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CHANGES TO INCOME TAX AND CAPITAL GAINS TAX
The
finance law for 2004 has now come into force.
This law has introduced a number of changes to the French taxation
system, particular concerning capital gains tax (CGT).
Some of the principal changes are outlined hereafter.
INCOME
TAX:
The
income tax rates have been lowered across all of the tax bands.
The new rates will apply to income earned in 2003.
The new rates are as follows:
0%:
Below 4,262 Euros
6.83%:
Above 4,262 Euros to 8,382 Euros
19.14%:
Above 8,382 Euros to 14,753 Euros
28.26%:
Above 14,753 Euros to 23,888 Euros
37.38%:
Above 23,888 Euros to 38,868 Euros
42.62%:
Above 38,868 Euros to 47,932 Euros
48.09%:
Above 47,932 Euros
CAPITAL
GAINS TAX:
Some
of the main changes will be listed below under relevant title headings.
The new rules apply to all sales after
1st January 2004
.
Exonerations:
Amongst
others, the following exonerations from CGT are specified:
1)
Principal residence of the seller on the
day of sale;
2)
The dwelling in France of physical
persons who are not French resident but who are EU citizens, with a limit
of one residence per tax payer and under the condition that they have been
fiscally domiciled in France in a continuous way for at least two years at
any time prior to the sale;
3)
The adjoining and necessary outbuildings
of properties mentioned in the above two paragraphs provided that they are
sold at the same time as those properties;
4)
Of which the sale price is less or equal
to 15,000 Euros.
Expenditure
that can be offset:
Construction,
reconstruction, extension, renovation or improvement works which are borne
by the vendor and undertaken by a company from the time of completion of
construction of the property or its purchase if later, provided that the
cost has not been offset for income tax purposes and it is not rental
expenditure (e.g. works such as simple redecoration).
When the tax payer sells a property five years after purchase and
is not able to provide proof of the expenditure, the original purchase
price is increased by an amount equal to 15% thereof (to represent the
cost of the works).
(NOTA:
the drafting of this paragraph appears to suggest that those who undertake
works themselves and do not employ a company are not able to offset the
cost of their labour or materials, unless maybe they can come within the
second part of this paragraph).
Tapered
relief
For
each year of ownership beyond the first five years since purchase, the
capital gain is reduced by 10%. This
means that upon fifteen years of ownership, the reduction is 100% and
there is no CGT to pay.
Tax
free band
There
is a tax free band of 1,000 Euros.
Time
of payment
French
residents are now required to pay the tax at the time of sale with it
being taken from the sale’s proceeds (the system that already applied to
non-residents). The tax return
is made at this time and no longer forms part of the annual income tax
return.
Tax
rate
The
tax rate is now fixed at 16%. This
rate also applies to those vendors who are residents of an EU country.
For those sellers resident outside of the EU, it is believed that
the rate will continue to be 33.33%.
(NOTA:
It should be borne in mind that there will be liability to social charges,
certainly for residents, which will amount to about 10%, bringing the
total bill to about 26%).
08/01/2004
- Legal
update
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