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French Property News, July
2007
Since the recent election of Nicolas
Sarkozy as the new French President in May 2007, his first
measures seem to be in tune with the pre-election
promises.
An agenda has already been set up for his
first 100 days in office despite the fact that he will not be in a
position to start his new policies before the re-election of a
new French Parliament in June, which will hopefully give him
the majority he needs to drive the reforms France requires.
He and his ministers have already made some announcements on
the tax side moving the country towards a more tax friendly and
market orientated environment.
Amongst the reforms Nicolas Sarkozy suggested
is his 8 proposal to encourage French residents to become property
owners of their homes. He indicated that he will give
incentives to encourage the building of new constructions and also
allow the financial interest for those who need to borrow in order
to purchase a property, to be offset against the overall household
income. On 24 May the minister in charge indicated that each
household will be allowed to offset the loan interests up to
20% of their income. This will apply only to the
French residents as long as their title deed signed in front
of the Notaire has been signed after the 6 May 2007, which is
the date when Nicholas Sarkozy was elected President. This
tax allowance will be limited during a certain period of
time which has not been confirmed yet.
As part of the other proposals, which have
been made a Minister confirmed the setting up of a tax shield
ensuring that the amount of tax payable will not exceed 50% of
the household income. This was particularly damaging for those
assets rich and cash poor. The current rules lay out the
shield at 60% but does not include the additional 11% tax
for social taxes which means that the new measure might reduce the
tax by 21 points from 71% to 50%. With the limitation to 50%
this will substantially increase the French competitiveness.
In Sweden, Spain or Finland the current tax shield is 60%.
With the new rule France will join Germany, which since 1995 has
limited its tax shield to the 50% in accordance with a
Supreme Court decision, which declared anything above as against
the German Constitution.
In addition, the households who invest in
companies subject to conditions will receive a tax refund up
to €50,000. The new level of tax under the tax shield will
continue to undermine the French Wealth Tax impact. It is
worth mentioning that those who do not complete their wealth
tax forms by indicating that their assets are less than €760,000
and are therefore not subject to Wealth Tax are exposed to a
ten-year prescription period during which the Revenue can challenge
their tax position. Those who have declared a taxable
wealth are only subject to a three-year period.
With regard to income tax and in order to
encourage professionals to work extra hours and bring the
country back to work the government has insisted that the working
hours above 35 legal hours per week will have some
tax allowances as well as the contributions payable by the
employers on these extra hours.
We should hopefully hear of more incentives in
the coming weeks such as the VAT at the reduced rate of 5.5% which
should apply to restaurants although Nicolas Sarkozy might be
willing to increase the general rate of VAT which is currently at
19.6% as Angela Merkel did for Germany. There will be certainly
more to come.
For more information, please contact
Christophe Dutertre in Blake
Lapthorn's French Private Assets and Tax team on 023 9253
0379; email christophe.dutertre@bllaw.co.uk.
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