Does France Give Tax Breaks to the Rich? - Exclusive Article
Individuals moving to France for work or investment purposes may be eligible for advantageous tax provisions. But does France give tax breaks to the rich? This guide explores France’s taxation policies and how they impact high earners.
Taxable Income in France
Individuals whose tax residence is in France are required to pay income tax on their worldwide earnings, regardless of nationality. However, there are specific tax benefits that may reduce the burden for high-income individuals. Income tax is assessed based on the household’s total income, including earnings from the taxpayer, their spouse, and dependents. The applicable tax rate follows a progressive scale ranging from 0% to 45%, depending on taxable income and family quotient. Various deductions, reductions, and credits allow the tax burden to be adjusted. Examples include deductions for hiring domestic help and tax credits for childcare expenses. These tax-saving strategies are accessible to both middle-class and high-income earners. To estimate personal income tax liability, individuals can use the official tax simulator: French Tax Simulator. Additionally, specific taxation schemes exist for different income categories, offering further adjustments that may favor wealthier individuals.Does France Offer Tax Breaks to the Rich?
France provides several tax incentives, particularly benefiting expatriates, investors, and business leaders. These include a special regime for wealthy expatriates, a flat tax on investment income, and preferential taxation on stock-based compensation.The Expatriate Tax Regime
Foreign executives and high-income employees relocating to France can benefit from partial tax exemptions. This regime applies to:- Additional compensation related to employment in France (impatriation bonus);
- Earnings derived from activities performed abroad for a French employer;
- 50% of foreign-sourced investment income;
- 50% of royalties from intellectual or industrial property earned abroad;
- 50% of capital gains from selling foreign securities.
30% Flat Tax on Investment Income
Since 2018, France has introduced a simplified tax policy for investors with a fixed-rate levy of 30% on investment income, which benefits wealthy individuals significantly.- For French residents: This rate applies to dividends, interest, and capital gains. The standard 40% dividend allowance is not applicable unless opting for taxation under the progressive income tax scale.
- For non-residents: The withholding tax rate on dividends and capital gains exceeding 25% ownership is reduced to 12.8%.
Taxation of Free Share Allocations
Companies, whether publicly listed or private, may grant free shares to employees and executives under specific conditions. This is a form of tax-advantaged compensation that often benefits wealthy individuals. Conditions for Allocation- The company’s Extraordinary General Meeting (EGM) must approve share allocation.
- The vesting period must be at least one year.
- The holding period is optional, but the combined vesting and holding duration must be at least two years.
- After fulfilling these conditions, shares can be freely sold.
- Employers contribute 30% on granted shares (subject to exemptions for small and medium-sized enterprises). Since December 31, 2017, this rate was reduced to 20%.
- Associated costs, such as share buybacks, may be deducted from taxable corporate income.
- Taxation occurs upon both vesting and eventual sale of shares.
- Gains at vesting are calculated based on the share price at that time and taxed in the year of sale.
- Capital gains are determined by the difference between the sale price and the vesting price.
- The first €300,000 of acquisition gains is taxed progressively, with a 50% one-off deduction or a €500,000 fixed allowance for retiring executives.
- Any amount exceeding €300,000 is taxed as employment income without any allowances.
- Social security contributions apply at 17.2% for gains up to €300,000 and 9.7% for amounts beyond this threshold.
Capital Gains Tax on Free Shares
- Standard taxation on capital gains is 12.8%.
- If opting for progressive taxation, shares acquired before 2018 may qualify for tenure-based allowances.
- A €500,000 fixed allowance applies for retiring SME executives who have held the shares for over a year.
- Social levies of 15.5% on investment income apply, with partial deductibility of the general social contribution (CSG).
- Capital losses from the sale of shares can offset taxable income from share allocations.
