Catches behind using the new ‘flat tax’ forfeit system for share capital gains
A question I am often asked given the new ‘flat tax’, concerns how Capital Gains on shareholdings are assessed and treated in France for tax purposes, where these could relate to investments in company shares or property-related shares.
Let us begin by stating a simple fact: if you are a permanent resident in France you will need to declare all of your shareholding capital gains to the French tax authorities (the Fisc) along with all of your other income, such as pensions, share dividends and interest.
However, after that, it is not straightforward – and indeed the system was made more complicated in 2013 making the choice of options tricky to say the least, especially as for those taxable in France the eventual gain is then liable to both Capital Gains tax and the Social Charges (Prélèvements Sociaux).
A capital gain is calculated by taking the difference between: 1) the sale price less the sale charges and 2) the purchase cost and purchase charges.
One important aspect to remember, however, is that shareholding capital gains in France are in fact taxed under the income tax system, there now being two options for taxation, one of which is dependent on when the shares were originally bought:-
• The Forfeit ‘flat tax’ system, which is the new norm: income tax rate is charged at 12.8% and the social charges at 17.2% : a ‘flat tax’ total of 30% on the net gain and investment income; or
• The normal income tax banded system which taxes the net gain (and investment income) to income tax and social charges separately. Under this system there is an abatement available for the duration of detention of the shares (applied only to income tax), but only for shares acquired before 2018.
o Shares held more than 2 years but less than 8 years : 50% abatement of the gain
o Shares held for more than 8 years : 65% abatement of the gain
However : the first critical issue to remember is now that in any particular tax year, the Forfeit ‘flat tax’ rate removes the use of all of the abatements (on duration of detention and on income), and the second is that the ‘flat tax’ will apply to both investment income as well as capital gains.
There are then two more issues with the Forfeit ‘flat tax’ rate: first, the fiscal effect of the ‘parts’ on the resultant taxable total and, secondly, the possible consequential loss of any age allowances.
So, clearly, deciding on whether the Forfeit ‘flat tax’ system is actually now going to lower taxes due more than the income tax banded system, is, as the French say, « un véritable casse-tête chinois » … meaning that very great care has to be taken in correctly reviewing the options so as to have the most benign tax liability.
Pelican Consulting SARL is a bespoke French-regulated « Conseiller en Ingénierie Patrimoniale » and International Taxation consultancy company, owned by Dr Michael Annett with over 20 years’ experience in France as well as the UK.
Our expertise as wealth management consultants rests in advising on investments and savings, pensions, marital and succession law and international taxation.
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