SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments as regards individual taxation in the past year.
TERRITORIALITY AND RESIDENCE
Individuals, whether French of foreign nationals, who have their tax domicile in France are generally subject to personal income tax on worldwide income unless excluded by a tax treaty. Individuals who are not domiciled in France(nonresidents) are subject to tax only on their income arising in France or, in certain instances, on imputed income.
Under domestic law, an individual is considered to be domiciled in France if at least one of the four criteria listed below is met.
1. The habitual abode of the person or family is in France.
2. France is the principal place of sojourn(more than 183 days in a calendar year).
3. Professional activities are carried out in France.
or
4. France is the center of economic interests.
Under bilateral tax treaties concluded with France, tax domicile is first determined under the law of the country that asserts the power to tax. If the individual is considered to be resident under the
laws of two countries, the treaty provides＂tie-breaker＂provisions to determine the country of residence. These tie-breaker tests generally include as criteria, in order of importance, permanent residence, center of personal and economic relations, habitual abode, and, if none of the foregoing tests is determinative, the decision of the competent authorities.
GROSS INCOME
Employee gross income/Unless expressly by tax treaty as subject to tax in another country or by domestic law, compensation earned in France and abroad by a resident is subject to France income tax regardless of where payment is made and whether it is remitted.
Compensation includes both salary and cash allowances(e. g., cost-of-living,hardship, schooling, and home-leave allowance and income tax reimbursements), but excludes social security and pension contributions made to French and qualified foreign plans. Business expense reimbursements are not taxable. Since 1997, special concessions may be made to foreign nationals on short-or long-term assignments not exceeding six years. Exceptions may also be created either under tax treaties or pursuant to agreements negotiated with the French tax authorities for employees of headquarters operations located in France. Special relief also exists for one-time moving premiums.
Capital gains and investment income/Unless exempt under a tax treaty, capital gains arising from the sale of real property are taxable, but the tax base is reduced on the basis of the holding period. The sale of a principal residence is tax exempt.
Capital gains arising from the sale of quoted or unquoted securities are subject to a 16% rate (plus 10% social surcharges) where the proceeds of the securities sold exceed FF50,000(1998 income). For French SICAV, FCP and OPCVM investments, the gain on these investments is fully taxable regardless of the amount of the sales proceeds. If the taxpayer, directly or indirectly, holds 25% or more of the shares of an unquoted company and sells its shares, capital gains tax is assessed regardless of the amount of total proceeds.
Taxable investment income consists of total income from dividends and interest actually or constructively received in a calendar year, adjusted for any related tax credits, less related investment expenses(e. g., brokers' and management fees).
For French-source dividends, individuals must add back to the cash dividend the tax credit recognized on the dividends paid by French companies, but they are entitled to deduct the tax credit from net tax payable on all income. For dividends received from tax treaty countries, the gross dividend(i, e., cash dividend received plus any withholding tax)is taxable, but a tax credit against total income is recognized. For dividends received from non-tax-treaty countries, no tax credit is allowed, but only the net cash dividend is taxable. In addition to income taxes, dividend income is subject to social surcharges of 10% for 1998 income.
Net French-source interest income may be included in an individual tax return with other investment income, alternatively, for certain types of securities, the taxpayer may elect to have interest income taxed at flat tax rates that range from 15% to 60%(plus 10% social surcharges, depending on the nature of the underlying investment. Interest paid by a foreign company to persons having their tax domicile in France must be included in taxable income. Such interest in grossed up to include any tax credit granted pursuant to a tax treaty. All taxable interest income is also subject to 10% social surcharges.
For more details on the social surcharges and their applicability to capital gains and investmen
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