France's tax incentives aim to promote Paris as IFC
France's Prime Minister, Manuel Valls, has announced a package of tax and other incentives to encourage companies and their foreign employees to relocate to France.
Income tax and wealth tax
The move, which law firm Sullivan & Cromwell LLP claims is focused on employers and employees in the financial services industry, would see an extension of the income tax discounting period for immigrating employees ('inpatriates') from five to eight years.
Under the current 'inpatriates' regime, employees relocating to France can apply to have their personal income tax basis reduced up to 50 per cent on both employment income and passive income, says Sullivan & Cromwell LLP. The rules are very complex, but essentially rely on the computation of a notional 'inpatriation bonus', representing the amount gained by the employee by moving to France and taking up residence. Employees hired directly by a French company can elect to have a flat 30 per cent of their net remuneration treated as an inpatriation bonus and therefore not subject to income tax. However it is calculated, this bonus is exempt from French income tax, provided the reduction is not larger than 50 per cent of total remuneration.
In addition, inpatriates are allowed a 50 per cent exemption with respect to capital gains on the sale of shares and other investment income arising outside France. They also pay wealth tax only on their French assets, not on offshore property.
The Hollande government is also promising an exemption for financial institution employers in respect of the 20 per cent salary tax currently applicable on compensation paid to employees who earn more than EUR150,000. In future, this exemption will not apply to the inpatriation bonus.
The package is intended to promote Paris as an international financial centre (IFC). This has long been a French aspiration, but has had limited success due to France’s high corporation and income tax rates. The French Prime Minister has therefore also indicated that the French corporate tax rate will be reduced to 28 per cent by 2020 (from 33 percent), subject to the outcome of the French presidential elections next May.
France's corporate tax rate is still far higher than the tax paid by London's financial centre, which is set to be lowered from the current 20 per cent to 17 per cent by 2020.
The West Australian reports that France has also announced that it would put in place a system to help companies and their foreign workers settle in France and open international sections in schools to allow children of foreign employees to be taught in their mother tongue.
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