.   To resolve this issue taxpayers may now opt for the itemised regime at the time they file their return and therefore when they have all the financial details pertaining to their activity and for the relevant tax year.

Other News:

Unreported foreign accounts and policies

Where non-French banks accounts, life assurance policies, capitalisation bonds and wrappers have not been duly reported at least once during the preceding ten years, the French tax administration may request full information and evidence pertaining to these holdings and any associated income or gains. In the absence of a reply within sixty days, the administration may tax these holdings on a mandatory basis and apply a 60% levy which applies to gifts between unrelated individuals.

In July 2020, the Conseil Constitutionnel was asked to examine whether this measure respected the constitution and more importantly, whether it was breaching the principle of equality before tax & public charges. The Conseil recently concluded that the measure was indeed constitutional in that its objective was to combat tax fraud and evasion and that it rationally and objectively treated undeclared holdings as a sum acquired on a gratuitous basis. It was further concluded that, when applying these rules, the administration does not target any particular taxpayers and that anyone faced with such enquiry still has the opportunity to evidence the origins of the funds in question.

Computation of taxable gains on stocks and units

Taxable gains or losses realised on the sale of stocks, shares, and collective investment units (SICAVs, Unit trusts etc) are normally determined as the difference between the purchase price and the disposal value. In the case of multiple acquisitions of the same instrument at different dates it is, in principle, necessary to establish the aggregated average base cost and convert each purchase and sale using the exchange rate for each relevant date.

In practice, many choose to simply report the gain or loss calculated by the investment manager and convert it into Euros at the date of disposal. Indeed, determining the aggregate average on a complex portfolio with potentially thousands of entries could become an administrative nightmare.

In September 2020, the Conseil d’Etat commented on the computation of gains from the disposal of assets held in a foreign currency. It confirmed a ruling published in 2020 by the Paris Administrative Court and specified that in all cases it was necessary to determine the base costs and sale values using the exchanges rates at the relevant purchase and sale dates. This means that unrealised currency gains are taxed, but also that unrealised currency losses may benefit taxpayers as the case may be. 

Setting up a business in France – What is changing?

If you are thinking of setting up a business in France, you will need to register with the French tax administration (Centre de Formation des Entreprises or CFE) and various other organisations.

There are currently seven different CFE networks managed by various trades and chambers, registries, administrative offices etc.  The relevant organisations depend on the place of establishment, the type of activity and the business’ legal form.

The 2019 law to promote business growth (PACTE), is gradually replacing these different networks with a single online platform (“Inpi” - guichet-entreprises.fr) for all business formalities regardless of sector or legal form.  the application via the platform will then be routed to the competent organisations and CFEs.  The change is expected to be fully implemented by 2023 following the timetable below: implementation:

Since 1 April 2021: Certain agents have been able to use the new one-stop shop platform for their clients’ new business applications.

Since July 2021: The new system opened to all agents.

From early 2022: All businesses will be able to use the new system.

From 1 January 2023: The one-stop shop system “Inpi”, will completely replace the old system.  All companies will have to use this for their start up formalities at the start of their activity, with the Inpi and via guichet-entreprises.fr

During the transition period, businesses can continue liaising with their relevant CFE and paper submissions are permitted until 31 December 2022.

Once the start-up dossier has been processed business owners will obtain their unique identifiers assigned by INSEE (Siren and Siret number, APE code), and where relevant, and intra-Community VAT number essential for all commercial transactions within the European Union and French social security registration. Any Individual entrepreneurs operating under the micro-enterprise regime may also declare their activity on the autoentrepreneur.urssaf.fr site.

French succession law scrutinised by the European Commission

As announced in many publications, changes were introduced to French succession law with effect from 1^st November 2021. The new measures’ aim is to uphold French forced heirship to protect Muslim women’s French succession rights in instances where Sharia law may apply. However, the legal change is drafted in such a broad manner that it may affect all international successions. In practice, this would only affect succession where children actively claim their forced heirship rights. The European Commission recently launched an investigation into this matter since it directly conflicts with the EU succession regulation provisions. 

Should you have any queries please contact Virginie Deflassieux or Catherine Le Pelley. 

This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only.  It cannot be relied upon to cover specific situations without obtaining professional advice.

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