Roche & Cie

Income tax in France: tax reductions and credits

28 Mar 2019

Income Tax: Tax Cuts and Credits in France

French taxation is complex and it is not always easy to identify the possible tax reductions you can benefit from. You will therefore find below a summary of the main measures in force:

 

The Energy Transition Tax Credit (CITE)

The Energy Transition Tax Credit (ETC) is a scheme that allows households wishing to carry out energy improvement work in their main residence to benefit from a tax credit of up to 30% of their expenses.

To benefit from this tax credit, the property must be your main residence and have been completed for more than 2 years.

The tax credit applies to work performed until December 31, 2019.

However, the expenditure is limited to:

  • 8,000 € for a single person,
  • 16,000 € for couples under the same tax household. For couples with children the ceiling is raised to 400 € per dependent person.

Examples of work involved:

  • high energy efficiency boiler (e. g. heat pump type) ;
  • replacement of single-glazed windows with double-glazed windows;
  • removal of an oil tank….
  • You will find a complete list of eligible work at this address: https://bit.ly/2YoG3Gu

To be able to benefit from the CITE, the property must meet two conditions:

  • it must be located in France,
  • it must be used for residential purposes.

Please note: only persons domiciled in France for tax purposes can benefit from this tax reduction.

 

Donations to organizations based in France

It is possible to benefit from a tax reduction when you make donations or pay a membership fee to an association or organization of general interest.

The donation may take the form of a sum of money, contributions, income or proceeds. The donation can be made in kind: for example, the donation of a work of art.

To be eligible for a tax reduction, beneficiary organizations must meet certain conditions:

  • be a non-profit organization,
  • have a corporate purpose and disinterested management,
  • not operate for the benefit of a small circle of people.
  • You can also make donations to accredited organisations established in a Member State of the European Union such as Iceland, Norway or Liechtenstein.

You can benefit either:

  • of a tax reduction equal to 75% up to a maximum of €537 for donations made to associations providing assistance to people in difficulty;
  • of a tax reduction of 66% of the sums paid, up to a maximum of 20% of taxable income, for donations made to other public interest organisations.

Note: the administration has indicated that non-residents are not eligible for this tax reduction.

 

Donations to a political party

Making a donation to a political party allows you to benefit from a tax reduction of 66% of the amounts paid.

More specifically, you can benefit from a tax reduction when you pay:

  • donations to an approved election financing association or financial agent for the financing of an election campaign, and recorded in a candidate’s or list’s campaign account,
  • donations made to an approved political party funding association,
  • contributions to political parties and groups.
  • The maximum reduction is set at €7,500 per person and €15,000 per year per tax household.

Donations paid to a candidate may not exceed €4,600 per election.

The reduction is 66% of the amounts paid up to a maximum of 20% of taxable income.

You can carry forward the amount exceeding the 20% limit over the next 5 years.

Please note: non-residents cannot benefit from this tax reduction.

 

Childcare services

Childcare expenses for a child under 6 years of age may be eligible for a tax reduction. When you have your child looked after at home or out of home, you can get a tax credit equal to 50% of the expenses incurred for childcare.

The expenditure ceiling is set at €2,300 per child in care.

Please note: non-residents cannot benefit from this tax reduction.

 

School fees for children in secondary or higher education

This tax reduction applies to children who are still dependent on their parents.

To benefit from the reduction, the child must not be bound by an employment contract and must not be remunerated (with the exception of the scholarship received and the training allowances).

The tax reduction is set as follows:

  • 61 € per child attending a secondary school;
  • 153 € per child attending a general and technological high school or a vocational high school;
  • 183 € per child in higher education training.

To be noted: Non-residents cannot benefit from this tax reduction.

 

Child support payments

Maintenance payments made to an adult child are deductible from taxable income in 2018 up to a maximum of €5,888 per child per year.

If the child is single and has a dependent child of his own, the deduction limit is increased to €11,776.

Attention! If the payments are deductible expenses for you, they are taxable income for your children.

Non-residents cannot benefit from this tax reduction.

To be noted: The deduction limits for this category change each year. Be sure to stay informed.

 

Employment of an employee at home

This category allows you to benefit from a tax credit. To do this, the services provided must be of a private, personal and family nature (housework, tutoring, gardening).

You can find the complete list of eligible activities in Article D7231-1 of the Labour Code. : https://bit.ly/2Yweo6t

The tax credit amounts to 50% of the total expenses.

However, there is a ceiling of €12,000 per year plus €1,500 per dependent child or member of the tax household over 65 years of age.

The employment must be exercised in France in the taxpayer’s main or secondary residence.

Note: non-residents cannot benefit from this tax credit.

 

Expenditure related to dependency

Persons staying in a residential facility for dependent elderly people (EHPAD) or in a long-term care facility in France or in a Member State of the European Economic Area may benefit from a tax reduction regardless of age.

The tax reduction is equal to 25% of the expenses up to a maximum of €10,000 per person.

Please note: non-residents cannot benefit from this discount.

 

Contributions paid to retirement savings plans

Contributions paid into a retirement savings plan are eligible for a tax benefit in the form of a deduction from overall gross income.

Within the framework of a PERP, PERE, PERCO (various retirement savings plans) and for each member of the tax household, the deductibility ceiling is set at 10% of the net amount of all declared income with a maximum deduction of €31,382 (for payments made in 2018).

Please note: non-residents cannot benefit from this discount.

 

Subscription to the capital of an SME

In order to promote business support, the legislator has introduced tax benefits for taxpayers who participate in SME financing.

This tax benefit is intended for individuals domiciled for tax purposes in France. On the other hand, non-residents cannot benefit from this tax reduction.

However, the beneficiary company must fulfill certain conditions, in particular:

  • have its registered office in a Member State of the European Union, Iceland or Norway;
  • the company may carry on a commercial, industrial, craft, liberal, agricultural or financial activity, but it may not carry on an activity limited to the management of its own movable or immovable assets, therefore holding companies and SCIs are excluded for example;
  • the company must be subject to corporate income tax;
  • the SME must not be listed on the stock exchange;
  • you must keep the shares in this company for at least 5 years;
  • the company is in the start-up, start-up or expansion phase;
  • it should not be considered as a company in difficulty.
  • For companies created since 1 January 2016, subscription to a capital increase cannot give rise to the tax reduction if the taxpayer is already a shareholder or partner in the company.

The maximum amount of this funding is €50,000 for a single person and €100,000 for a couple. The surplus can be carried forward.

The tax benefit is an income tax reduction of 18% on payments made to an SME.  This rate should be temporarily increased according to a date set by decree and increased to 25%.

 

Investing in an investment fund

It is possible to buy shares in an innovation mutual fund (FCPI) or a local investment fund (FIP). The mission of these institutions is to finance the development of innovative companies that are not listed on the stock exchange.

FCPIs finance innovative companies with high growth potential. FIPs target companies that are developing locally or regionally.

The tax benefit is of 18% tax reduction on the amount of payments made, up to a maximum of €12,000 for a single person and €24,000 for a couple. This rate should be temporarily increased according to a date set by decree and increased to 25%.

The shares must be kept for a period of 5 years.

Please note: non-residents cannot benefit from this discount.

 

Investing in real estate

Several tax exemption laws allow you to invest in real estate while benefiting from tax reductions. These measures are generally intended to revitalize the real estate market or to protect France’s historical heritage.

Here are two devices that may be of interest.

The “PINEL” system allows you to benefit from a tax reduction ranging from 12 to 21% depending on the rental terms chosen over a period of 6 to 9 years.

Investment is only possible for French tax residents. However, in the event of a change of tax domicile, the taxpayer retains the benefit of the reduction.

The “MALRAUX” scheme allows a tax reduction of 30% of the amount of work carried out within a dwelling located in a protected area. It is then necessary to carry out renovation work on the old building located in a deteriorated old district. The property must then be leased for 9 years.

However, this scheme is not eligible for non-residents.


Beware! For any claim for deduction or tax credit, it is important to keep the supporting documents insofar as the tax authorities are entitled to claim them from you.


Summary table of tax cuts and credits in France

 

Cuts – ReductionsConditionsAdvantages
The Energy Transition Tax Credit (CITE)The main residence completed at least 2 years ago.Tax credit = 30% of expenditures
Child support paymentsChild detached from the parental tax householdFor pensions paid in 2018 maximum deductibility €5,888 per child per year
Donations to organisms in FranceThe organization must:

  • Be a non-profit organization,
  • Have a corporate purpose and disinterested management,
  • Do not operate for the benefit of a small circle of people
A tax reduction of 66% of the payments made during the year, up to a maximum of 20% of the total net taxable income.

75% of payments to organisations providing care, meals or accommodation for disadvantaged people up to a maximum of €521.

Donations to political partiesDonations to an approved election financing association or financial agent for the financing of an election campaign, and recorded in a candidate’s or list’s campaign account,

Donations to an approved political party funding association

Contributions to political parties and groups

Reduction is 66% of the amounts paid within the limit of 20% of taxable income.
Childcare servicesChildren younger than 6Tax credit equal to 50% of the expenses incurred
School fees for children attending secondary school or higherDependent children of his parents61 € per child attending a secondary school,

153 € per child attending a general and technological high school or a vocational high school,

183 € per child in higher education training,

Employment of homebased employeesPrivate, personal and family services.A tax credit of 50% of total expenses
Expenditure related to dependencyPersons accommodated in a residential facility for dependent elderly persons (EHPAD)

Or in a long-term care facility in France or in an EEA Member State

Tax reduction equal to 25% of expenses up to a maximum of €10,000 per person
Contributions paid to retirement savings plansContributions paid as part of a retirement savings plan10% of the net amount of all declared income with a maximum deduction of €31,382
Investing in an SMEThe company must not carry on an activity limited to the management of its own movable or immovable assets,

The company must be subject to corporate income tax,

You must hold the shares in this company for at least 5 years,

The company must not have been on its market for more than 7 years.

An income tax reduction of 18% on payments made to an SME. Rate increase to 25%.

Ceiling set at €50,000 for a single person and €100,000 for a couple.

Surplus can be carried forward

Investing in an investment fundHolding shares for 5 yearsA tax reduction of 18% on the amount of the payments made, up to a maximum of €12,000 for a single person and €24,000 for a couple. Rate increase to 25%.
Real estate investmentInvestment for rental. To be seen according to the device.Tax reduction depending on the chosen device.

  • Pinel 21%
  • Malraux 30%

Cabinet Roche & Cie, English speaking accountant in Lyon, France.
Specialist in Real-Estate and Non-resident taxation.