Tuesday, September 17, 2013

How about the CSG and the CRDS?

If you have some French property investments, you might have noticed in 2012 the apparition of new taxes called CSG, CRDS, Financement du RSA or Solidarité Autonomie. All those are actually social charges and even though they been in existence for a while, in the past non-residents were exempt (since they don't use any of the French social infrastructure).

With the arrival of François Hollande and his socialist team, those deductions have been extended to all types of income (rental income, capital gains and dividends) and for residents and non-residents alike. What it means is if you sell a house in France you will have to pay the 19% capital gain plus the 15.5% social charges on the gain. And in some cases (if your capital gain is above €50,000) yet another exceptional tax that can reach 6% of the capital gain (if your gain is above €260,000). That's a total of more than 50%.

But unfortunately as far as the HMRC is concerned the 15.5% social charges are not considered a tax and therefore cannot be offset against UK tax. You will therefore have to top up the French tax by at least an additional 9% UK tax (assuming you are in the 28% CGT tax bracket).

If you read the French-UK tax treaty of June 19, 2008 (effective January 1st 2010), you might be tempted to think that CSG and CRDS are taxes since they are listed as items (v) and (vi) in article 2 which details the types of taxes. Unfortunately, article 24 which explains the elimination of double taxation specifically refers to article 2(1)(b)(i) to (iv) are what is to be regarded as ‘‘French taxes,’’ in effect excluding CSG/CRDS. The position is confirmed by HMRC on its website, resulting in 15.5% percent definitely ‘‘lost’’ from a double taxation standpoint. It should be noted that the US position is identical and that the IRS states clearly that the French CSG and CRDS contributions are not creditable nor deductible.

And when it comes to property investments there is unfortunately little you can do -- other than sell....