France - The main tax provisions of the Finance Bill for 2017 relating to companies
The French Parliament has recently approved the new Finance Bill for 2017. Although the longevity of new tax measures will depend on the results of the French presidential election in May 2017, these are the main developments that are worth noting:
Reduction in corporate tax rate
The new Finance Bill suggests progressive reduction of the corporate tax rate in order to reach the common tax rate of 28% for all companies starting from 2020. This reduction will take place in several stages between 2017 and 2020, depending on the company size and realized profit.
Nowadays, the corporate income tax rates in France are fixed as follows:
- 33.1/3% - standard rate applicable by default to all companies
- 15% - reduced rate applicable to SMEs with revenue below € 7 630 000 and at least 75% ownership by individuals
The new law also stipulates that in the fiscal years starting on or after 1 January 2019 companies with revenue below € 50 million, compared to € 7.63 million today, will benefit from the reduced tax rate of 15%.
Modification of the system of corporate tax installments due by large companies
This measure concerns the largest companies with revenue over € 250 million. The next installments will be increased as follows:
- 80%, instead of 75%, for companies with revenue over € 250 million, but less than € 1 billion
- 90%, instead of 85%, for companies with revenue over € 1 billion, but less than € 5 billion
- 98%, instead of 95%, for companies with revenue over € 5 billion
Extension of the start-up regime
Start-ups in France are eligible for a 100% exemption from corporate tax or income tax on profits earned during the first financial year and 50% exemption for the following financial year.
In order to increase visibility for “innovative start-ups” (Jeunes Entreprises Innovantes - JEI), this regime was extended until 31 December 2019.
Increase of CICE (Tax credit for employment and competitiveness)
The aim of the Tax credit for employment and competitiveness (Crédit d’impôt pour la compétivité et l’emploi - CICE) is to improve the competitiveness of companies by reducing the labor costs of employees paid up to 2.5 times the minimum gross salary (SMIC).
New bill increases the CICE rate from 6% to 7% of the amount of salaries paid to employees as from 1 January 2017.
Extension of a reduced tax rate for sales of premises for industrial usage transformed into living quarters
A temporary application of a reduced corporate tax rate of 19%, until recently, applied only to the transfer operations involving offices or commercial premises. Transfers of premises for industrial use were excluded from the reduced tax regime. New bill extends the benefit of the reduced rate for capital gains arising from sales of premises intended for conversion into living quarters.
Taxation of diverted profits earned by multinationals in France - "Google tax"
This is a "new standard" explicitly aimed at multinational corporations that avoid declaring a permanent establishment in order to evade or mitigate tax payable in France.
Abolition of favorable tax amortization regime for acquired software
The Government has abolished the benefit of exceptional software amortization over a 12-month period.
Instead, the “straight-line” method, based on the depreciation period of the software, will be applicable. For example, if the useful life of the software is 5 years, the “straight-line” rate will be equal to 20%.