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French Stereotype #4: “Taxation is harsh in France”

There are some misconceptions about the French business environment. Some are true and others are false. In this series of article, we strive to tackle these stereotypes. Today’s topic: The French taxation system.

France just like the Nordic countries have an essential system of taxation to provide public services. It is thanks to this system that the state can provide basic services such as health and education. However, France is striving to balance out the right equilibrium for the level of taxation. Since his election, President Macron has fixed a schedule of reforms. Some of these reforms concern the French Taxation system. The government strives to tackle widely spread criticism against the French taxation system, such as the corporate tax rate or the high level of social contribution.

New corporate tax rate

One of the main criticisms in France is regarding the high rate of corporate tax. However, to match the European average, a gradual reduction of the corporate tax has been organised. It should reach a standard rate of 25% by 2022.

Alleviating social contribution

This can help to address the criticism made towards the level of social contribution in France. To go further on solving this matter, the tax credit for competitivity and employment (CICE) has been introduced in 2012. Since 2018, it was an annual tax credit worth 6% of gross payroll on certain types of salaries. From 2019, it is transformed into a permanent reduction in employer social security contributions on lower wages. This reduction amounts to 6% for the salaries up to 2.5 times the minimum wage.

Special tax credit to foster entrepreneurship and innovation

Additionally, to foster entrepreneurship and innovation, the government introduced a few tax reforms for newly created companies. Newly created companies beneficiating from the status of young innovative companies (JEI – newly created companies investing in R&D) can beneficiate from tax exemption including social contribution tax exemption. All companies can also benefit from a research tax credit (CIR): a 30% tax credit on R&D up to €100M and a 5% on additional R&D spending.

Some change for the individuals

Finally, taxation has also changed at the individual level. The criticised wealth tax has been abolished and replaced by the property wealth tax (IFI) which applies to buildings that taxpayers do not use for business purposes. A flat tax of 30% (including both income tax and social security contributions) is now applied to capital income.

There is also a special expatriate exemption scheme. Directors and employees may beneficiate from this exemption if they have not previously paid taxes in France during the past five years and have officially recognised France as being their tax residency. This scheme can be extended from five to eight years.

In overall, the French government has introduced several measures to improve the taxation system and make France increasingly attractive for innovation and company creation and foreign investment.