Personal taxation in Toulouse
Effective personal income tax rate
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Residents are taxed on worldwide income, whereas nonresidents are taxed only on French-source income.
Individuals domiciled in France are considered resident. An individual normally is considered domiciled in France if his/her principal residence, main place of business or professional activity or center of financial interests is located in France.
Married persons file a joint tax return, with no option to file separately after the year of marriage or before the year of divorce.
Rates on ordinary income are progressive, ranging from 0% to 45%, plus special social security surcharges for French residents of a maximum of 15.5%.
Deductions and allowances
Various deductions and allowances are available, based primarily on family circumstances and related to certain types of investment or expense incurred during the year.
Taxable income generally includes employment income, business income, real estate income, investment income and capital gains.
Capital gains from the disposal of movable assets (e.g. securities, bonds) are taxed as ordinary income (see below) at progressive rates ranging from 0% to 45%. In addition, special social security surcharges apply for French residents, amounting to approximately 15.5%. Capital gains from the disposal of immovable property are taxed at a special flat rate of 19%, plus special social security surcharges.
Other taxes on individuals
Real property tax
Owners are liable for a tax based on the "rental value" of the property assessed by the tax authorities. Occupants are liable for a dwelling tax based on the rental value of the property assessed by the tax authorities.
Transfers between close relatives are subject to tax at rates ranging from 5% to 45%, after a rebate (e.g. up to EUR 100,000 per child).
Net wealth/net worth tax
Households pay wealth tax if the net worth exceeds EUR 1.3 million (per household, rather than per individual). Some types of asset are exempt, and small deductions for dependents are allowed. Nonresidents must pay tax on their property in France, unless they are exempt under a tax treaty. Rates are progressive, ranging from 0.5% to 1.5%.
Social security contributions and surcharges are deducted at source from salary payments, with contributions of approximately 20% for the employee.
Compliance for individuals
Late payments and late filing are subject to a 10% penalty. If additional tax is payable as a result of a reassessment of tax, interest is charged at 0.4% per month (4.8% per year). Special penalties can apply in the case of bad faith or abuse of law.
Corporate taxation in Toulouse
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France operates a territorial tax system. Residents and nonresidents are taxable in France on profits allocable to a French business and on French-source income. Foreign-source income of French residents generally is not subject to French tax (and foreign- source losses may not be deducted).
Taxation of dividends
Dividends generally are included in taxable income, although distributions from qualifying subsidiaries benefit from the participation exemption (see “Participation exemption” below).
A company incorporated in France is deemed to be tax resident. A foreign company can be resident in France if it is managed and controlled in France.
Ordinary losses may be carried forward indefinitely, but may be offset against taxable profit of a given year only up to an amount equal to EUR 1 million, plus 50% of the taxable result in excess of this amount for the fiscal year. Losses may be carried back one year; in certain cases, up to EUR 1 million. Additional limitations apply to the deduction of capital losses on the sale of shares between related parties.
France offers an R&D tax credit and a tax credit for competitiveness and employment, which take the form of an actual cash payment from the government if the credits have not been used to offset an income tax liability within three years.
The standard corporate income tax rate is 331⁄3%. Small or new businesses may benefit from lower rates.
A participation exemption on dividends applies where the recipient owns at least 5% of the shares of the distributing entity for at least 24 months. If the participation exemption applies, the dividends are 95% tax exempt, resulting in a maximum effective rate of 1.9% (5% x 38%). However, if an entity is merged shortly after making a distribution and the merger is within two years of its acquisition, the parent company must choose between having the distribution within the scope of the participation exemption and taking a deduction for the loss on the shares of the distributing entity. (See also below under “Other” under “Anti-avoidance rules”).
A 3.3% social surcharge applies to standard corporate income tax liability exceeding EUR 763,000. The surcharge is levied on that part of the standard corporate income tax liability that exceeds EUR 763,000. Small and medium-sized enterprises benefit from specific exemptions provided certain conditions (e.g. turnover, capital) are satisfied.
Foreign tax credit
French domestic law generally does not provide for a credit for foreign taxes. Income subject to foreign tax that is not exempt from French tax under the territoriality principle is taxable net of foreign tax paid. However, most tax treaties provide for a tax credit mechanism, which generally corresponds to the withholding tax paid in the source country, but capped at the French tax actually due on the net income. The portion of the credit exceeding the cap is forfeited.
Taxable income is equal to book income, plus or minus certain tax adjustments.
Capital gains generally are subject to corporate tax at the standard rate, but capital gains derived from the sale of qualifying shareholdings can benefit from the participation exemption (see “Participation exemption” below).
Holding company regime
See "Participation exemption."
Other taxes on corporations
Stamp duties apply, but they are nominal.
Contributions payable by the employer vary depending on the size and type of business and the location, but in certain cases can exceed 50% of gross pay for the employer.
Resident and nonresident companies operating a French business must pay the CET (“contribution economique territoriale”). The CET has two components: a real property tax and a tax calculated on adjusted gross receipts of the French business.
A fixed EUR 375 duty applies to most transactions that impact a company’s share capital. The duty is EUR 500 for companies with capital in excess of EUR 225,000, which is the minimum registered capital for a public company. Capital reductions are taxed at a flat rate of EUR 125. Upon dissolution, a company pays a "droit de partage" equal to 2.5% of net worth, if the net worth is distributed pro rata to the shareholders. Amounts paid to a shareholder exceeding its pro rata rights in the distribution are taxed as a sale. (For share transfers, see “Transfer tax.”)
Real property tax
Several real property taxes apply in France, including the “CET” (see “Other” below), the “taxe fonciere” and the “3% tax.” (See also “Transfer tax” below.)
Payroll tax is levied on entities that collect revenue not subject to VAT (mostly banks and financial institutions).
Compliance for corporations
Under the fiscal integration regime, a group of companies may opt to consolidate profits and losses so that tax is assessed at the level of the parent company but is based on the group profit or loss. To qualify for consolidation, the parent must, inter alia, be subject to French tax and cannot be 95% or more owned directly by French corporate taxpayers. Only subsidiaries that are at least 95% owned, directly or indirectly by the parent can be included in the tax group (if subject to French corporate tax). Subsidiaries indirectly held through a chain of participations that include French companies not part of the tax group or non-EU resident companies cannot be part of the group. However, groups can be consolidated vertically (the traditional interpretation) or horizontally, as recent EU case law prompted a modification to French legislation, which now permits French sister companies with a common EU parent company to form a horizontally consolidated group.
Late payments and late filing are subject to a 10% penalty. If additional tax is payable as a result of a reassessment of tax, interest is charged at 0.4% per month (4.8% per year). Special penalties can apply in the event of bad faith or abuse of law.
Rulings are becoming a regular practice. A special ruling procedure exists to confirm whether a foreign entity has a permanent establishment in France.
The tax year generally is the calendar year, although a taxpayer may choose a different year-end date. The tax year is 12 months but can be shorter or longer in certain cases.
A self-assessment regime applies. Corporate tax returns normally are due by 30 April of the year following the
Other taxation in Toulouse
Value added tax
Filing and payment
Filing can be monthly, quarterly or annually, depending on the type of activities and other factors. Companies belonging to the same group may elect to consolidate payment of VAT (but not VAT returns) in certain cases, but VAT grouping is not possible.
The standard VAT rate is 20%. Reduced rates of 5.5% or 10% apply to most food products for human consumption and other items, and a preferential rate of 2.1% is payable on some periodicals and medicines reimbursed by the social security system. Certain transactions are zero-rated or exempt.
VAT is levied on the sale of goods and the provision of services, and on import.
Entities subject to VAT must register with the tax authorities.
Controlled foreign companies
The CFC rules apply to more-than- 50%-owned or controlled foreign subsidiaries or permanent establishments of a French company when the local taxation is less than 50% of the French rate (i.e. the actual tax paid compared to French tax that would be due on the income calculated under French GAAP). In such a case, the French company is (i) taxed on its pro rata share of the income deemed to be received from the CFC if the CFC is a permanent establishment or a branch; or (ii) is deemed to have received distributed income from the CFC if the latter is a subsidiary. EU companies are outside the scope of the CFC rules, unless the structure was put in place to avoid tax.
French entities controlled by entities established outside France are taxable in France on profits transferred, directly or indirectly, to an entity located abroad through an increase or decrease in the purchase or sales prices or by any other means. Companies exceeding certain thresholds must maintain contemporaneous transfer pricing documentation.
The deduction of interest expense on related party debt is deferred if the interest exceeds the highest of the following thresholds: (1) the interest expense on a debt equal to 1.5 times the equity; (2) 25% of the borrower's adjusted EBITDA; and (3) the amount of interest income received from related parties. An additional deduction may be available when the borrower is part of a consolidated tax group.
A rule to prevent hybrid mismatches disallows an interest deduction on a loan granted by an affiliated company if the interest is not subject to a tax at the level of the lending company that is equal to at least 25% of the tax that would have been due under the normal French rules.
Dividends paid by a French corporation to a nonresident shareholder are subject to a 30% withholding tax, unless a tax treaty provides for a lower rate or the EU parent-subsidiary directive applies. Under the directive, dividends paid by a French corporation to a qualifying EU parent company are exempt from withholding tax (see “Controlled foreign companies”, below, for rules on noncooperative countries).
Branch remittance tax
The after-tax income of a French branch of a foreign company is deemed to be distributed to nonresidents and is subject to a 30% branch tax. The tax may be eliminated or reduced under a tax treaty, and is not due if the foreign head office is located in the EU/EEA and is subject to income tax with no possibility of opting out or of being exempt; and the income is taxable in the foreign country.
Technical service fees
Fees paid for commissions, consultancy and services performed or used in France are subject to a 331⁄3% withholding tax. The rate may be reduced or eliminated under a tax treaty (see “Controlled foreign companies”, below, for rules on noncooperative countries).
Interest paid by a French company to a nonresident lender generally is not subject to withholding tax (see “Controlled foreign companies” below, for rules on noncooperative countries).
Royalties paid to a nonresident entity are subject to a 331⁄3% withholding tax. The rate may be reduced or eliminated under a tax treaty or where the royalties qualify for the benefit of the EU interest and royalties directive (see “Controlled foreign companies”, below, for rules on noncooperative countries).
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