Value-Added Tax (VAT)

In order to establish a single market made up of the member states of the European Union, a number of directives on VAT has been enacted since 1967, with the obligation for states to adapt their domestic legislation. The rules relating to the scope, the tax base, the payment, the territoriality of goods and services as well as reporting requirements are partially harmonized, but states can apply transitional arrangements in respect of rates, exemptions and rights of deduction, whose rules are being harmonized.

The VAT (French: taxe sur la valeur ajoutée, TVA) is a general consumption tax, which applies to goods and services located in France. It is a proportional tax on output collected by the companies and ultimately completely supported by the final buyer, i.e. the consumer, since it is included in the price of goods or services. Indeed, VAT is applied to the "added value", i.e. the added value to the product or service at each stage of production or marketing, so that at the end of the economic circuit, the overall tax burden corresponds to the tax calculated on the final price paid by the consumer. The current standard rate is at 20%. Two reduced rates exist: a 10% rate for books, hotel stays, local public transportation, and restaurant meals; and 5.5% for most groceries.^[1] A specific rate of 2.1% applies only to prescription drugs covered by Social Security. The net revenue of VAT in 2013 was €141.2 bn.^[2]

Tax on petroleum products

The taxe intérieure de consommation sur les produits énergétiques (TICPE) applies to petroleum products and biofuels according to fixed rates provided by the legislation. It applies only in metropolitan France – in the overseas territories, there is a special consumption tax (TSC) on premium unleaded and diesel. It applies to motor fuels and heating fuels, such as petrol and gasoline, electricity, natural gas, coal and coke. It replaced the previous TIPP tax that only applied to petroleum products. In the face of the rise in oil prices, a reduction in the rate of the TIPP for fuel sold to consumers was adopted by the Parliament in 2006. The TIPP is collected by the services de la direction générale des douanes et des droits indirects (DGDDI) when fuel products are consumed on the domestic market. The revenue from the TICPE amounted to €13.7 bn in 2013. Energy products are subject to both the tax on energy products (TICPE) and the value added tax (VAT). The TICPE is also included in the taxable amount of energy products subject to VAT.

As of 2012, the rate varies from about €0.44 per litre for diesel to €0.61 per litre for petrol with some regional variation.^[3]

Stamps acts

The taxes called droits d'enregistrement, correspond to the stamp acts. They mainly apply to the sale of buildings (in addition to local taxes), inheritance and gifts, assignment of businesses and registration of vehicles. Revenues collected by the state amounted in 2006 to €14.7 bn.

Wealth Tax

It was abolished by the French government in September 2017.

Wealth Tax (solidarity tax on wealth), in French impôt de solidarité sur la fortune (ISF) was an annual tax payable by individuals the net value of whose wealth exceeds a certain amount. It was established in 1989 to finance the RMI. In 2008, the return of ISF amounted to €4.5 bn.

Individuals who are resident in France are taxed on their worldwide assets and individuals who are resident outside France under French law are taxed on their assets in France. The tax is set for each household (married couples or partners, persons cohabiting, plus minor children). The tax base includes all property, rights and values that constitute the wealth of taxpayers at 1 January of the relevant tax year (buildings built or not, individual businesses, farms, movable furniture, financial investments, debts owed to you, automobiles, aircraft, pleasure boats, ...). However, certain assets are wholly or partially exempted (mainly professional property, i.e. individual companies, rights on literary and artistic works held by the author, some rural property, objects and antiques, artwork or collectibles).

Individuals resident in France are entitled to a deduction of 30% against the value of their main home for wealth tax purposes.

A resident in France may potentially reduce wealth tax due to the restriction that applies to the amount of combined income tax, wealth tax, social charges (CSG and CRDS) and local property taxes that can be taken from one's taxable income.

This restriction is known as the Bouclier Fiscal or tax shield, and limits these taxes to no more than 50% of your taxable income.

On 6 August 2008, France enacted a law that entitles all those who have been non-resident in France for the five previous years, to exclude their non-French assets from wealth tax for the first five years of their residence in France.

While this minor tax applies only to the most wealthy of the population, and actually collects very little revenue (2% of overall tax revenue), it is very controversial. Many people on the political left consider it a symbol of solidarity, while many on the right argue that it encourages entrepreneurs to leave France.

Income tax

The impôt sur le revenu (IR) is a tax on all income available to individuals in a year. With certain exceptions, net income is determined from total income, whatever its origin, after applying certain deductions, and then a single scale of taxation is applied. This scale is characterized by rates applied to slices of income according to the principle of progressivity. However, there are numerous provisions, so there are many systems of taxation depending on the type of income received. In addition, some income and capital gains are subject to a fixed rate of tax. The IR is payable each year on the total taxable income of the household. In 2021, proceeds from the IR amounted to €280;bn.^[5]

The income subject to IR is divided into seven categories: industrial and commercial profits, non-commercial and agricultural profits, land income, salaries and wages, pensions and annuities, movable income, and capital gains. Individuals' total income is taxed if they are resident in France, whether they have French nationality or not. Individuals not living in France are taxed only on their income from French sources. The tax is calculated for each "fiscal household", i.e. the family unit composed of either a single person, or two partners and their children or other dependents. Whatever the nationality, a person who is a tax resident in France is taxable on their worldwide income. People not living in France are subject to limited tax on their income from French sources only.

The amount of taxable income, or "revenu fiscal de référence" (RFR), is not equal to the income received by the household in the year. Instead, the RFR is determined by dividing the income by the number of "parts" in the fiscal household (1 part for every adult, 0.5 parts for each of the first two child, and 1 part for each successive child^[6]), and then diminished further by a standard deduction and any other deductions the taxpayer may have claimed in the year.

The table below shows the percentage of income tax applicable to taxable income, or RFR (rather than gross income).

Exemptions are made for social reasons. Taxpayers whose net income does not exceed €7,920 are exempted from the IR. In principle, taxable income is calculated from the income available to a fiscal household in one year. Some expenses by the household tax are deductible from total income. There can be cuts and maximum taxable amounts of the income.

The income tax is calculated by the administration based on the amounts reported by taxpayers who are required to declare their whole income earned during the previous year. But the calculation of income tax takes into account the personal situation of the taxpayer, in particular through the "family quotient" (or units in the household) on the one hand and in the allocation of reductions or tax credits to taxpayers, on the other hand. The family quotient can take into account family responsibilities and, according to them, eases the effects of progressive taxation since the progressive rate is applied to a partial income (the taxable income). This process consists of dividing the taxable income of the household tax into a number of units (or parts) equal to the number of individuals. The progressive scale of tax is then applied to taxable income per share. Finally, this partial tax is multiplied by the number of units to determine the taxable base.

The family quotient is one unit for a single person, two for a married couple, plus an extra half for each of the first two children and an additional unit for each child from the third.

There are certain limitations to the amount of tax savings that can be achieved under the parts system. If the system produces a tax bill which has been reduced by more than €2,301 (for 2009 income) per half part compared to what it would have been without reference to the parts, you are not allowed to use this system. You will always receive two parts for a married couple notwithstanding.

Various tax credits are available to set against the total tax calculated. These include tax credits for dividends, energy-saving work carried out on the main residence, purchase of an environmentally friendly car, employment of home help, child minding expenses, for filing tax returns electronically and paying tax by direct debit or electronically, for mortgage interest, among others.

Pay-as-you-earn tax in 2019

Initially set to start in 2018, France will introduce a pay-as-you-earn scheme for the collection of the income tax in January 2019. To accommodate the progressive tax rates, which are computed on the total income and composition of the household, while preserving the privacy of employees to their employers, the administration only transmits to companies the individual tax rate to retain on their employees' paychecks.

Individuals receiving non-salary incomes must pay a monthly account on their estimated income tax by the tax administration.

Low earners income tax credit

For single people with taxable income of between 11.800 euros and 16,418 euros and couples with no children with taxable revenue between 17,454 and 25,983 euros (23,717 euros to 35,400 euros with a child), a tax credit of 480 euros for single people (960 euros for a couple) was introduced in 2013.^[7] For 2014 revenues the tax credit was increased to 1,135 euros for single people and 1,870 euros for couples.

Income tax surcharge on high salaries

The contribution exceptionnelle sur les hauts revenus is a temporary tax introduced in 2012 by François Fillon as a measure to curb the budget deficit. For a single person the rate of the tax is 3% on income between 250,001 euros and 500,000 euros, for an income above 500,000 the rate is 4%.

Employer payroll tax on high salaries

For tax years 2013 & 2014 earnings above 1 million euros will be subject to a tax payable by the payer/employer. The tax is similar to the employer social security contributions which above 1 million euros amount to 0.22% of gross salary compared to 44% for salaries of 150,000 euros. The tax introduced by François Hollande as the 75% tax is in fact an additional employer contribution of 50% which when existing social security charges are added reaches 75%. The proposed tax was subsequently modified after being rejected by the Council of State^[8] and was implemented in 2014 in its current form and will be discontinued as of January 2015.^[9]

Corporate tax

The corporate tax, in French impot sur les societes (IS), is an annual tax in principle that affects all profits made in France by corporations and other entities. It concerns about one-third of French companies. The standard rate is 33.3% for all of their activities. In 2016, the net proceeds from corporation tax amounted to €29.9 bn.^[10] The taxable income is equal to the difference between gross profit and costs and deductible expenses. The gross operating profit is made by the difference between sales and costs. In addition to the gross operating profit, all income or profits made apart are normally taxable: income from the rental of property, interests, deposits and bonds. A reduced rate applies to a limited number of Long Term Capital Gains. Since 2012 a tax credit equal to 7% of total salary costs can be deducted from the gross tax due.

Social taxes

Since its creation in 1945, the Social Security is mainly financed by social contributions or "cotisations sociales", i.e. deductions from wages. Until recently, there was no wide taxation on social expenditure, contrary to most of its European partners. However, in order to find a solution to the problems of financing of the social security, governments have had to broaden its range of resources by the introduction of additional tax, notably the general social contribution (CSG) and the repayment of the debt of social security (CRDS) at a rate of 0.5%, to repay the debt of the ASSO.

Established by the Finance Act 1991, the general social contribution (CSG) is payable by individuals living in France and who benefit from the compulsory health insurance. Revenues from the CSG are allocated to social security budget, specifically to the National Family Allowance, the Solidarity Fund pension schemes and insurance. Indeed, unlike the social contributions that give those who pay a right to benefit from them, the CSG, is levied without direct compensation (like any other tax). The CSG has a very broad base as it applies in principle to earnings and income from wealth. The CSG is composed of three separate contributions. Incomes from work are taxed at 7.5%. The rate applied to income from investments is 8.2%. It also applies to financial investment (with exceptions for certain untaxable products : Codevi, livret jeune, livret A, livret d'epargne populaire). In 2005, the revenue from the CSG amounted to €71.47 bn.

The contribution to the social debt (CRDS) was created in 1996. Like the CSG, it applies to earnings and to income from wealth. It was initially established for a period of 13 years, but this time limit was abolished in 2004. The territorial scope of the CRDS is the same as the CSG: thus, CRDS is paid by individuals living in France who benefit from a compulsory insurance scheme. The rate is 0.5%. The base of the CRDS is somewhat broader than the CSG, for it includes incomes exempted from CSG such as family benefits or housing allowances. The methods of recovering the CRDS are identical to those of the CSG. CRDS is not deductible from the tax base for tax on income. The yield for the year 2005 is €5.2 bn.

In summary, the social charges are made up of four elements: the CSG, CRDS, PS and RSA. The amounts are different for each type of income, and the position can be summarized below:

There are no allowances on reliefs other than being able to deduct a proportion of the social charges payable on income taxed at the scale rates against earned or pension income. Thus, where income or gains are taxed at fixed rates, no deduction is available.

Professional tax

The professional tax (taxe professionnelle) is due each year by legal persons or natural persons who are self-employed in France. Various exemptions are provided (activities performed by the State, local authorities and public institutions, business and agricultural organizations, etc.). The tax base is constituted by the rental value of assets available to the taxpayer. This is then subject to discounts or rebates. The amount of business tax is calculated by multiplying the taxable net by the rates approved by each local beneficiaries. The rates are set by the local communities and organizations, within limits set by national legislation. In 2005, proceeds from the business tax amounted to €25.06 bn.

Residence tax

The residence tax (taxe d'habitation) applies to all buildings sufficiently furnished and their dependencies (gardens, garages, private car parks): the tax is payable by any person who has a residential unit at one's disposal, for any reason (owner, renter, occupant for free), on 1 January of the taxable year. The tax base is a notional rental value of the residential property. In 2005, the revenue from the housing taxes amounted to €13.37 bn.

Land tax

The property tax on built lands (taxe foncière) is applied to properties built in France. The taxable properties consist of all permanent constructions, i.e. buildings (blocks of flats, houses, workshops, warehouses, etc.). The tax base is equal to 50% of the notional rental value of the building (i.e. the value set by the tax administration) and on land/location value. There are many exemptions and exceptions. In 2005, the product amounted to €17.73 bn.