French Prime Minister Manuel Valis announced certain tax measures and incentives as part of a plan to attract new investments—particularly in the financial sector—into France.
The measures were announced by the prime minister at the annual Europlace Financial Forum, this year convened on 6 July 2016 in Paris. The following discussion provides a high-level summary of the measures put forth by the prime minister.
The proposal would increase the application period of certain tax regimes to eight years (from five years) during which “impatriates” (those investing into France) could benefit from a specific tax regime.
For example, under one tax benefit regime, certain individuals (business executives) moving into France and seconded in France for business reasons—and who have not been a tax resident of France during the prior five years and who became a tax resident on their relocation into France—may be eligible for an exemption from income tax during a five-year period. The exemption applies with respect to additional compensation that is earned as a consequence of the secondment (referred to as an “impatriation premium”) to the extent that the compensation that remains taxable in France is at least equal to the amount received by employees conducting similar activities in similar enterprises established in France. Under the proposals announced by the prime minister, this exemption period would be increased to eight years.
In addition and during the same period, compensation earned for an activity conducted out outside France would be exempt, to the extent the activity benefits the French employer.
Also, 50% of certain “passive income” (dividends, capital gains) paid by foreign debtors or entities may be exempt from income tax and the taxpayers would be subject, during that same period of time, to “wealth tax” only on their French assets (whereas a person who is a French tax resident typically is liable to the wealth tax on that person’s worldwide assets, subject to the provisions of any applicable tax treaty).
Tax professionals with Fidal* have observed that the extension of the favorable regime may serve as an incentive for certain executives moving to France.
The prime minister also discussed an exemption from the payroll tax (taxe sur les salaires) on impatriation premiums. In France, companies owe the payroll tax if at least 90% of revenues is not subject to value added tax (VAT). The payroll tax is assessed on the salaries and compensations paid by companies to their employees.
The payroll tax can be burdensome for certain business sectors—e.g., banks, financial and insurance companies have found the amount of payroll tax liability can be substantial. Thus, the payroll tax measure, as proposed by the prime minister, coupled with the previous tax relief regime proposals would aim at attracting the financial sector to France. Specifically in light of the “Brexit” decision in the UK, these measures may aim at encouraging companies (especially in the financial sector) to consider relocating to France.
The prime minister’s proposals included a progressive reduction of the standard corporate income tax rate from 33.33% to 28% (with the timing of the proposed rate reduction not indicated).
It has been observed that the various measures mentioned by the prime minister may start the discussions about tax incentives. All proposals would have to be approved by the French Parliament. Still, it appears that these measures could be included in the finance laws to be presented during the autumn of 2016.
The prime minister also described incentives that, from a non-tax point of view, would aim at facilitating the environment of companies and employees both moving into France. These proposals include, for example, the creation of a single point of contact for foreign entities to request answers to questions they may have with respect to specific benefits or regimes—for instance, questions about real estate, about visas and work permits, about the enrollment of children in school, etc. Also, given the scarcity of bilingual public education opportunities, the prime minister announced that bilingual classes for students would be developed.
For more information, contact a tax professional with Fidal* in France or with KPMG in the United States:
Gilles Galinier-Warrain | +33 1 55 68 16 54 | firstname.lastname@example.org
Olivier Ferrari | +33 1 55 68 18 14 | email@example.com
Laurent Leclercq | +33 1 55 68 16 42 | firstname.lastname@example.org
Patrick Seroin | +1 (212) 954-2523 | email@example.com
* Fidal is a French law firm that is independent from KPMG and its member firms.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.