MAJOR DEVELOPMENTS
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
1. Rates
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
Ratio =
Taxable income
Ratio Rate
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
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