France’s 2020 budget introduces an income tax cut

What changes does France’s 2020 budget propose for French tax on income, investments, real estate and assurance-vie policies?

France has revealed its budget for 2020. Although not much has changed, there are a couple of tax proposals that may benefit expatriates living in France. 

In France, Autumn is the time of year when we find out what tax changes we will be faced with the following year, and wait for parliament to debate and finalise the proposed budget. We hope for tax cuts, but often get tax rises. This is a good year, however, as President Macron’s government has announced €9 billion worth of tax cuts for families in France.

France’s draft budget for 2020 was revealed at the end of September. The bill has begun its progress through parliament, which will take a final vote late in December. Here is a summary of French taxation in 2020, based on the budget.

Update: The draft France 2020 budget was approved on 28 December 2019.

Reduced tax rate for lower income in France

The main change is a reduction in the income tax rates for calendar year 2020.

Since all income tax used to be paid in arrears, under the old system the tax rates announced in the 2020 budget would been for 2019 income (tax paid in 2020). However, now – with introduction of PAYE – the 2020 budget includes the income tax bands and rates for both 2019 and 2020.

French tax rates for 2019 income 

Tax rates remain the same as last year but bands have been indexed for inflation:

French tax rates for 2020 income 

The starting tax rate is reduced from 14% to 11%:

This will save taxpayers in this bracket around €350 per year.

Flat tax on investment income in France

The tax rate for investment income remains unchanged at 30% for 2020 income.

French social charges

No changes were announced for social charges, so it looks like they will remain:

• 9.7% for employment/self-employment income
• 9.1% for pension income 
• 17.2% for investment income including rental income.

Remember that that 30% flat tax above already includes social charges. 

Tax on assurance-vie in France

The initial budget draft did not include any reforms for the taxation of assurance vie. Four early amendments were then proposed, which would have introduced significant changes, but the good news is that the first three were promptly rejected. The fourth was debated but it looks like it was also rejected, so hopefully we will not see any changes to assurance-vie in 2020.

Real estate wealth tax and succession tax in France

The current threshold of €1,300,000 for the ‘IFI’ real estate wealth tax will stay in place for 2020, with no changes to the scale rates of tax. The 75% limitation also remains unchanged.

The budget did not include any reforms for succession tax rates and allowances.

Taxe d’habitation

The changes to this local residence tax, announced in 2017, continue to remove households from taxe d’habitation. While some already escape this tax, the number increases so that next year only 20% will have to pay it and by 2023 it will be completely abolished. 

Corporation tax in France

The main rate of corporation tax remains at 31%, but it is reduced to 28% for companies with turnovers under €250 million.  

Pressure from the EU?

When the budget was launched at the end of September, French Finance Minister, Bruno Le Marie, explained that the aim was to boost investment and consumer confidence. He said that faced with a slowdown of growth across Europe, “investment is the only effective response”.

M. Le Marie defended the government’s fiscal stance, claiming that the 2020 budget deficit would be the lowest in 20 years, and that the burden on taxpayers was falling faster than expected. 

“Raising taxes is not an option,” he said. “Just when our tax policies are yielding results… you have to be consistent. The signal is very important.” 

Later in October, however, the EU wrote to the finance minister, requesting urgent clarification on the government’s 2020 budget as it does not respect its spending cuts commitments made to Brussels.  

The EU commission could potentially reject a budget and demand a new draft, but it is unlikely it will come to that. We will provide an update here if parliament makes amendments or additions to the 2020 budget before it is finalised at the end of December. 

Update: The draft France 2020 budget was approved on 28 December 2019.

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The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.