Understanding Taxation
To understand taxation in France, it's imperative to know how major public spending is used. Here's what the spending per €1,000 of public money corresponds to in 2019.
As the exceptional consequences of the health crisis have distorted the structure of public spending, the data shown relates to 2019 to remain informative about a more usual public finance situation.
Here's what spending corresponds to per €1,000 of public money in 2019.
More details at: https://www.economie.gouv.fr/enavoirpourmesimpots#
The different tax classes
Income tax
Example :
Case of a married or civil union couple with two minor children and a net taxable income of €55,950 in 2023. The couple has three shares (two shares for the couple and half a share for each child), so the taxable income of €55,950 is divided into three = €18,650.
To calculate tax, this amount is subject to the income tax scale:
Income bracket up to €11,294 taxed at 0% = €0
Income bracket from €11,295 to €18,650 taxed at 11%: i.e. (18,650 - 11,294) x 11% = €809.16.
As this family has three family income shares, this result must then be multiplied by the number three. The couple's income tax will therefore be €809.16 x 3 = €2,427.48.
Furthermore, as her income tax is below the €3,191 threshold, she benefits from a discount, calculated as follows: 1,444 - (2,427.48 x 45.25%) = 1,444 - 1,098 € = 346 €.
The amount of tax due after the application of the discount is therefore: 2 427,48 - 346 = 2 081,48 €.
Property taxes (Personal property taxes)
Bercy's creativity in tax matters often leaves us wondering. Property tax on built-up properties is assessed for the whole year, based on the situation on January 1 of the tax year (so if you are the owner on January 1, you are liable for property tax for the whole year, even if you sell the property during the year).
The tax calculation method combines the cadastral value and the rates voted by local authorities. The amount is obtained by applying a tax rate to a tax base.
These two parameters are determined as follows:
The tax base for property tax on built-up properties is equal to half the cadastral rental value. The latter corresponds to the theoretical annual rent that the owner could earn from the property if it were rented out. This rent is then updated and revalued each year. A flat-rate allowance of 50% takes into account management, insurance, depreciation, maintenance, and repair costs.
The tax rate is voted by each local authority.
Corporate income tax
Following the territoriality rules set out in Article 209 I of the French Tax Code (CGI), the place of operation of a company determines the taxation of profits subject to corporate income tax, subject to derogations resulting in particular from the application of international agreements.
The legal entity in which you earn profits is subject to corporate income tax (IS):
If it falls into the category of capital companies. These are mainly public limited companies (SA, SAS), limited liability companies (SARL), and limited partnerships with shares (SCA). Liberal practice companies (SEL, SELARL...) are also concerned;
Depending on the nature of your business. Certain legal entities are subject to corporate income tax, even if they do not fall into the category of corporations. This is the case for non-trading companies with industrial or commercial activity and for associations carrying out profit-making operations;
If you have chosen to pay this tax. Even if your profits are normally subject to income tax in the name of each partner (as in the case of a general partnership - SNC - for example), you can opt to have your company definitively taxed at the corporate income tax level.
Your company is only liable for corporation tax on its profits if it operates in France. This means that it must carry on a regular business activity in France.
In principle, therefore, your company is not taxable on profits earned abroad. Therefore, the amount of profit to be declared each year is what your company makes throughout France.
(1) IMPORTANT: the new ceiling of €42,500 (compared with €38,120 previously) applies to the taxation of results for financial years ending on or after December 31, 2022. It is subject to the conditions for benefiting from the reduced rate set out in b of I of Article 219 of the CGI.
For financial years ending December 30, 2022 (inclusive), the ceiling is €38,120.
Corporate income tax payable at the standard rate is calculated by applying this rate to taxable profit rounded to the nearest euro, with no base allowance or discount for low taxes.
Companies with sales of at least €7.63 million and corporate income tax of over €763,000 are also liable for the social contribution, which represents 3.3% of the corporate income tax due.
Cotisation Foncière des Entreprises
The CFE tax base is made up of the rental value of the real estate used by the company in year Y-2. For example, to calculate the CFE due in 2023, the property used in 2021 must be taken into account.
The CFE tax base may be reduced in certain cases, notably :
By 30% for industrial establishments (the companies concerned can modulate the amount of their CFE installment to anticipate this reduction, with a 20% margin of error exceptionally tolerated).
In proportion to the time not worked, in the case of certain seasonal activities (e.g. restaurants, cafés).
For craftsmen with up to three employees (reductions of 75%, 50%, and 25% depending on the number of employees in the company)
For businesses located in Corsica (25% rebate on the share paid to local authorities).
In the absence of premises, or where the rental value is very low, the CFE is assessed based on a minimum flat-rate contribution, the amount of which is set by the municipality or EPCI based on sales or revenue in Y-2. The scale for this flat-rate assessment is revised each year.
General Social Security contributions
Social security contributions are sums (payments) deducted from the gross salary. They are deducted from the gross salary, i.e. withheld before the salary is paid. The employee then receives the net salary paid by the employer.
Contributions entitle the employee to social protection in the event of illness, unemployment or retirement.
Employers are responsible for calculating and declaring social security contributions for each of their employees, either to Urssaf or to MSA (for the agricultural professions).
Social security contributions may be payable :
Either the employee (employee's share)
Or the employer (employer's share). For example, the health contribution includes only an employer's share.
Both
They are calculated as a percentage of salary. Different rates apply to each contribution (sickness, old age, unemployment, etc.). They are set by decree.
The basis of calculation may be part or all of the employee's remuneration for the work performed.
The amount of the contribution is the product of multiplication: the amount of the remuneration (also called the calculation base or assiette) multiplied by the current rate.
Please note:
For pension entitlements under the old-age insurance scheme, the contribution rate applies only to the portion of remuneration below a certain ceiling. This ceiling is called the annual social security ceiling (PASS). It is set every January 1. It is determined by the French Social Security Financing Act (LFSS). In 2023, for example, the monthly ceiling is €3,864.
Global example of a business owner, with his salaried wife and 2 minor children, who own their main residence.
The household earns €148,000 net.
They bought a pretty villa in the south of France for €900,000.
The town is nice, and the property tax was set at €3,400 a year.
Now let's go back over the figures to understand the impact of taxation on this young couple* (real-life case taking into account monthly credit payments):
If you find yourself faced with these complex tax issues, don't delay in getting in touch with us! At Capital Conseils², we look forward to helping you manage your tax obligations and guiding you toward the best possible solutions.
Stay tuned to learn more about our proven strategies and unique tax expertise. Together, let's optimize your wealth and simplify taxation! 🤝💰📈
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