The new tax, in the French government’s draft Finance Bill 2018 dubbed IFI (impôt sur la fortune immobilière), is the culmination of a presidential election pledge made by Emmanuel Macron.
When it comes into effect on 1 January 2018 the new IFI will retain the ISF’s current characteristics, including its threshold, rate scale, periodicity, evaluation rules, payment methods (including donations to public interest causes), and even the ceiling rule in respect of the taxpayers’ income.
The taxpayers’ reporting requirements will also be very close to those currently in force for those subject to the ISF, said Elisabeth Ashworth and Daniel Gutmann of law firm CMS Bureau Francis Lefebvre.
However, the tax applies only to real estate held directly by the individual, along with shares in property-owning companies in proportion to the value of the property rights they own, wherever the companies or the properties are located.
All movable assets are thus excluded from the IFI, including shares in companies not holding real estate assets, and other financial assets.
Property linked to the owner’s business activities will also be exempted. Other exemptions will be available for companies whose main activity is real estate, or whose assets are used mostly for commercial or agricultural activity.
Debts will, in general, be deductible, although deductions will be capped when debts exceed 60 per cent of the value of property assets, if this value is above EUR5 million.
The tax simplification has led to political critics labelling Macron a ‘President of the Rich’.
Other provisions of the Bill
The introduction, in 2018, of a flat-rate capital gains tax of 30 per cent, composed of 12.8 per cent income tax plus 17.2 per cent social security tax. An exceptional tax on high income will be added if applicable. A fixed allowance of EUR500,000 will be granted to company directors who are entering retirement.
The gradual reduction of corporation tax from 33.33 per cent to 25 per cent by 2022.
The repeal, from 1 January 2018, of the 3% levy on distributions paid by French companies.
The removal, from 1 January 2018, of restrictions on financial expenses associated with the acquisition of participations.
The draft bill also contains details of an extension and modification of the Pinel’ system which aims to encourage investment in rental property through an income tax reduction would be extended by 4 years and refocused on the areas where the housing demand is the strongest.
The final version of the bill is intended to be enacted by the end of December 2017.
