DIRECTION GÉNÉRALE DES FINANCES PUBLIQUES (PUBLIC FINANCES DIRECTORATE GENERAL) TAX POLICY DIRECTORATE – Bureau A – OVERVIEW OF THE FRENCH TAX SYSTEM – Legislation in force as at 31 December 2016 – This document summarises the French tax system. It does not in any way constitute a statement of the official doctrine of the department that drafted it. SUMMARY INTRODUCTION I – TAXATION IN RELATION TO OTHER MANDATORY LEVIES II – TAXATION IN FRENCH LAW PART I: TAXES ON INCOME CHAPTER 1: CORPORATION TAX I – SCOPE OF CORPORATION TAX A. TAXABLE PERSONS 1 – Persons taxable automatically (Article 206-1 et seq. CGI) 2 – Persons taxable optionally 3 – The tax regime for other public or private organisations B. EXCLUSIONS OR EXEMPTIONS 1 – Exclusions 2 – Exemptions C. TERRITORIALITY II – DETERMINING TAXABLE INCOME A. GENERAL RULES FOR DETERMINING PROFITS B. TAX CONSOLIDATION (Articles 223 A to 223 U CGI) C. CALCULATING THE TAXABLE PROFIT III – ASSESSMENT AND PAYMENT OF THE TAX CHAPTER 2: PERSONAL INCOME TAX I – TAXABLE INCOME II – SCOPE OF PERSONAL INCOME TAX A. TAXABLE PERSONS 1 – Domicile for tax purposes – Tax household rule 2 – Tax treatment of persons domiciled in France 3 – Tax treatment of persons not domiciled in France B. EXEMPT PERSONS III – TAXATION OF INCOME RECEIVED BY INDIVIDUALS A. PERSONS DOMICILED IN FRANCE 1 – Business profits 2 – Non-commercial profits 3 – Agricultural profits 4 – Income from property 5 – Wages, salaries, pensions and annuities 6 – Investment income 7 – Capital gains 2 B. PERSONS NOT DOMICILED IN FRANCE 1 – Income subject to withholding tax 2 – Other income from French sources subject to deduction at source in discharge of tax liability or to withholding tax 3 – Exemption of certain categories of income or profits from French sources received by persons not domiciled in France for tax purposes IV – DETERMINATION OF TOTAL INCOME V – CALCULATING THE TAX CHAPTER 3: SOCIAL LEVIES I – GENERAL SOCIAL SECURITY CONTRIBUTION (CSG) II – SOCIAL SECURITY DEBT REPAYMENT CONTRIBUTION III – 4.5% SOCIAL LEVY AND OTHER ADDITIONAL LEVIES IV – SOLIDARITY LEVY OF 2% V – EMPLOYEE CONTRIBUTION ON GAINS FROM EXERCISING STOCK OPTIONS AND ACQUIRING BONUS SHARES VI – EMPLOYEE CONTRIBUTION APPLICABLE TO CERTAIN PAYMENTS AND GAINS ON CARRIED INTEREST UNITS OR SHARES VII – CONTRIBUTION FROM BENEFICIARIES OF TOP HAT PENSION SCHEMES (RETRAITES CHAPEAUX) VIII – SOCIAL CONTRIBUTION ON CORPORATE INCOME TAX IX – CORPORATE SOCIAL SOLIDARITY CONTRIBUTION CHAPTER 4: PAYROLL TAXES PART II: TAXES ON EXPENDITURE CHAPTER 1: VALUE ADDED TAX I – CHARACTERISTICS OF VAT A. VAT IS A TERRITORIAL TAX B. VAT IS A REAL TAX C. VAT IS AN INDIRECT TAX PAID IN FRACTIONS D. VAT IS A PROPORTIONAL TAX II – TAX BASE III – CALCULATING THE AMOUNT OF VAT A. CALCULATING GROSS VAT B. OFFSETTING THE TAX ON INPUTS IV – OBLIGATIONS ON LIABLE PERSONS V – SPECIAL RULES CHAPTER 2: EXCISE DUTIES I – TAXATION OF ALCOHOL AND ALCOHOLIC BEVERAGES II – TAXES ON SUGARY AND ARTIFICIALLY SWEETENED DRINKS III – DOMESTIC CONSUMPTION TAX ON ENERGY PRODUCTS IV – DUTY ON TOBACCO PRODUCTS 3 V – DUTY ON PRECIOUS METALS VI – GENERAL TAX ON POLLUTING ACTIVITIES PART III: TAXES ON ASSETS CHAPTER 1: REGISTRATION DUTIES I – REGISTRATION FORMALITY II – MAIN REGISTRATION DUTIES A. SALE OF REAL PROPERTY B. TRANSFERS OF BUSINESSES AND SIMILAR TRANSFERS C. REGISTRATION DUTIES APPLICABLE TO COMPANIES D. INHERITANCE AND GIFT DUTIES CHAPTER 2: STAMP DUTIES AND SIMILAR DUTIES I – STAMP DUTIES II – VEHICLE STAMP DUTIES A. TAX ON VEHICLE REGISTRATION CERTIFICATES B. SURTAX ON THE MOST POLLUTING PRIVATE VEHICLES C. TAX IN ADDITION TO THE REGISTRATION CERTIFICATE TAX D. ANNUAL SURTAX E. TAX ON COMPANY CARS CHAPTER 3: WEALTH TAX I – LIABLE PERSONS II – TAX BASE III – TAX SCALE IV – CAPPING OF WEALTH TAX CHAPTER 4: TAX ON THE MARKET VALUE OF REAL PROPERTIES OWNED IN FRANCE BY LEGAL ENTITIES (3% TAX) PART IV: LOCAL DIRECT TAXES CHAPTER 1: PROPERTY TAX ON DEVELOPED LAND CHAPTER 2: PROPERTY TAX ON UNDEVELOPED LAND CHAPTER 3: RESIDENCE TAX CHAPTER 4: LOCAL ECONOMIC CONTRIBUTION I – BUSINESS PREMISES CONTRIBUTION Minimum tax base scale for the business premises contribution on turnover or revenue II – CONTRIBUTION ON BUSINESS VALUE ADDED CHAPTER 5: FLAT-RATE TAX ON NETWORK BUSINESSES CHAPTER 6: OTHER LOCAL TAXES I – ADDITIONAL TAXES II – SPECIAL INFRASTRUCTURE TAXES GLOSSARY APPENDICES 4 List of tax treaties concluded by France and in effect on 1 January 2017 New Caledonia and overseas territorial units with which the French Republic has concluded a tax treaty The tax structure Estimated State revenues in 2015 5 INTRODUCTION This handbook describes the broad outlines of the French tax system. First, let us consider two questions: the place of taxation within the system of all mandatory levies, and the place of taxation in French law. I – TAXATION IN RELATION TO OTHER MANDATORY LEVIES Mandatory levies include taxes, fees for services rendered, customs duties and social security contributions. Taxes are payments imposed on individuals and legal entities according to their ability to pay without any specific consideration in return in order to cover public spending and achieve the economic and social objectives set by the government. Fees for services rendered, payable for the use of certain public services or for the right to use them, are also mandatory levies but are not strictly speaking taxes since they entitle the payer to a consideration in return. Customs duties are distinguished from taxes by their economic purpose, namely to protect the domestic market. Social security contributions, though mandatory, are not taxes since they are levied for a specific purpose, namely social protection, and benefits are paid in return. II – TAXATION IN FRENCH LAW The need for taxation is asserted in Article 13 of the Declaration of the Rights of Man and of the Citizen of 26 August 1789: “For the maintenance of the public force, and for administrative expenses, a general tax is indispensable”, adding that “it must be equally distributed among all citizens, in proportion to their ability to pay”. Article 14 of the Declaration states that “All citizens have the right to ascertain, by themselves or through their representatives, the need for a public tax, to consent to it freely, to watch over its use, and to determine its proportion, basis, collection and duration”. Unlike other mandatory levies, taxes may be assessed and collected only by virtue of an act of the legislature, i.e. Parliament. This principle is enshrined in Article 34 of the Constitution of the Fifth Republic of 4 October 1958, according to which rules concerning the base, rates and methods of collection of taxes of all types are set by statute. The executive is therefore involved only in implementing the tax rules defined by Parliament, stipulating the terms and conditions of their application under the control of the tax courts. Consequently, the tax administration interprets and comments on legal provisions in circulars that must neither add to nor subtract from the law. Otherwise the circular is unlawful and may be nullified by the French Supreme Administrative Court ( Conseil d'État ) on an appeal from taxpayers. If that is the case, the unlawful circular is not binding on taxpayers. Conversely, the administration may not argue that a circular was unlawful against a taxpayer who has applied it. This guarantee also applies where the administration has issued a formal ruling on the assessment of a given situation with regard to a tax rule. Thus, tax law provides that where a taxpayer has applied a tax rule according to the interpretation given by the administration through published instructions or circulars and not retracted at the date of the relevant operations, the administration may not order additional payments on the grounds of some other interpretation. In addition, under Article 53 of the aforementioned Constitution, treaties that commit government finances or modify provisions which are the preserve of statute law may be ratified or approved only by 6 an Act of Parliament. Article 55 of the Constitution states that duly ratified or approved treaties or agreements prevail, upon publication, over Acts of Parliament, provided that the other party has applied the treaty or agreement concerned. This means that domestic tax law is subordinate to provisions of international treaties or agreements. Under Article 54 of the Constitution, if the Constitutional Council ( Conseil constitutionnel ) has declared that an international commitment contains a clause contrary to the Constitution, authorisation to ratify or approve it may be given only after the Constitution has been amended. * * * This handbook describes the main taxes levied in France, distinguishing four categories: • taxes on income • taxes on expenditure • taxes on assets • direct local taxes This handbook merely describes the rules laid down in domestic French law. More detailed information may be found on the portal of the Ministry for the Economy and Finance (http://www.impots.gouv.fr), which has been designed to allow non-residents to obtain information that concerns them. The Public Finances Directorate General provides the general public with all documents containing an administrative interpretation of tax rules in a single, free-of-charge official tax bulletin (BOFIP-Impôts, available from the website of the Ministry for the Economy and Finance). These documents are also available on the Ministry’s website ( http://www.impots.gouv.fr/portail ). Bilateral tax treaties for the avoidance