Offshore Tax Summaries-Part Two(France)
Offshore Tax Summaries-France For residents, tax is calculated on the total income of the fiscal household, which includes income from a spouse, children that are younger than 18 and, in some cases, adult children as well. Various allowances, deductions and treaty provisions are applied to the annual disposable income to arrive at the net taxable income. Tax is calculated at progressive rates, to a top rate of 48.09% plus a surtax of up to 11%. An important point to remember is that, unlike most European countries, income tax in France is not levied at the source. Taxes are assessed on an income declaration made by wage earners (one per household), who pay their own taxes to the tax authorities. An employer does not participate in the process of paying income tax in any way.
As a general starting point, anyone spending more than 183 days a year in France is assumed that, for French tax purposes, he is a resident. But if less than 183 days is spent in France, a person may still be considered "resident" if he has a permanent home in France, conducts his main professional activity in France, or his center of economic interest is in France. In such cases, the individual may be liable to pay French income tax. As this is a complex issue that may also be affected by the terms of relevant tax treaties, the expatriate should seek counsel from an attorney familiar with French tax laws. Very simply, the rule of thumb is that everyone who is not "resident" is "nonresident." A nonresident may be liable to pay French income tax on all income from a French source, in particular rental income from a French property and income paid by a French employer.
Tax is payable by French residents on the donation or inheritance of worldwide assets. Direct liabilities may offset the value of donated property. For inheritance taxes, the rate is applied on the net value of the total assets, i.e., after deduction of liabilities. International Tax treaties help to prevent double taxation. The available allowance and the rate of inheritance tax depend on a number of factors, which are principally the relationship between donor and recipient. As between immediate family members, the rate is no more than 40%, but for donees or legatees other than spouses, children, grandchildren and parents, rates may reach as high as 60%. Certain gifts benefit from a 50% reduction in rate.
Transfer tax and capital gains
The buyer of real estate pays a transfer tax of 4.89%. If a nonresident who resides outside the EU sells French property during the first five years of ownership, the capital gains rate is 33.33%. If the nonresident seller resides within the EU, the rate is 16%. Beginning with the sixth year of ownership, the amount of gain subject to the tax is reduced by 10%, so that after 15 years of ownership, there is no capital gain. French residents gain the benefit of the 15-year rule, and otherwise pay at the rate of 26% (except if the real estate is their principal residence, in which case, the sale is exonerated from capital gains tax!).
Rental income and property tax
Whether a person resides in France or not, he will be liable for tax on any rental income earned from his French property. This is levied at regular income tax rates, but not less than 25% for nonresidents. There is also an annual real estate tax, as well as an annual occupancy tax. Usually paid in arrears, the amount depends on the type of residence and location.
French residents, whose net assets exceed a certain level, are liable to pay an annual wealth tax. This tax is applied on an individual's worldwide wealth, after deducting liabilities. The rate starts at 0.55%, and rises to a maximum of 1.8%. There are exemptions for business assets and certain works of art. Also, as a result of double taxation treaties, some expatriates may be exempt from wealth tax on non-French assets during a certain period of time.
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