France discovering the Laffer curve

Although the latest figures published by the French Finance Ministry show a slight year-on-year increase in revenue levels compared to 2012, they also reveal that the record tax rises implemented this year are weighing heavily on overall revenue growth. This is in spite of surprisingly positive figures for August 2013.

Revenues derived from individual income tax amounted to EUR41bn (USD55bn) as at the end of August this year, compared to EUR34bn the same time the year before. Income from corporation tax stood at EUR23bn as at the end of August 2013, compared to EUR17bn in August 2012. However, close scrutiny of expected revenues for the entire year paints an altogether different picture. The Finance Ministry has revised downwards its forecast for 2013, currently anticipating total net revenues of EUR287.8bn, compared to the EUR298.6bn provided for in the initial finance law for 2013. The revision marks a shortfall of EUR10bn, added to which a further EUR5bn shortfall is expected due to lower income from social security contributions. This will push the total revenue shortfall figure to EUR15bn, despite the fact that the 2013 Budget provided for tax rises totaling EUR30bn.

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).

France unleashes €20bn tax tidal wave

Faced with an acute crisis and significant drop in popularity in the polls, French President François Hollande has announced that the country’s 2013 budget will provide for additional taxes next year of €10bn for both households and businesses in France. During an interview on TF1, President Hollande said that the government plans to redress the public finances within two years, despite expected growth this year of just above zero, and forecast growth for next year of 0.8%.

Highlighting the fact that he has tasked the government with drawing up the 2013 budget based on a realistic growth forecast for next year, probably of 0.8% rather than the 1.2% initially expected for 2013, the French President stressed that the government would not spend one euro more in 2013 than in 2012.

French Lawmakers Back Top Earner Tax

Within the framework of the government’s 2012 budget bill, the French National Assembly has adopted the provision introducing an exceptional tax on top earners in France. Coming on top of the existing wealth tax that the current government failed to repel and denounced by opposition parties as merely a “cosmetic” tax, the measure, which was recently agreed by way of a compromise between the government and the parliamentary majority, provides for a 3% tax on income of between €250,000 and €500,000, and for a 4% tax on income in excess of €500,000.

Defending the beacon measure of the 2012 budget ahead of the vote, French Budget Minister Valérie Pécresse underscored the “justice” of the levy, which targets very high income in all its components, income from work and capital. In its initial draft, the government originally put forward the idea of imposing a 3% tax on income from work and from capital in excess of €500,000 from 2011 to 2013. The tax was expected to yield in the region of €200m for the state in 2012.

Should I pay taxes in France or the UK?

A lot of French people live in the UK, up to 200,000 in London alone. And yet when it comes to taxes, information is scarce. If you have assets or revenue outside of the UK, some tax maybe due in France or in the UK depending on the asset class. This article tries to explain the rules, some driven by the tax treaty and some by residency. Indeed, the UK residency concept is more complex than the French one: you can be resident and non-ordinarily resident, or resident, ordinarily resident and non-domiciled. And if non-domiciled, again you have the option of being on a remittance basis or on an arising basis.

Residence and Domicile

Those 2 concepts are different in the UK and independent from one another. If you spend more than 90 days in a fiscal year in the UK you become resident. And if you come to the UK with the intention to stay less than 3 years you can get a status of non-ordinarily resident (NOR). That allows you to only pay tax prorated by the time spent in the UK. You have to be careful however to act in a way consistent with that intent. In other words, if you buy a flat, HMRC would consider that your intent is to stay longer than 3 years and they would invalidate the non-ordinarily status.