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France: Tax proposals in 2018 draft budget

France: Tax proposals in 2018 draft budget

The French government on 27 September 2017 unveiled the draft budget for 2018, which will be submitted to the French parliament in the next few days. In conformity with President Macron’s campaign platform, the draft budget includes certain tax measures aimed at increasing the competitiveness of companies established in France and also at encouraging, through targeted measures, a reduction in the tax burden and incentives for individuals and companies to invest their savings in the economy. Certain measures also aim at conforming French legislation to European Union legislation and at avoiding potentially costly litigation at the European level.


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Tax measures—of a technical nature (not yet disclosed)—may be included in a yet-to-be-published “rectified budget” for 2017.

Tax measures in draft budget

The main tax measures of the 2018 draft budget include a progressive reduction of the corporate tax rate to 25%.

The tax reform (2016) provided for a progressive reduction of the ordinary corporate tax rate from 33.33% to 28%. The draft budget provides for a progressive reduction of the rate to 25%, being fully phased in by 2022. The schedule for application of the progressive reduction of the corporate income tax rate would be:

  • In 2018, a 28% rate would apply for taxable profit up to €500,000 and 33.33% above that amount.
  • For the financial years opened as from 1 January 2019, the standard or normal rate would be reduced to 31%, and for the first €500,000 of profit, the 28% rate would apply.
  • For the financial years opened as from 1 January 2020, the 28% rate would be the new standard or “ordinary rate” (for all profits).
  • This “ordinary rate” would then be decreased to 26.5% and then to 25% for the financial years opened as from 1 January 2021 and from 1 January 2022, respectively.

However, the 3.3% surtax on the standard corporate income tax would remain unchanged.

Repeal of one of the interest deductibility limitations

The draft budget includes a provision to repeal the provision (article 209-IX of the French tax law) prohibiting the deductibility of interest on acquisition of shares not controlled by a French entity. This provision—that is commonly known as “amendement Carrez”—prohibits the deduction of interest incurred for the acquisition of shares when the French purchasing entity cannot demonstrate that the authority of decision-making and control on the acquired shares is with it or with other companies of the group established in France. [This provision generally concerns acquisitions by French holding companies.] 

KPMG observation

Tax professionals have observed that this repeal would be justified in light of doubts expressed by French government officials regarding the conformity of this provision with European Union and Economic European Area treaties and by the measure’s limited scope of application.

Repeal of 3% tax on distribution of dividends

Under the draft budget, the 3% tax would be repealed for distributions paid out as from 1 January 2018. Note that scope of this tax was already substantially narrowed last year following a decision of the French Constitutional Court, and it was also subject to a judgment of the Court of Justice of the European Union that found it was levied in contradiction to the EU Parent-Subsidiary Directive. Numerous litigations are still pending concerning this tax; accordingly, its repeal would conform French legislation to EU legislation.


The CICE is a tax credit that is available on salaries below a certain threshold amount and that has as its aim a decrease of the overall social cost of employees. Currently, the rate of the CICE is 7% of paid qualifying salaries. Under the draft budget, the rate of the CICE would be reduced to 6% for salaries paid during calendar year 2018. Beginning from 2019, the CICE would be replaced by a permanent reduction of social levies due by employers, under a mechanism to be provided for in the Social Security Financing Law for 2018. Such a reduction would amount to 6% for salaries paid up to 2.5 times the amount of “minimum salaries” (SMIC) and to 9.9% of salaries equal to the SMIC.

Local tax (CVAE)

A technical measure of the draft budget would provide that, by following a decision of the French Constitutional Court, the rate of the CVAE would be determined with respect to companies that meet certain conditions needed to become part of a French tax group (e.g., because of the shareholding participations between them), even if they are not members of such a group on the basis of the cumulated revenues of all the companies that might be part of the group, instead of on the basis of their revenues on a stand-alone basis. This measure would, in all likelihood, increase the CVAE burden of certain companies in France.

Measures affecting financial and insurance institutions

Companies not fully subject to value added tax (VAT) on their revenues (mostly banks, financial institutions, and insurance companies) are subject to a progressive payroll tax on the salaries they pay. Currently, a 20% rate applies to the portion of the individual yearly salaries paid by these entities if exceeding €152,279. Below this amount, the rate of the tax is 4.25% for the portion of the individual yearly salaries below €7,721, 8.5% for the portion between €7,721 and €15,417, and 13.60% for the portion of the individual yearly salaries between €15,417 and €152,279. Under the draft budget, the 20% rate would be repealed so that the portion of salaries above €152,279 would be subject to the 13.60% rate, instead of a rate of 20%. This measure would be aimed at attracting foreign financial institutions in France and providing an incentive to locate their higher-paid executives in France (e.g., an incentive in light of Brexit). 

The scope of the tax on financial transactions extended last year to intra-day transactions, would be amended. These transactions would be exempt from this tax, given the practical difficulties of implementation of this former extension.

Tax measures affecting individuals

Flat tax on financial income

Currently, financial income (dividends, interest, capital gains) earned by individuals is subject to social levies at a cumulative rate of 15.5% plus income tax assessed at progressive rates (up to 45% but with certain abatements applicable to the taxable basis of dividends and to capital gains, depending, for the latter, on the length of time during which the taxpayer has owned the investments). Overall, the global rate of taxation of financial income could be more than 60% of the gross income.

As proposed, a comprehensive flat tax of 30% (comprising of social levies for 17.2% after the increase of the “CSG” and of income tax for 12.8%) would apply to all financial income earned by individuals as from 1 January 2018. The abatements (mentioned above) would no longer apply. Taxpayers would be able to elect for application of the existing progressive income tax rates (the portion of the social levies due on this income remaining unchanged) on this income, in which case, the taxpayers could still benefit from the abatements. However the election, when made, would apply to all financial income of the taxpayer (not allowing the taxpayer to elect for it to apply to certain income only).

Given this proposed change, the rates of withholding taxes levied on dividends and certain capital gains earned by non-resident taxpayers would also be reduced (subject to application of the relevant tax treaties) to 12.8%.

Replacing wealth tax (ISF) with real estate wealth tax (IFI)

Currently, the ISF is assessed on all the assets owned by the taxpayer when net wealth exceeds a certain threshold (€1.3 million). The basis for the net wealth tax includes worldwide assets for taxpayers domiciled in France and French real estate for non-resident taxpayers. 

Under the draft budget, the ISF would be repealed and replaced, effective 1 January 2018  by a new real estate wealth tax (Impôt sur la Fortune Immobilière—IFI), that would be assessed only on the real estate owned by the taxpayer to the extent that the value of the taxpayer’s real estate assets exceeds €1.3 million. All other assets (especially financial assets) would no longer be subject to the wealth tax. The aim of the reform is to encourage taxpayers to finance the economy (i.e., companies or business activities). Certain real estate or real estate rights (those deemed used for professional purposes, under very strict conditions and criteria) of the taxpayer would be excluded from this new IFI. The progressive rates of the IFI would be similar to those that currently apply to the ISF.

Increase of CSG rate

The rate of the CSG (a social levy due on all income earned by taxpayers resident in France) would be increased by 1.7 points as from 1 January 2018. This increase would be partially offset or compensated by a reduction of other social contributions due on active income (like salaries or professional income). The increase of the CSG rate would be deductible for the computation of the taxable income.


For more information contact a tax professional with Fidal* in France or with KPMG in New York:

Gilles Galinier-Warrain | +33 1 55 68 16 54 | 

Patrick Seroin | +1 (212) 954-2523 |   

* Fidal is a French law firm that is independent from KPMG and its member firms.

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