international tax summaries--FRENCH POLYNESIA（1998）
international tax summaries--FRENCH POLYNESIA（1998）
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Value-Added Tax. A VAT will be introduced in French Polynesia effective January 1, 1998. The VAT is a tax on sales of goods and services supplied. Rules governing the scope of the tax are essentially the same as those applicable in France. See item 21.
Tax Credit on Investing. Investments in building, or in a company that invests in building, that exceed 100 M.FCP and realized in 1997 are eligible for a 40% tax credit (30% if investments are realized in 1998 or 1999, 20% in 2000 or 2001). Investments in hotel construction, or in a company that invests in hotel construction, that exceed 200 M.FCP and realized in 1997 or 1998 are eligible for a 60% tax credit (50% if realized in 1999).
INCOME TAXES ON CORPORATIONS
The income tax rates range from 28% to 45%, with an additional 5% if the taxable income is greater than 50 M.FCP. The rate varies according to a ratio, computed as follows:
Net value of certain assets + Deductible personnel expenses
Greater than 9 28%
Less than 1 45%
The tax rate increases by 1 percentage point each time the ratio lowers 0.5 point.
The net value of assets includes those depreCIAble fixed assets held within French Polynesia and included in the balance sheet. Deductible personnel expenses do not include salaries for chairmen and executive directors or managers. To determine taxable income, the accrual method of accounting must be used.
Minimum Tax. A minimum tax, levied on a lump-sum basis, is equal to 0.5% of the turnover of 4,000,000 FCP maximum. Minimum tax paid can be deducted from the regular income tax due over the following three finanCIAl years.
New companies are exempt from the minimum tax for the first three finanCIAl years.
Deductions. Expenses incurred to carry on business may be deducted from taxable income. Nondeductible expenses include:
q Penalties and fines;
q Costs of houses, yachts, planes;
q Expenses incurred on the windward islands to provide personnel accommodations (except hotels);
q Salaries received by persons not subject to the soCIAl security regime;
q Retirement insurance expenses that exceed certain limits.
2. Local Income Taxes
Minor taxes are levied by the municipalities, such as a tax on real property (see item 25) and taxes based on the trade tax (see item 25).
3. Capital Gains Taxes
Capital gains usually are included in taxable income. There are
exceptions, however, for certain types of capital gains, according to how long the assets were owned and, under speCIAl conditions, how the capital gains were used.
Real Property Capital Gains. Gains on sales of real property and shares of real property companies, which apply only to unconstructed land (or if the value of the construction is less than 50% of the value of the land), are determined after deducting costs incurred for the sale, the purchase costs (except interest), and expenses incurred to increase the value of the property. Historical costs may be converted to a present value by an offiCIAl index, if the property was owned longer than three years.
Real property capital gains exceeding 200,000 FCP are taxed at rates determined by the length of possession:
Ownership Tax Rate
Not more than 3 years 20%
3 to 5 years 10%
Exemptions from real property capital gains tax are granted for:
q Capital gains taxable under other tax laws in French Polynesia, which includes capital gains received by companies subject to income tax;
q Capital gains realized in the case of expropriation;
q Capital gains realized by an individual on the sale of his or her personal residence.
7. Payment of Taxes
An annual tax return (declaration) must be filed indicating taxable income or loss of the preceding financial year. The return must be filed within three months after the end of the financial year or, if the finanCIAl year does not end within a calendar year, before April 1 of the following year.
OTHER SIGNIFICANT TAXES
21. Sales (Value-Added) Taxes
A VAT will be introduced in French Polynesia effective January 1, 1998. The VAT is a tax on sales of goods and services supplied. Rules governing the scope of the tax are essentially the same as those applicable in France.
For corporations, the basic principle is that the supplier (the taxable person) is required to charge VAT on the goods or services supplied after taking credit for VAT paid on business expenditures. The supplier pays the net tax to the authorities.
VAT is charged at the following rates (unless the goods or services are exempt from VAT):
q Standard rate, on services?%
q Intermediate rate, on all products that are not charged at the lower rate?%
q Lower rate, on most food products, soft drinks, newspapers, books, medicines, etc.?%Exemptions apply to certain banking, insurance, and finanCIAl services, property transactions, education and health services, water distribution, and oil products trade. Supplies that are not exempt are referred to as taxable supplies. VAT is due on goods imported into French Polynesia. However, all exported goods and services are exempt from VAT.
VAT rates are due to rise every year for five years. In the same period, the actual customs duties (average rate of 28% applicable to imported goods) will decrease to become nil by the fifth year.
23. Taxes on Payrolls (SoCIAl Security)
General SoCIAl Contribution. French Polynesia levies a personal
withholding tax: general social contribution. The general soCIAl contribution is withheld from any revenue received by an individual (wages, interest, etc.) and in certain cases by corporations (interest, dividends).
On wages, the tax is withheld by the employer at the following rates:
Over Not Over Rate
0 FCP 150,000 FCP 0.5%
150,000 350,000 3.0
350,000 700,000 3.5
A 1.5% rate applies to other income received by a corporation or an individual (e.g., interest paid to shareholders, dividends, attendance fees). Apprenticeship Duty. An annual apprenticeship duty, based on a taxable entity number of employees or workers, is levied at the rate of 5,000 FCP per individual.
25. Other Taxes
Transaction Tax. A transaction tax is levied on any business that is not liable to corporate income tax (mainly unlimited liability entities). It is computed as a percentage of turnover, according to the following scales:
q For services:
Less than 5,000,000 FCP 2.2%
5,000,001 to 10,000,000 4.4
10,000,001 to 20,000,000 5.5
20,000,001 to 50,000,000 6.6
50,000,001 to 75,000,000 8.8
Over 75,000,000 11.0
q For trading activities:
Less than 20,000,000 FCP 1.1%
20,000,000 to 40,000,000 2.2
40,000,000 to 80,000,000 2.725
80,000,000 to 200,000,000 3.3
200,000,000 to 300,000,000 4.4
Over 300,000,000 5.5
Rate reductions are possible for certain activities with low
profitability or subject to profit limitations.
Moveable Property Income Tax. A withholding tax at the rate of 8.5% is levied on the following:
q Dividends and any type of profit distribution;
q Interest paid to shareholders;
q Profit shares, attendance fees, etc.;
q Premiums paid to creditors and bondholders;
q Redemptions and repayments of business capital.
The general soCIAl contribution (1.5%) should be added to this tax. See item 23. Real Property Tax. Owners of certain buildings and land (see below) must file a declaration each time there is a 10% change in the rental value of their properties. The tax is levied annually at the rate of 10%; municipalities may levy an additional surtax of up to 50%, resulting in a maximum tax burden of 15%. The tax is levied on the following real property:
q Buildings located in Tahiti;
q Land used for industrial or commerCIAl purposes;
q Any industrial or commerCIAl installations that represent a construction site;
q Boats situated at a fixed place.
The law provides several permanent and temporary exemptions. A
five-year temporary exemption applies to new construction and
reconstructions or additions. This temporary exemption does not apply to land used for commercial or industrial purposes. Trade Tax. A trade tax applies to commerCIAl or industrial
activities and the exercise of a profession. Exemptions apply to certain professional activities.
The trade tax generally is composed of two major elements:
q A fixed tax (droit fixe), which is determined by the type of activity and other issues, of which the number of employees is the most important;
q A proportional tax (droit proportionnel), which is based on the rental value of any professional premises.
The tax rates vary according to type of activity and the location of the activity. For example, a hotel in Papeete is liable to a 200,000 FCP fixed tax and a 2% proportional tax.
Municipalities and the Chamber of Commerce may levy additional taxes based on the trade tax paid by a company. The maximum tax rates are 80% for municipalities and 22% for the Chamber of Commerce. Municipalities may levy another tax at the rate of 10% of the rental value used in the calculation of the proportional tax.
Beverage License Duty. Individuals and legal entities possessing a license to deal commerCIAlly with beverages are liable for an annual beverage license duty, regardless of any activity.
The amount of duty is determined by the level of the beverage license and its location. For example, a first-class license in Tahiti costs 70,000 FCP per year.
COMPUTATION OF TAXABLE INCOME
27. DepreCIAtion and Depletion
Depreciation on fixed assets is allowed as a deductible expense for purposes of computing taxable income. The straight-line method may be applied to all depreCIAble assets.
The declining-balance method may be applied to equipment with a useful life of at least three years and to industrial buildings with a useful life not exceeding 15 years. The rate of depreCIAtion is determined by applying the following coefficient to the straight-line rate:
Useful Life Coefficient
3 to 5 years 1.5
5 to 6 years 2.0
Longer than 6 years 2.5
29. Loss Carryovers
An enterprise may deduct a loss incurred during a finanCIAl year from the profits of the following year. Unused losses may be carried forward for the five years following the year in which incurred. Unused
depreCIAtion may be carried forward indefinitely.
33. Other Matters
Reserve. The creation of reserves is recognized as a deductible expense if the following conditions are met:
q An occurrence may result in a loss or decrease in value of an asset that normally should fall into the finanCIAl year in question;
q The event is probable, not merely possible;
q The reason or origin of the event occurred within the finanCIAl year in question;
q The loss or decrease in value is sufficiently concrete;
q The loss or decrease in value is explained in a separate statement.
Management Fees. Day-to-day management fees in Tahiti are
deductible from taxable income. Fees for other management services provided from abroad are deductible up to an amount linked to the ratio calculated as follows:
General management costs of company
Local turnover x
General turnover of the company
Only those fees corresponding to effective work are deductible.
Royalties. Royalties are deductible in computing taxable income.
Interest. Interest paid to banks or other finanCIAl institutions is deductible. Interest paid to shareholders for loans is deductible up to a rate fixed annually by the territorial authorities. In 1996, the rate was 7% (4.5% in 1997). Deductible interest cannot exceed four times the share capital amount (this limitation does not apply to loans granted by a parent company to a subsidiary).
Reservation Fees. Reservation fees made by nonresidents for hotel rooms are deductible if the rates are comparable to those generally used.
34. Incentives and Grants
Tax Benefits Program for Investments in the DOM-TOM Lois PONS. Certain investments in French Polynesia DOM (overseas departments) or TOM (overseas territories, such as Tahiti) are eligible for this program.
For corporations, the qualifying amount may be deducted in full from taxable income during the accounting year, applying before all other deductions, such as loss carryovers. Any amount not used in the current accounting year may be carried forward (see item 29).
For individuals, the tax benefit may be applied as a deduction to income tax payable. The deduction may be applied in the year the investment is made and in the following four years. The percentage of the total investment that is deductible is limited to:
Year Investment Percentage per Year
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