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Finance Law for 2006 – provisions concerning income tax, wealth tax and
others
The main changes introduced by the Finance Law for 2006 concerning
income tax and wealth tax, as well as other new provisions, can be
summarised as follows:
Income tax bands:
The new income tax bands, applying to income earned in 2005, are as
follows:
0% up to 4,412 Euros
6.83% between 4,412 Euros and 8,677 Euros
19.14% between 8,678 Euros and 15,274 Euros
28.26% between 15,275 Euros and 24,731 Euros
37.38% between 24,732 Euros and 40,241 Euros
42.62% between 40,242 Euros and 49,624 Euros
48.09% over 49,624 Euros
The law has also introduced new simplified income tax bands to apply to
income earned in 2006 and onwards (e.g. returns made in 2007):
0% up to 5,515 Euros
5.5% between 5,515 Euros and 11,000 Euros
14% between 11,000 Euros and 24,432 Euros
30% between 24,432 Euros and 65,500 Euros
40% above 65,500 Euros
The automatic deduction of 20% applicable to salaries and the income of
those who are members of certified management centres and organisations
will no longer apply and will be absorbed into the above new tax free
bands in 2007. This provision will also lead to a reduction in the
deduction to arrive at the net taxable figure for ‘revenus fonciers’
e.g. the income from unfurnished rental of property. For those whose
receipts are less than 15,000 Euros and who pay tax under the
‘micro-foncier’ tax regime, the deduction representing costs will be
reduced from 40% to 30%.
Wealth tax:
The new wealth tax (‘impot de solidarité sur la
fortune’) bands, applying to assets owned at the point of reference of 1st
January 2006, are as follows:
Between 750,000 Euros and 1,200,000 Euros 0.55%
Between 1,200,000 Euros and 2,380,000 Euros 0.75%
Between 2,380,000 Euros and 3,730,000 Euros 1%
Between 3,730,000 Euros and 7,140,000 Euros 1.3%
Between 7,140,000 Euros and 15,530,000 Euros 1.65%
Above 15,530,000 Euros 1.8%
Tax ceiling:
Article 1 of the Finance Law has introduced a tax ceiling on the direct
taxes paid by a tax payer at 60% of his or her income. If this ceiling
is breached then the tax payer can, upon direct request made before 31st
December of the tax year in which the ceiling has been breached, obtain
recovery of the excess tax. Social security contributions are not
included in the calculation.
Extension of the exoneration from CGT for certain non-residents:
In addition, the rectifying Finance Law for 2005 no. 2005-1720 of 30th
December 2005 has extended the specific exoneration from capital gains
tax for non-residents who meet certain conditions (residency in France
for two years at any point in the past e.t.c.) to the second sale of
real property (this was previously a one-off exoneration). In order to
benefit from this exoneration for the second transaction, in addition to
meeting the conditions laid down for the initial exoneration, the sale
must occur five years after the first exonerated sale and the property
sold must be the only one in France owned by the vendor on the date of
the second sale.
Transfer tax on sales:
Finally, there is an additional transfer tax now levied on real property
transactions from 1st January 2006. This additional tax is
of 0.2% of the net price and is included in the notaire’s fee, thereby
bringing the total payable in transfer taxes to 5% (plus the 2.5% due
which is levied on the amount of the departmental tax which is 3.6%).
This measure compensates for the abolition of stamp duty upon these
acts.
Unless stated otherwise, all of the aforementioned provisions apply from
1st January 2006.
08/02/2006
- Legal
update
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