French social security contributions
The French social security system is composed of various schemes providing a wide range of benefits. This system includes social security basic coverage (sickness, maternity, disability, death, work-related accident benefits, and old age state pension), unemployment benefits, compulsory complementary retirement plans, complementary death/disability coverage, and complementary health coverage.
The contributions are shared between employer and employee; on average the employer's share of contributions represents 45% of the gross salary. For 2019, the employee’s share of French social contributions represents approximately 20% to 23% of the remuneration. However, since the contributions are assessed using various ceilings, the average rate will decrease as the gross salary increases.
Employers' contributions made to additional medical coverage schemes (which are mandatory and collective) are taxable.
Generally, for any employee who carries out a salaried activity in France, the employer withholds the employer's share and pays the employer's share of French social security charges. However, France has entered into agreements with more than 40 countries whereby expatriates temporarily transferred to France may remain under the home country social security schemes and are exempt from French charges (scope of the exemption according to the applicable provision of the bilateral agreement), provided they hold a valid certificate of coverage.
Capital gains tax
Capital gains tax on securities
Capital gains derived from the sale of securities are subject to PIT at a flat tax rate (PFU) of 30% (12.8% for income tax, plus social levies at a rate of 17.2%), and, if applicable, to the exceptional income tax for high earners at a maximum marginal tax rate of 4%.
Taxpayers with low income may have interest to opt to tax the capital gains at the progressive income tax rates.
If they opt for a taxation at the progressive income tax rates, they can benefit from a rebate for length of holding, but only for shares acquired or subscribed before 1 January 2018.
This rebate for length of holding is as follows:
- 50% for holding between two and eight years.
- 65% after eight years of holding.
The PFU also applies to capital gains due upon transfer of tax residency outside of France (i.e. exit tax).
A specific regime applies to capital gains derived from sales of shares in small and medium companies (PMEs) created less than ten years ago and to capital gains currently taxed under a preferential regime (notably regimes applicable to young innovative companies' securities), assuming that the shares were acquired before 1 January 2018 and that the taxpayer chose to opt for the taxation at the progressive income tax rates. It consists of a rebate for length of holding on the net gain, as follows:
- 50% for holding between one and four years.
- 65% for holding between four and eight years.
- 85% after eight years of holding.
On top of this increased rebate, a preliminary fixed tax allowance of EUR 500,000 applies for PME executives upon retirement.
The above rebates only apply to income tax and not to social surtaxes, which remain due at the rate of 17.2%.
Capital gains tax on real estate properties
Various regimes apply to the capital gain tax on real estates. It is therefore highly recommended to refer to a real estate tax specialist to confirm the applicable tax treatment.
Capital gain derived from the sale of a principal residence is tax-free.
A similar tax exemption is possible for individuals who have transferred their tax residency outside of France in a member country of the European Union (EU) or in a country or territory that has concluded with France a treaty on administrative assistance to combat tax evasion and tax fraud as well as a treaty on mutual recovery assistance for income tax (similar in scope to that laid down by Directive 2010/24/ EU of Council dated 16 March 2010). The country should not be considered as a 'non-cooperative' country. Taxpayers can benefit from the tax exemption of the capital gain derived from the sale of their former principal residence if:
- their former principal residence is sold before 31 December of the year following the year of the transfer, and
- the former principal residence has not been rented to or occupied by a third person between the date of the transfer out of France and the date of the sale.
This tax exemption is applicable for sales that have occurred since 1 January 2019.
Capital gain derived from the sale of another property (for instance, secondary residence) is tax-free if the sales price is less than EUR 15,000.
Capital gains derived from the first sale of a secondary residence are tax-free if the vendor did not own one's principal residence during the four years preceding the sale and if the sale price is reinvested for the purchase of one's principal residence.
In addition, the capital gain relating to the sale of a property in France by a non-French tax resident may be tax exempt, providing that:
- the sale occurs before 31 December of the tenth year following the departure from France, or
- without condition of time if the residence has not been rented to or occupied by a third person since 1 January of the year preceding the sale of the residence.
The individual must have been considered as a French tax resident for at least two years at any time preceding the year of sale.
The exemption is limited to one property per tax household and to EUR 150,000 of net capital gain.
The exemption would also be extended to nationals of non-EU countries that have included a non-discrimination clause in their tax treaty signed with France.
For taxable real estate capital gains, a tax rebate for the holding period is applicable. Regarding real estate held for more than five years, a rebate is applied on the taxable basis as follows:
- 6% for each year of holding after the fifth year.
- 4% for the 22nd year of holding.
This leads to a full income tax exemption of capital gains after a holding period of 22 years.
Regarding social surtaxes (if applicable), the full exemption is obtained only after a holding period of 30 years, the rebate being as follows:
- 1.65% for each year of holding after the fifth year.
- 1.60% for the 22nd year.
- 9% for the years after the 22nd year.
This leads to a full income tax and social surtaxes exemption of capital gains after a holding period of 30 years.
The net gain is taxed at a flat rate of 19% (i.e. a total of 36.2%, including special social surtaxes of 17.2%).
An additional tax is applicable on real estate capital gains exceeding EUR 50,000 and realised on real estate other than building lots. This tax is progressive from 2% to 6% and is applied in addition to income tax and social levies.
The declaration of this capital gain, as well as the payment of the related PIT, is made directly through the notary. However, it must be reported on the annual tax return to determine the ’reference income’ and therefore the potential application of the special surtax on high income of 3% and 4%.
Note that an additional specific tax rebate is applicable to the sale of construction lands (terrain à bâtir) for income and additional surtaxes purposes, under certain conditions.
Individuals who transfer their tax domicile outside of France (and who had their tax domicile in France for six years during the ten years before they break their tax domicile in France) are taxed on the unrealised capital gains on shares and rights held directly by tax household members when these rights either:
- exceed 50% of the shareholding or
- represent a total value exceeding EUR 800,000.
These capital gains or value of receivables will be subject to the PIT at a flat tax rate of 12.8% and social surtaxes of 17.2%. Taxpayers may opt to tax the capital gains at the progressive income tax rates (please refer to the description of Capital gain tax above).
Individuals who have transferred their tax residency outside of France in a member country of the European Union or in a country or territory that has concluded with France a tax treaty covering administrative assistance to combat tax evasion and tax fraud as well as a tax treaty on mutual recovery assistance for income tax (excluding 'non-cooperative' countries) are benefiting from an automatic payment deferral. In such a case, the payment of tax will be deferred up to the date of disposal of the securities or rights.
If the individual finally comes back to France, or after the expiry of the specified time period, the gain or rights will benefit from an automatic cancellation/reimbursement of tax, provided that certain filing conditions are fulfilled.
Four tax relief periods may apply depending on the date of transfer of the domicile outside France:
- 8 years for a transfer from 11 March 2011 to 2013.
- 15 years for a transfer from 2014 to 2018.
- 2 years from 2019 if the total value of the shares is less than EUR 2.57 million.
- 5 years from 2019 if the total value of the shares is more than EUR 2.57 million.
Value-added tax (VAT)
VAT is assessed on goods sold and services rendered in France. The normal VAT rate is 20%. Catering and transports of persons are taxable at a 10% reduced rate. Sales of certain kinds of medicines and sales of books are taxable at a 5.5% reduced rate. Food products, subscription to gas and electricity (under certain circumstances), and products and services provided to disabled persons are taxable at a 5.5% rate. Medicines reimbursed by French social security are taxable at a particular rate of 2.1%. Exports and certain specific services invoiced to non-French residents are zero-rated.
Tax on real estate properties (IFI)
Individuals who qualify as tax residents of France on 1 January of a given year are liable to tax on their worldwide real estate properties, unless otherwise provided by a tax treaty.
Non-residents of France are only liable to the tax on their real estate properties located in France.
Only non-professional real estate properties are taxable.
IFI is only due if net taxable wealth exceeds EUR 1.3 million (2020 tax year) on 1 January of that year.
Rates are progressive from 0.50%, after an allowance of EUR 800,000 to 1.5% for net wealth in excess of EUR 10 million.
The IFI return has to be submitted by the same deadline as the income tax return (normally by mid-May of the relevant year). The corresponding tax has to be paid upon receipt of the IFI bill (in most of the cases on 15 September of the relevant year).
Citizens of certain countries, such as Sweden, Germany, and the United States, are fully exempt from wealth tax on non-French assets for the first five years of residence in France.
If an individual arrived in France after 6 August 2008 and was regarded as a non-French tax resident for the five years preceding arrival in France, the individual’s real estate properties situated outside of France are exempt from French wealth tax until 31 December of the fifth year following the year of arrival in France.
Inheritance, estate, and gift taxes
French inheritance or gift tax may be due by beneficiaries of gifts or inheritance. If the deceased or the donor is a tax resident of France, tax will be due in France on worldwide assets transmitted. If the deceased or donor is not a tax resident of France, tax will be due on worldwide assets transmitted to the donee if the donee has been a tax resident of France for at least six out of the last ten years.
Regardless of whether the donor or donee is a tax resident of France, tax will be due on all personal and real property located in France. However, it is to be noted that tax treaties addressing the inheritance and/or gift tax may modify the above tax results.
Inheritance tax is levied on assets at their fair market value, with allowances taking into account the relationship between the deceased and the beneficiary. Debts existing at the time of death are deductible in full. Inheritance tax is levied according to tax schedules that vary depending on the family relationship between the beneficiaries and the donor or deceased.
No inheritance tax is due for inheritance between spouses (or partner of a Pacte civil de solidarité [PACS]) and for inheritance between brothers and sisters living together under specific conditions.
Progressive tax rates are applicable after a rebate of EUR 100,000 when beneficiaries are direct dependants.
Between non-related parties, the rate is 60% after an allowance of EUR 1,594 granted to each beneficiary. This allowance is not applicable in case of gifts.
Gift tax is subject to the same standard rules. However, there are some differences. Debts in relation to the property transferred are not deductible, and this is not considered to be a taxable benefit if the donor pays the gift tax personally.
Property tax on developed property
As owner, usufructuary, or trustee of a building, it is necessary to pay the property tax on developed property each year. This tax is established for the year according to the situation on 1 January of the tax year. If the taxpayer is an owner on 1 January, that individual has to pay the property tax even if the property is sold later.
Housing tax is established annually according to the taxpayer’s situation on 1 January of the tax year. This tax is collected by the municipality where the taxpayer’s home is located, and is calculated on the net rental value.
The Finance Act Bill for the year 2018 has provided a gradual decrease in the dwelling tax applicable to a principal residence, to be applied over a three-year period starting with the 2018 tax year. 80% of all households are expected to be exempted from the payment of this tax by 2020 as a result. For the remaining 20% households, the decrease should be 30% in 2021 and 65% in 2022.
This decrease in housing tax will be applicable to households whose fiscal reference revenue does not exceed EUR 27,706 for a single taxpayer, increased by EUR 8,209 for each of the first two half parts for dependants, then by EUR 6,096 for each additional half part. In order to avoid detrimental impacts of the ceiling, a progressive decrease will be provided for households whose fiscal reference revenue is between these limits and EUR 28,732 for a single taxpayer (increased by EUR 8,722 for the first two half parts for dependants) that is EUR 46,176 for a couple (increased by EUR 6,157 per additional half part for dependants).
For eligible households, the decrease amounts to 100% in 2020.