14/11/2017 by FranceTaxLaw 0 Comments
NEW WEALTH TAX IN FRANCE : IMPOT SUR LA FORTUNE IMMOBILIERE
Any individual in France is affected by the wealth tax (ISF) if the value of his assets exceeds € 1.3 million.
The ISF also covers all assets (movable and immovable), rights (usufruct, right of use ...) and securities (share, title, etc.) that make up your assets as of 1 January
2017. However, some debts can be deducted from the value of your assets before taxation.
One of the promises of Emmanuel Macron was to replace the current wealth tax by a new tax that would only apply to real estate. The capital property tax (IFI) as envisaged by Emmanuel Macron consists of taking out financial investments, savings, luxury movables (cars, yachts, horses…) and other securities from the taxable assets of the ISF in order to retain only real estate.
The IFI is the Property Capital Tax (IFI) which will replace the ISF as of 2018. In general terms, and to repeat with precision the terms of the Minister of the economy: "The IFI will concern property assets net of real estate loans of more than 1.3 million euros. Nothing changes on the entry threshold, rates and discounts, such as that of 30% on the main residence. Similarly, the real estate used for the taxpayer's business will not be affected. Finally, the sum of the IFI and the income tax cannot exceed 75% of the income.
The main debate consists in determining the status of shares of French civil companies. A French civil company is a structure that is often used for estate planning purposes. Parents usually transfer their real estate into a company where the children are also shareholders to anticipate the transfer of assets to the next generation and benefit from tax advantages.
However, the new IFI has not yet identified the status of shares, whether they will be considered as movable and therefore excluded from the tax or still be
recognised as a substitute to a property that is taxable for wealth tax purpose. At the moment, French shares of French civil companies are taxed under
the wealth tax regime and under the name of their non-French residents’ shareholders, provided that properties exceed 50% of the total assets of the
For instance, a French civil company owning real estate to the value of 500,000€, and bonds up to 1.000.000€ would not be subject to wealth tax. If the French company only owns real estate which value exceeds 1.3m€, wealth tax will apply.
Whether the capital share is represented by more or less 50% of real estate, we do not yet know the rules that will apply to the new IFI in 2018, but there is no doubt that the government will consider French civil companies when drafting the final version of the legislation.
Finally, the government was criticised by the members of the French Parliament for excluding luxury goods from the IFI and must now find an alternative solution to tax those goods to appease the tension.