Is the Government looking to encourage investment in France by non-residents? Separating myth from reality

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Is the Government looking to encourage investment in France by non-residents? Separating myth from reality

The draft Budget Bill for 2018 provides for a number of measures concerning non-residents and the taxation of their income from French sources, whose financial impact might turn out to be positive or negative, but not neutral.

These changes are intended to bring the situation of non-residents into line with that of French tax residents.

Thus, taxes withheld by French employers on salaries paid to non-residents would no longer exempt them from income tax payable in France for these employees, who would therefore have to file yearly tax returns in France. The new rate used would be the default income tax withholding rate for French residents.

In addition, the minimum tax rate on income from French sources would rise from 20% to 30% in metropolitan France, which corresponds to a roughly 30% tax rate on salaries paid by French companies to non-resident employees.

However, below this rate of 30%, non-resident taxpayers would still be able to request that their income from French sources be taxed at the average progressive tax rate applicable all their French and foreign income.

Other measures are also planned, including:

 

 - The exemption of capital gains on the sale of an expatriate’s primary residence, provided that the sale is completed no later than December 31 of the year following the seller’s change of tax residence to a country other than France, and that the property is not made available to a third party between the expatriate’s date of departure and the date of sale of the property.

- A reform of the Exit tax, which is an arrangement that requires taxpayers who settle outside France and who own securities worth more than 800,000 euros, or who own 50% of the shares of a company, to liquidate the capital gain accrued on these securities on the day of departure and to recognise it as deferred tax for 15 years; the plan is to reduce this period to two years in the vast majority of cases and to five years for larger fortunes.

It should also be noted that the 2019 Social Security Budget Bill, which has been adopted by Parliament, provides for a change in the social security contributions and taxation paid in France by non-residents in Europe and Switzerland: these non-residents will, after this bill is signed into law, be exempted from payment of CSG/CRDS contributions on the income they earn on their assets and investment products, provided they are not covered by a mandatory French social security scheme.

They will, however, be liable for the solidarity tax of 7.5%. Worth keeping an eye on…

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