Overview of the main measures included in the Draft Finance Act for 2017
Published on 30th Sep 2016
The French government released on September 28, 2016, the draft of the Finance Act for 2017. The main measures relating to corporations and individuals are described below.
Decrease of the standard rate of the corporate income tax
Current regime
The standard rate of corporate income tax is currently equal to 33.33%. This rate can be increased by additional contributions equal to:
- 3.3% for companies having an annual corporate income tax burden exceeding EUR 763,000 (aggregate rate of 34.43%); and
- 10.7% for companies having a turnover exceeding EUR 250 million for fiscal years closed between December 31, 2013 and December 30, 2016 (aggregate rate of 38%).
A reduced rate of 15% applies to certain companies with a turnover of less than EUR 7,630,000, not belonging to another company and with fully paid-up capital at least 75% held by natural persons. The benefit of the reduced rate is capped at an amount of profit equal to EUR 38,120.
Modifications included in the Draft Finance Act for 2017
The standard rate of corporate income tax would be gradually reduced to 28% as follows:
| 2017 | Rate of 28% applicable to all SMEs (1) up to EUR 75,000 of profits. |
| 2018 | Rate of 28% applicable for all companies up to EUR 500,000. |
| 2019 | Rate of 28% applicable for all companies whose turnover is below EUR 1 billion. |
| 2020 | Rate of 28% applicable for all companies. |
Renewal of the “JEI” (Young Innovative Companies) status
Current regime
The JEI status allows young SMEs, incorporated no later than 31 December 2016, being less than 8 year old and dedicating at least 15% of the total company’s spending in R&D, to benefit from several tax and social exemptions:
- exemption of corporate income tax during 12 months over 8 years and then a 50% tax allowance on profits over a period of 12 months;
- exemption of local taxes (CFE and CVAE) during 7 years (subject to approval from local authorities); and
- partial exemption of employer social charges during 8 years for research personal salaries.
Modifications included in the Draft Finance Act for 2017
The JEI status would be maintained and extended for eligible companies created no later than December 31, 2019.
Reinforcement of the CICE tax credit
Current regime
The CICE tax credit is currently equal to 6% of the annual wages paid to employees earning no more than 2.5 times the national minimum wage (i.e. up to EUR 3,666.55 per month in 2016).
Modifications included in the Draft Finance Act for 2017
The rate of the CICE tax credit would be increased to 7% of the annual wages paid to employees earning no more than 2.5 times the national minimum wage.
Such modification would be applicable for wages paid as of January 1, 2017.
Improvement of the impatriation regime
Current regime
Employees, as well as certain corporate officers sent to France by a non-French employer, or directly recruited abroad, to perform professional duties in France can benefit from an exemption of personal income tax applicable to their impatriation premium. This exemption is applicable up to the end of the fifth year following the arrival of the individual in France.
Modifications included in the Draft Finance Act for 2017
The benefit of the exemption of personal income tax on the impatriation premium would be extended up to the end of the eighth year following the arrival of the individual in France.
The extended regime would however only be applicable to individuals having started their job in France on or after July 6, 2016 (individual having started their job in France before that date would benefit from the impatriation regime only until the end of the fifth year following their arrival in France).
For the employers, the impatriation premium would no longer be subject to the wage tax.
The exemption of wage tax would only be applicable to wages paid on or after January 1, 2017 to individuals having started their job in France on or after July 6, 2016.
Implementation of the at source payment of personal income tax
Current regime
Income tax is payable during the year after the income is earned (either in three instalments or 10 monthly payments). Instalments are based on the amount of income tax paid in respect of the previous year and the balance is paid no later than September 15.
Modifications included in the Draft Finance Act for 2017
The payment at source of the personal income tax would enter into force on January 1, 2018. The deduction would be made directly on the wages by the employer based on a tax rate provided for each household by the French tax authorities. The employer would have to pay the amounts of income tax collected to the French tax authorities during the month (or the trimester in case of small companies) following the one of the deduction.
Self-employed individuals would also have to deduct their income tax at source based on a rate provided by the French tax authorities.
French households would continue to have to file their income tax return each year in order to determine the effective amount of personal income tax due in respect of the previous year. If necessary any adjustments would be made either via a balance payment or via a refund from the French tax authorities (in case of overpayment).
(1) To qualify as SME, within the meaning of Commission Regulation (EC) N° 800/2008, appendix I, a company must:
- Employ fewer than 250 persons; and
- Have a turnover not exceeding EUR 50 million, and/or an annual balance not exceeding EUR 43 million.
