THE DIFFERENT FRENCH TAXES
French taxes may be subdivided into four general categories:
1.direct taxes, which are imposed on the income of the taxpayer,
2.turnover and consumption taxes, such as the value added tax, which are imposed upon certain business transactions,
3.registration taxes, which are payable in connection with certain legal transactions, and
4.customs duties.
These taxes respectively represented approximately 34 percent (no. 1), 46 percent (no. 2) and 20 percent (nos. 3 and 4) of the total tax receipts of the French Government.
INDIVIDUALS.
In France, individuals are subject to income tax, assessed at progressive rates, on their annual net global income (revenue net global). Individuals subject to French individual income tax may be divided into two main categories:
– Individuals who, for tax purposes, are deemed to be domiciled in France, and
– Individuals who have French-source income but who are not domiciled in France.
As a general rule, residents of France are subject to unlimited tax liability on their world-wide income from all sources regardless of their nationality (CGI, art. 4 A(1)). In the absence of contrary provision in an applicable double taxation treaty, a person is deemed to have his tax domicile in France if he satisfies any one of the following criteria:
1.his principal residence is in France or he sojourns in France for more than 183 days during a year,
2.his household, i.e., his wife and/or his children, reside in France,
3.his principal professional activity is carried out in France, or
4.his income is principally derived from capital held, managed or invested in France (CGI, art. 4 B(1)).
Non-residents are subject to tax on all of their income derived from sources within France, i.e., money from assets situated in France or activities carried out in France (CGI, arts. 4 A(2) and 164 B). Non-residents who maintain a residence in France are subject to tax on the higher of their actual income from sources in France or a sum equal to three times the rental value of their residence(s) in France (CGI, art. 164 C(1)). The foregoing general rules are subject to modification pursuant to the terms of a double taxation treaty. In the event of a double taxation treaty, the taxation of three times the rental value described above does not apply where the non-domiciliary can prove that he is subject to tax on his world-wide income in his country of domicile which equals at least 2/3 of the tax he would have paid in France on the same income. Such taxation also does not apply for a specified period where the taxpayer is a French national and is transferred abroad for professional reasons (CGI, art. 164 C(2)).
For purposes of the income tax imposed on French residents, a family is treated as a single taxable unit: family income is aggregated and taxed to the head of the household (CGI, art. 6(1)). All individuals are subject to the same progressive rates in France; there are no separate tax tables for single or married persons (CGI, art. 197(I)). In order to take into account the family situation of the taxpayer and to make allowance for the number of dependents each taxpayer may have, the family quotient (quotient familial) system has been devised to alleviate the burden of the progressive rate of income tax.
CORPORATIONS AND LIMITED LIABILITY COMPANIES.
Corporate income tax at a flat rate of 33.33 percent is imposed on the net taxable income derived from French operations by all corporations and other limited liability companies doing business in France (CGI, art. 219(I)(2)). Even in the absence of any taxable income, all corporate taxpayers are subject to an annual minimum corporate income tax (imposition forfaitaire annuelle des sociétés or IFA). Unlike individuals, the corporate income tax is imposed only on French operations; consequently, income derived from foreign operations is, subject to contrary provision in a double taxation treaty and certain exceptions concerning tax haven operations, normally not subject to French income tax upon its realization, nor upon its repatriation.
OTHER TAXPAYERS.
Forms of Business Organizations Which Are Transparent for Tax Purposes.
Although recognized as separate legal entities for many purposes, general partnerships (société en nom collectif) civil companies (société civiles), economic interest groups (groupements d’intérêt économique), société à responsabilié limitée with only one shareholder who is an individual, and joint ventures (société en participation) are not deemed to be taxable entities (CGI, art. 8). These entities, except for economic interest groups, may elect to be subject to corporate income tax. In addition, société à responsabilité limitée consisting of individual shareholders who all have direct familial ties may elect to be deemed transparent for tax purposes. Thus, each partner thereof, be such partner an individual or a company, is separately subject to income tax on its pro rata share of the partnerships net taxable income, whether or not such income is actually distributed (CGI, arts. 8 and 60). Similarly, each partner may deduct its pro rata share of the partnerships losses from its taxable revenue (CGI, art. 156(I)). If a joint venture has partners who are either not liable for debts or whose names and addresses are not disclosed to the tax authorities, the joint venture itself is subject to corporate income tax on that portion of its net taxable income attributable to such undisclosed partners (CGI, art. 206(4)).
It is to be noted that if a civil company engages in whole or in part in industrial or commercial activities, it is subject to corporate income tax (CGI, art. 206(2)). A general partnership or a civil company not engaged in commercial or industrial activities has the right to elect to be taxed as a corporation (CGI, arts. 206(3) and 239(1).
Limited Partnerships.
There are two types of limited partnerships in France, a limited partnership (société en commandite simple) and a limited partnership with Shares (société en commandite par actions). Each type of limited partnership has two kinds of partners: general partners (commandités), whose liability is unlimited, and limited partners (commanditaires), whose liability is limited to the amount of their interest in the limited partnership.
Limited Partnerships.
The limited partnership itself pays no tax on that portion of its taxable income attributable to general partners; general partners are taxed in the same manner as partners of a general partnership, that is to say, they personally realize their pro rata share of the net taxable income or loss of the partnership (CGI, art. 8). Contrariwise, the limited partnership itself is subject to corporate income tax on that portion of its net taxable income attributable to limited partners (CGI, art. 206(4)); the limited partners thereof are subject to individual or corporate income tax only to the extent that the limited partnership makes an actual distribution to them (CGI, art. 111(a)). If a limited partnership has partners whose names and addresses are not disclosed to the tax authorities, the partnership itself is subject to corporate income tax on that portion of its net taxable income attributable to such undisclosed partners (CGI, art. 206(4)).
Limited Partnerships with Shares.
Corporate income tax is imposed on all of the net taxable income of a limited partnership with shares, and not only on the portion thereof attributable to the limited partners (CGI, art. 206(1)). All of the members of a limited partnership with shares are subject to income tax only to the extent that the partnership makes an actual distribution to them (CGI, art. 111(a)).
Not-For-Profit Associations.
As a general rule, not-for-profit associations are not subject to corporate income tax. They are, however, subject to corporate income tax at the reduced rate of 24 percent on income earned from most types of capital (CGI, art. 206(5)(1)(c)). There are three exceptions to this 24 percent rate. First, dividends paid on French stocks are ordinarily not subject to corporate income tax (CGI, art. 206(5)). Second, interest paid on certain negotiable debt instruments such as billets de trésorerie are subject to corporate income tax at the rate of 10 percent (CGI, art. 219 bis). Third, dividends paid on certain types of French stocks on or after January 1, 1987, and interest paid on bonds issued on or after the same date are also subject to corporate income tax at the rate of 10 percent (CGI, arts. 206(5) and 219 bis). Not-for-profit associations may be subject to corporate income tax at the normal rate of 33.33 percent, however, if they engage in profit-making activities carried out in a manner similar to industrial and commercial enterprises (CGI, art. 206(1)) If, however, the income earned from such profit-making activities is less than 60,000 euros per year, the de jure and de facto managers do not as a general rule have a financial stake in the not-for-profit association and the not-for-profit-making activities remain preponderant, such income is not subject to corporate income tax (CGI, art. 206(1 bis)).
Where the income of a not-for-profit association is taxable, it is subject to corporate income tax upon the same terms and conditions as any commercial company (CGI, art. 219 bis(I)). It must be noted, however, that not-for-profit associations are not subject to the requirement to pay minimum tax unless they engage in profit-making activities, (CGI, art. 223 septies).