French Tax Changes

With another year over and a new one just begun, it would not be January without tax changes in France! In fact, during the period between Christmas and New Year, the Constitutional Council was very busy, approving both the Finance Act 2012 and yet another amendment to last year’s Finance Act. After publication of both texts in the Journal Official de la République Française, each of the bills was enacted into law on 30th December 2011.

 Some of the main changes are highlighted below and further information can be found on our website at http://www.spectrum-ifa.com/france.shtml.

• There will be a freeze on the income tax bands and so the existing 2011 barème scale will continue to apply for 2012 and 2013.
• Wealth tax bands and inheritance/gift tax allowances will also be frozen until the public deficit is below 3% of GDP, which is anticipated to be by the end of 2013.
• The rate of the Prélèvement Forfaitaire Libératoire (PFL) is increased from 19% to 24% for bank interest and 21% for dividends. For many people, therefore, depending upon your marginal rate of income tax, it could be better to switch so that the bank does not automatically deduct the PFL from your bank interest. Even better is the idea of sheltering investment capital in a tax-efficient investment to avoid the increased PFL altogether.
• There are a couple of new cases of exemption from capital gains tax relating to property sales and full details can be found on our website.
• The existing lower rate of VAT has been increased from 5.5% to 7% for the majority of cases where it applied. However, for certain goods and services (for example, food, school meals, goods and services for the disabled), the 5.5% rate is maintained.
• Fiscal niches are again reduced by 10% and the Scellier Scheme will be abolished altogether at the end of this year. More information on both of these changes can be found on our website.

So as can be seen from the above, “austerity” is still the name of the game. What is also coming across strongly is the government’s belief that these measures, in isolation, will bring the public deficit under control.

Unfortunately, fiscal measures are only one side of the equation and whether or not the government’s objective can be achieved will, in part, depend upon what happens with monetary policy, which is controlled by the ECB. However, the ECB wants to see signs of fiscal union – at least in the Eurozone, if not in the broader EU – before it changes its policies. The idea of ‘catch 22’ and ‘tail wagging dog’ comes to mind!

Furthermore, 2012 is a presidential election year and who knows whether or not the latest round of changes will still be in place post-election or if we will be faced with more proposals for change. After having had a total of five budgets during 2011, it would seem rather odd to only have one in 2012, particularly since in the current round, there is no proposal to increase social charges beyond the current rate of 13.5%, although discussions have already commenced on the idea of merging income tax and social charges and maybe this is why. Should this take place, this would be beneficial for those people living mainly on investment capital, but would be detrimental for those living mainly on pension income, since pension income is not liable to social contributions providing the recipient is a holder of a Certificate S1 (formerly E121).

On a final note, however, if you are fed up with austerity, it may make you feel better to know that the President and the politicians are also on a pay freeze until the country’s deficit is within 3% of GDP!

 If you would like more information about how these changes may affect you or about investing on a tax-efficient basis for France (whether for investing an amount of capital and/or saving on a regular basis), or any other aspect of retirement and inheritance planning, please contact me for more information either by telephone on 04 68 20 30 17 or by e-mail at daphne.foulkes@spectrum-ifa.com.

The Spectrum IFA Group advisers do not charge any fees for their time or for advice given, as can be seen from our Client Charter at:

http://www.spectrum-ifa.com/IndependentFinancialAdviceinEurope-Charter.html

Daphne Foulkes