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.
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.
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
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.
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.