In France, the draft budget for 2016 contains fewer tax changes than last year. The next big international reform is the start of the new automatic exchange of financial information under the Common Reporting Standard.
We are fast approaching the end of the year and it is time to consider what 2016 will bring. This time last year we were relieved to see that the 2015 budget contained limited tax changes, and looking ahead at the UK ‘Pension Freedom’ starting in April and the new EU succession regulation from August.
This year, the draft budget for 2016 contains even fewer tax changes than last year (a relief after all the changes and tax rises over recent years!), and the next big international reform is the start of the new automatic exchange of financial information under the Common Reporting Standard. This affects everyone who lives in one country and has assets in another.
The government presented its draft budget bill for 2016 on 30th September. It said it puts public accounts back on the right track, and that it is “above all a budget of tax reduction for average households and companies”.
There is no change to the income tax rates themselves, but the income bands for each rate increase slightly. So the tax-exempt threshold will be €9,700, up from €9,690. The first tax rate of 14% will apply to income between €9,701 and €26,791. Tax is then applied progressively at 30%, 41% and 45%, with the top rate now charged on income over €152,108 (up from €151,956).
France sets income tax rates in arrears, so these rates are for income earned in 2015 (and paid in 2016).
The décote (the income tax credit where the tax liability is below a certain level), will increase from €1,135 to €1,553 for a single person, and from €1,870 to €2,560 for a couple.
The government said that the changes will reduce the income tax burden on households by an average of €252.
Do not forget that social charges, at 8% on salaries; 15.5% in investments and 7.4% on pensions, are charged on top of income tax. There are some exceptions.
There are no reforms this year that investors need to take particular notice of, but this year’s removal of the 5.5% income tax band presents tax planning opportunities, thanks to the difference in France between income and taxable income. Arranging your investments to produce non-taxable income and gains can make a significant difference to your tax bill.
There is a change on the way for employees. Currently they are paid gross (there is no pay-as-you-earn (PAYE) in France) and it is your responsibility to retain sufficient funds to pay your tax liability the following year. As outlined in the 2016 budget, there will be a consultation next year on withholding income tax on employment income at source (prélèvement à la source), with full implementation in 2018.
Another change affects everyone one France – tax returns will have to be filed online. This is implemented over a few years, starting in 2016 with taxpayers who earn over €40,000, with full implementation from 2019.
The budget may be amended as it goes through parliament, so there may be changes or additions.
Automatic exchange of information
There is a step change for cross-border tax planning next year, when the Common Reporting Standard (CRS) goes live in January. Financial privacy is dead and buried, to the point where your local tax authority will passively receive information about your investment assets without having to ask for it.
There is currently automatic exchange of information in Europe under the Savings Tax Directive, but only on interest income. Other bi-lateral agreements are of limited benefit to tax authorities since information is only provided on request – the tax authority needs to be aware of the account and suspect tax evasion.
The new regime involves the systematic and periodic transmission of taxpayer information by the source country to the residence country concerning various categories of income – it goes much further than interest income. The French tax authority will receive information on every resident of France, without having to ask for it, regardless of whether they have been declaring everything correctly or hiding assets offshore.
Information to be reported includes name, address and tax identification number of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets. Reporting institutions include banks, custodians, investment entities such as investment funds, certain insurance companies and trusts.
Almost 100 jurisdictions have signed up so far. The ‘early adopters’ (including France, the EU and UK offshore centres) start collecting data from January, to make the first information exchange (for 2016) by September 2017. Other countries start a year later.
In Europe, the CRS will be implemented through the Administrative Cooperation Directive which provides for automatic information sharing on interest, dividends, other investment income, account balances, sales proceeds from financial assets, income from employment, directors’ fees, life insurance, pensions and property.
If you have many offshore bank accounts, investment products, trusts etc, then each one will share information to your local tax authority. For peace of mind you could group many assets into one arrangement, so that there is much less information being passed around.
Cross border tax planning is complex. You need to be clear on what income and assets you should be declaring in which country. This is also a good time to review your tax planning arrangements. Are they approved here in France? If, for example, you use non-compliant bonds, such as non-EU bonds (including Isle of Man, Jersey and Guernsey), they are taxed more aggressively than French compliant bonds.
Not only should your tax planning be fully legitimate, but it should also be designed for your specific circumstances and objectives. Take personalised, specialist advice on what tax and estate planning arrangements are best suited for you and your family, for today and the long-term.
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16 October 2015
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; an individual is advised to seek personalised advice.