France: Release of draft Finance Bill for 2017

France: Release of draft Finance Bill for 2017

The French Ministry of Finance presented, during a press conference on 28 September 2016, the main tax provisions of what will be the draft Finance Bill for 2017, prior to the bill being submitted to the French Parliament.

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Proposals affecting companies

Among the provisions that would affect the taxation of companies are the following proposals:

  • A progressive reduction of the corporate income tax rate: The standard corporate income tax rate (currently 33.33%) would be decreased to 28%. The new rate would be implemented progressively: (1) for financial years opened as from 1 January 2017, the 28% new rate would apply to the portion of the profits of small and medium enterprises up to €75,000; (2) for financial years opened as from 1 January 2018, the new rate would apply to the portion of profits up to €500,000 earned over a 12-month period; (3) for financial years opened as from 1 January 2019, the 28% rate would apply to all profits for companies with revenue (or revenue of a French tax group if such group exists) below €1 billion, and up to €500,000 of profits for companies with revenues in excess of €1 billion, in both cases for a 12-month period. The new rate would finally apply to all companies for the financial years opened as from 1 January 2020.
  • Non-renewal of the 10.7% surcharge to the corporate tax: The 10.7 % surcharge to the corporate tax, paid by companies or French tax groups with revenues exceeding €250 million would no longer apply for the financial years closed as from 31 December 2016.
  • Installments of corporate income tax payments due by large companies: Companies with revenues in excess of €250 million are required to remit and pay their corporate income tax in five installments during the year. The amount of the fifth installment currently is equal to the difference between 75% and 95% (depending on the amount of the company’s revenue) of the company’s estimated corporate tax liability for the current year and the amount of installments already paid. These percentages would be replaced by and increased by 80% to 98%, with the intention to accelerate the payment of the amount of corporate tax due by the largest companies.
  • Increase of the CICE (tax credit for employment and competitiveness): The crédit d’impôt pour la compétivité et l’emploi (CICE) is currently equal to 6% of the amount of salaries paid to employees, up to a monthly individual amount of 2.5 times the minimum gross salary, or roughly €3,650. The amount of the credit would be increased to 7% of the salaries paid as from 1 January 2017. As a reminder, the CICE can be set off against the tax liability of the company for the year during which the salaries were paid. Any excess can be carried forward three years, and any unused amount is then refundable.

Proposals affecting “impatriates”

As proposed and as expected, the length of the period during which “impatriates” (under the tax savings regime intended to make France an attractive locale for inbound employees) can benefit from a specific favorable regime would be extended until 31 December of the eighth year (instead of the fifth year, as currently available) following the beginning of their functions in France. The impatriates regime basically provides an exemption from income tax on the additional compensation paid to executives moving to France and an exemption from wealth tax on foreign assets. Read TaxNewsFlash-Europe    

Also, the payroll tax that may apply to certain taxpayers not fully subject to the value added tax (VAT), such as banks and insurance companies, and that is assessed on the compensation paid to employees would not apply to this additional compensation.

Proposals for system of withholding tax for salaries, pensions

A withholding tax system would be established for salaries and pensions paid to individual taxpayers (generally, a system similar to PAYE systems that apply in other countries) as from 1 January 2018. The withholding tax system would be applied to compensation and pension payments, and employers and pension plans would be responsible for withholding, on a monthly basis, the income tax on the amounts of salaries and pensions paid. 

The withholding tax rate would be based on the average income tax rate that applied for the individual taxpayer during the previous year. However, individual taxpayers could elect to apply a “neutral rate” that would be based only on the compensation paid to them by their employers, but then these taxpayers would have to pay the difference of any additional income tax owed directly to the tax collector. Individual taxpayers also would be required to remit to the tax collector an amount of monthly provisional payments of income tax with respect to other income earned (income such as commercial or industrial profits, non-commercial profits, rental income, etc.).

Taxpayers would still be required to file an income tax return, and pay any difference in tax. Any excess income tax withheld or paid would be refunded by the tax authorities. To avoid a double tax burden in 2018 (since the income tax is currently paid in France during the year following the year during which it was earned), the income tax normally due in 2018 on income for 2017 would be “cancelled,” except for the tax due on “exceptional income.” A relatively extensive list of what would be deemed to be “exceptional income” would be included in the draft Finance Bill. Anti-abuse measures would also be put into place in order to avoid an artificial shift of income from 2016, or 2018, to 2017. 

KPMG observation

Tax professionals with Fidal* note that the introduction of this withholding tax system is aimed at avoiding difficulties that may arise in instances when the taxpayer experiences a sudden, large decrease in income from one year to the other while the tax is paid with a one-year difference. Also, the prospects regarding the introduction of  a withholding tax system are uncertain, even if the measure is voted on and approved, because of next year’s presidential election in France. Several candidates for the presidency have already indicated their opposition to the withholding tax system and have stated that they would repeal this system (if enacted) if they were to be elected. 

In France, the individual income tax system is viewed as being extremely complex—as are the proposals to revise France’s individual taxation rules in the draft Finance Bill. As a consequence, implementation of the proposed rules (if enacted) would give rise to practical difficulties for both employers and individual taxpayers and for companies with expatriates assigned to work in France.


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 |

Olivier Ferrari | +33 1 55 68 18 14 |

Laurent Leclercq | +33 1 55 68 16 42 |

Patrick Seroin | +1 (212) 954-2523 |  


* Fidal is a French law firm that is independent from KPMG and its member firms.

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