Corporate Income Tax. In July 1997, modifications in the basic
corporation tax rates were announced by the French Ministry of Finance. Subject to approval by the French Parliament, the draft legislation should enter into force for the financial years closing after January 1, 1997.
q A 15% surcharge of the 33.33% basic rate is levied on companies subject to corporation tax with a turnover in excess of 50 million francs. The effective rate of corporation tax for these companies is now 412/3%. This increase should be temporary and limited to 10% in 1999.
q For all companies, the specific reduced rate of 19% on long-term gains is only maintained for gains on controlling interest.
q Sums received by a company for licensing patents and know-how should benefit from the reduced 19% as previously.
Statutes of Limitation. Effective January 1, 1997, an extension of the statutes of limitation from three years to six years is instituted for personal income tax, corporate income tax, business license tax, and VAT purposes in cases of undeclared activities carried out in France.
Personal Income Tax. The Finance Bill for 1997 started a five-year decrease in personal income tax rates for each bracket of taxable income. This decrease should be stopped by the 1998 Finance Bill.
INCOME TAXES ON CORPORATIONS
1. Rates Legal ent'ties are subject to corporation tax by reason of:
q Legal Form limited companies (Soci?anonyme, soci?par actions simplifi, soci??responsabilit?limit, soci?en commandite par actions, and soci?en commandite simple for certain shares, i.e., those held by limited partners);
q Profit-Motivated Business (Civil law association engaged in profit-motivated business);
q Choice (Partnership electing to be liable to corporation tax).For financial years closing after December 31, 1996, corporation tax rates vary depending on the company turnover.
q Companies with turnover in excess of 50 million francs are subject to the usual 33.33% tax rate (or 19% on long-term capital gains on controlling interests), to an additional contribution equal to 10% of their annual corporation tax and to another 15% increase. The effective rates of corporation tax for these companies are 412/3% and 23.75% on long-term gains on controlling interests.
q Companies with turnover less than 50 million francs that are controlled by individuals (75% interest) and are not parent companies of tax consolidated groups are not liable for the 15% increase. Their effective rates of taxation are 362/3% and 20.9% on long-term capital gains on controlling interests.
q Companies with turnover less than 50 million francs that are controlled by individuals (75% interest) and are not parent companies of tax consolidated groups may benefit from a reduced corporate tax rate of 19% on a portion of their profits, provided the profits subject to the reduced taxation are capitalized. Their effective taxation rate is 20.9% since they are subject to the additional contribution of 10%.
Corporation tax is assessed only on the profits of companies engaged in business in France and those allocated to France by various treaty provisions.
There is no tax payable by companies liable to corporation tax on distributions to French residents (either companies or individuals) when the distributed profits are from previously taxed profits (at the standard rate) and which were realized not more than five years before the distribution. Dividends distributed from profits that are not subject to corporation tax (e.g., dividends received from subsidiary companies and profits earned in non-French establishments) are subject to a tax (the so-called prompte) at the rate of 331/3% of the gross amount to be distributed so that the recipient could be entitled to a relevant avoir fiscal?representing 50% of the net amount received in cash. The prompte applies also to dividends paid out of profits realized more than five years before the distribution. The prompte generally is reimbursed to corporate shareholders residing in a country with which France has a tax treaty, if these shareholders are not entitled to an avoir fiscal.
The prompte does not apply to dividends paid out of foreign-source income if the French distributing company is a pure holding company that has foreign stocks constituting at least 662/3% of its assets, that benefits from the affiliation privilege, and the net income of which is represented by at least 662/3% of these foreign stocks. As a result, the French holding company shareholders are not entitled to an avoir fiscal, but foreign tax credits of the holding company are transferred to them, subject to certain limitations.
2. Local Income Taxes
Only the State levies income taxes in France. The town
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