2018 tax proposals affecting employment announced

The highly-anticipated finance bill for 2018 presented by the French government on 27 September 2017 contains a number of employment-related measures affecting both individuals and companies. The bill will be debated in the parliament and senate before being adopted into law, which likely will take place at the end of 2017, subject to confirmation by the constitutional court. Certain measures could apply to income earned in 2017, while others may be applicable only to income earned in the future. 

Highlights of the proposed measures include the following: 

Measures affecting individuals

Single flat tax on investment income 

Investment income (such as dividends, interest and capital gains) would be subject to a flat tax rate of 30%, including social surtaxes. Such income currently is subject to progressive rates of up to 45%, plus social surtaxes of 15.5% (e.g. CSG, CRDS), with deductions available depending on the type of income. Taxpayers would have the ability to opt out of the flat rate, notably, if their top marginal tax rate is lower than 30%. The additional contribution for high-income individuals (3% or 4%, depending on the amount of income) would remain due. The mechanism for paying the new tax would be either withholding at source or current-year advance payments, depending on the source of the income. 

Qualified free share plans 

The gain on shares at vesting would remain taxable at progressive rates, subject to a 50% deduction for gain up to EUR 300,000. 

Wealth tax 

The current wealth tax would be replaced on 1 January 2018 by a tax applied only to real estate assets with a value over EUR 1.3 million. It should be noted that many individuals that become resident in France for the first time are exempt from wealth tax for five years. 

Social charges 

The CSG social surtax would be increased by 1.7 points, while employee social charges on employment income would decrease progressively by 4.15%. 

Employment-related tax measures affecting companies

Social charges 

Employer charges would be lowered by six points, up to a certain limit. As a reminder, employer social charges can amount to up to 50% of gross salary and cover numerous brackets, ceilings and contributions, ranging from health, to unemployment, to basic and complementary retirement.

Payroll tax 

A payroll tax applies to corporations that are not subject to VAT, or where at least 90% of an entity’s annual turnover was exempt from VAT in the previous year. Financial services companies typically are subject to the payroll tax. The tax is assessed on the gross salaries of employees at the following rates:

  • 4.25% on salaries up to EUR 7,721;
  • 8.5% on the portion of the salary between EUR 7,721 and EUR 15,417;
  • 13.6% on the portion of the salary between EUR 15,417 and EUR 152,279; and
  • 20% on gross salaries exceeding EUR 152,279.

The top payroll tax bracket (i.e. the 20% rate) would be abolished for salaries paid as from 1 January 2018. The marginal rate then would be 13.60% on salaries exceeding EUR 15,417.

Withholding tax for residents 

The new withholding tax that will require employers to implement current-year income tax withholding on employee salaries was postponed earlier in the year, to 2019. No further detail is provided in the draft bill. 

Christina Melady

Christina Melady, Partner, has over 23 years’ experience practicing tax law in France and advises both companies and managers on personal tax matters. Christina created the specialized practice in France […]

Diane Artis

Diane Artis, Partner, has over 20 years’ experience in French and international individual income tax matters. She assists leading worldwide companies in French individual tax matters, including income tax consequences […]

Vanessa Calderoni

Vanessa Calderoni is a Partner within the international mobility team in the Lyon office. She has more than 15 years’ experience and assists her clients in their international mobility policy […]

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Alexis Fillinger

Alexis Fillinger has more than 11 years of practicing. He advises both companies and individuals on personal tax matters, in international context He is specialized in the structuring of investment […]

Nadia Hamya

Nadia Hamya, Partner, has acquired a strong experience in individual tax and international mobility matters. She regularly assists major French and foreign international companies with their international mobility policy, notably […]

Nicolas Meurant

Nicolas Meurant, Partner, has over 15 years’ experience providing advice to corporations and individuals in individual tax and Global equity area, in the structuring of shareholding schemes, as well as […]