Update on 2023 French tax budget, compulsory online filing for all French property owners due by July 2023 and a reminder of look-through taxation measures under Article 123 bis and exit tax exposure.
1. 2023 French Budget Voted
The 2023 French budget measures outlined in our November 2022 bulletin were all approved were voted in and published on 31 December 2023. As a reminder, the income tax scale applicable to 2022 income is as follows:
Income Bands (€) - 2022 taxable income
|Up to 10,777
|Between 10,777 and 27,478
|Between 27,478 and 78,570
|Between 78,570 and 168,994
|In excess of 168,994
The 2023 wealth tax limit is maintained at €1.3 M as at 1st January 2023. The tax applies to real estate assets held directly or indirectly and it is important to remember that these include certain real estate investment funds even if held through a life assurance policy or pensions. Individuals who have been French tax residents for over 5 years, are assessed on a worldwide basis. The wealth tax scale rate remains the same as in 2022.
|Taxable wealth (€) as at 1 January 2023
|Up to 800,000
|Between 800,000 and 1,300,000
|Between 1,300,000 and 2,570,000
|Between 2,570,000 and 5,000,000
|Between 5,000,000 and 10,000,000
Taxpayers who claim an income tax credit for the employment of home helpers, cleaners. gardeners, and other similar services, now need to detail the types of services these claims relate to alongside the details of the providers.
2. Taxe d’Habitation Reform – Compulsory Reporting for all French Property Owners due before July 2023
The Taxe d’Habitation (local occupiers’ rates) reform introduced within the 2020 Loi de Finances has progressively phased out the Taxe d’Habitation. From 2023, this levy only applies to properties which are not used as a principal residence, and it is now labelled : Taxe d’Habitation sur les Résidences Secondaires et autres Locaux Meublées non affectés à l’Habitation Principale or « THRS» acronym.
Certain specific local levies are maintained such as:
- The increased Taxe d’Habitation tariff for second homes in defined areas with low dwelling availability.
- Taxes sur les Logements Vacants or empty dwelling rates.
All French property owners must complete an online form before 1 July 2023 and update this every year where necessary. The information thereby reported will be used by the French administration to establish and manage the annual THRS and empty dwelling rates. The form is accessible on the impots.gouv.fr website in the “gérer mes biens immobiliers” section. Omissions, errors, or insufficient reporting may trigger a € 150 penalty per building. Landlords need to state the following details to successfully complete the filing for each property they own noting that this extends to certain ancillary buildings, garages etc:
- Personal or third parties’ occupation.
- A description of the property’s use: main or secondary residence, rented furnished or unfurnished, occupation by a third party free of charge, vacant (unfurnished and unoccupied) etc.
- The occupier’s identity, for individuals the form requires their full name & date of birth and for companies or other legal entities the registered name and SIREN.
- The length of the lease or property occupation and any changes, specifying the end & start dates of each new lease and the identity of new tenants/occupants.
- For seasonal rentals, landlords need to state the start of the rental period, property management details (directly or through a rental management contract excluding any personal use, manager’s identity, and SIREN for businesses and whether the property is registered as a “meublé de tourisme classé”.
- Monthly rent excluding charges (optional)
3. Anti-Tax Avoidance Article 123 bis - Offshore Investment-Holding Entities
Long-standing French tax code Article 123 bis contains measures to bring income and gains arising within certain low-tax jurisdiction investment holding entities within the scope of French income taxation. These rules apply where all conditions below are met:
i) The entity is established in a low tax area or jurisdiction, or in a blacklisted non-cooperative territory. As at 3 February 2023, the territories stated on France’s blacklist were as follows: American Samoa, Anguilla, Bahamas, British Virgin Islands, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad & Tobago, Turks and Caicos, US Virgin Islands, and Vanuatu.
A “low tax regime” is defined as one resulting in a tax liability which, on average, is half or less compared to the average French corporate tax liability. The current French general corporation rate is 15% up to a taxable profit of €38,120 and 25% thereafter.
ii) Over 50% of the entity’s assets consist of financial assets.
iii) The French resident taxpayer, directly or indirectly, holds at least a 10% of the entity’s financial and/or voting rights. The 10% holding ownership threshold is automatically deemed to be attained where an individual has transferred assets or rights to an entity in a blacklisted jurisdiction and, from 2022, for settlors or beneficiaries of discretionary settlements. In this context a trust’s irrevocable & discretionary nature cannot be solely relied upon as evidence to the contrary. When it comes to trust situations, it is not yet clear whether the French tax administration will apply a minimum deemed 10% share or different apportionments.
This anti-avoidance rule does not apply to EU entities as long as the structuring cannot be treated as an artificial arrangement aimed at eluding French tax legislation. In the case of non-EU entities, Article 123 bis provisions may be avoided on the same basis, provided the entity is not established in a blacklisted territory and is registered in a territory which has signed the following agreements with France:
i) An agreement to fight against tax fraud and evasion (“Convention d’Assistance Administrative en vue de Lutter contre la Fraude et l’Evasion Fiscales”); and
ii) An agreement for the recovery of taxes which meets similar conditions as set out in EU Directive 2010/24/EU of 16.03.2010 (“Convention d’Assistance Mutuelle en Matière de Recouvrement des Créances Relatives aux Taxes, Impôts, Droits et Autres Mesures”).
Where the legal entity is established in a territory which does not meet the above conditions, taxation on a look-through basis shall not apply if the French tax resident individual demonstrates that the principal objective and effect of exploiting the entity, or of holding shares, rights, financial rights or voting rights therein, is not to locate its profits or income in a territory where the entity benefits from a low-tax regime.
Where FTC Article 123 bis applies, the entity’s profits increased by 25%, are deemed distributed to the French taxpayer and subject to French income tax on a look-through basis. If the entity is situated in a blacklisted territory or a jurisdiction which does not have the treaty mentioned in (i) above, the taxable profit cannot be below a set minimum return (2.25 % for 2022).
The statutory limitation is three years extended to six years in cases of fraud, and to ten years, in the presence of a trust. The resulting liabilities may suffer penalties ranging from 10%, 40% or 80%, depending on the particulars of the case.
4. Exit Tax
When planning a relocation outside France, it is important to consider the potential impact of exit tax. This applies after spending at least six years in France in the ten-year preceding the departure (not necessarily on a continuous basis). Exit tax allows the French tax authorities to assess uncrystallised gains on shares, titles, rights representing at least 50% of the company’s profit rights or, if the value of the taxpayer’s total investment holdings exceeds €800,000. It may also apply regardless of the length of residence to any carried-over investment gains. In practice, this does not affect many taxpayers and the payment of the liability is automatically suspended when relocating to an EEA member state. A suspended payment may also be claimed when relocating outside the EEA provided the move is not to a blacklisted territory.
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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