Private Client Comparative Guide

• Published date: 06 August 2021
• Subject Matter: Family and Matrimonial, Wills/ Intestacy/ Estate Planning
• Law Firm: Tirard Naudin
• Author: Ms Maryse Naudin and Ouri Belmin

1 Legislative framework

1.1 Which legislative provisions govern private client matters in your jurisdiction?

As France is a civil law country, private client matters are primarily governed by legislation transposed in codes.

As a general rule, French legal aspects are governed by the provisions of the Civil Code and tax matters are ruled by the Tax Code.

As a general rule, a distinction is made depending on the nature of the connection of the person with France (habitual residence/domicile/residence). Citizenship is taken into consideration only under certain circumstances. However, it is not an essential criterion to link a person to France.

The situs of assets may, however, be seen as a connecting factor with France from a tax standpoint. One potential pitfall in this regard is that the shares of a company with its registered office outside France may qualify as French located assets merely because that company owns (directly or indirectly) real estate located in France.

1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?

From a legal standpoint, there is no distinction between French nationals and nationals of other EU member states. Discrimination clauses included in international treaties signed between France and other states may also affect any particularities which apply to French nationals only.

The concept of 'temporary residents' does not exist in France as such. However, new French tax residents benefit from certain advantages in their first five or six years of residence in France.

As a general rule, the sole distinction which may apply depends on whether an individual has his or her habitual residence (for legal purposes) and/or his or her tax domicile/residence in France (from a tax point of view).

1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?

Several multilateral treaties and European directives, which deal in particular with legal union, marriage, divorce, succession, trusts and tax matters, may be relevant in the private client sphere.

2 Taxation

2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?

As a general rule, nationality has no impact on the tax situation of individuals in France, except in specific circumstances where a tax treaty provides otherwise (eg, the tax treaties signed between the United States and France dealing with income tax, gift and inheritance taxes, which provide for different treatment when US citizens are involved).

As a general rule, individuals domiciled as defined by Article 4B of the Tax Code (or resident of France as defined by the applicable tax treaty) are subject to French taxes on their worldwide income or assets.

Individuals who are not domiciled or non-resident of France for tax purposes are subject to French taxes only on their assets (either income or market value) deemed to be located in France.

The definition of French located assets is set out in Article 750ter of the Tax Code.

The definition of 'domicile' for tax purposes, which applies in the same way for all French taxes, is set out in Article 4B of the Tax Code, which provides four alternative tests:

• He or she has his permanent home ('foyer') in France;
• His or her primary place of residence is in France;
• He or she performs his or her main activity in France or
• He or she has the centre of his economic interests in France.

The concept of residence is defined by each tax treaty signed by France. Approximately 130 treaties dealing with income tax and 35 treaties applicable to inheritance tax have been signed by France. They do not always follow the definition of residence proposed by the Organisation for Economic Co-operation and Development Treaty model.

For the sake of simplicity, the terms 'resident' and 'non-resident' used in this Q&A mean indifferently 'domiciled' and 'non-domiciled' as defined by Article 4B of the Tax Code and 'resident' and 'non-resident' as provided by tax treaties signed by France.

2.2 When does the personal tax year start and end in your jurisdiction?

The personal tax year corresponds, as a general rule, to the calendar year.

Individuals who transfer their tax residence to France become subject to French taxes on their worldwide income from the first day of their arrival.

Exit tax is due (in respect of certain financial assets) the day before their departure from France.

However, wealth tax on real estate (imp't sur la fortune immobilière (IFI)) is due on their market value on 1 January of each year.

2.3 With regard to income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

All income received by the household ('foyer') is as a general rule subject to income tax, with few exceptions.

French residents are subject to income tax on their worldwide income and non-resident on their French source income.

The tax treatment is different depending on each category of income received.

Business profits, non-commercial profits, agricultural profits, rental income from real estate, wages and pensions are subject to a progressive rates scale, with a marginal rate of 45% (for the fraction of taxable income over '157,809 for 2020). All income received by the members of the household (as a general rule, the two parents and their minor or dependent children) are added to determine the amount subject to the progressive rates scale.

In addition to income tax, so-called 'social contributions' are due by French resident individuals, at a rate depending on the nature of each income (between 3.6% and 17.2%).

Dividends, interest and ordinary income on financial assets are subject to a flat tax of 30% (12.8% corresponding to income tax and 17.2% to social contributions).

Non-resident individuals are not, as a general rule, subject to social contributions on their French source income, except on rental income and capital gains derived from the sale of real estate located in France and shares of sociétés à prépondérance immobilière (SPIs) (see question 2.4(a)).

A supplementary contribution also applies to resident and non-resident taxpayers receiving high annual income. The rate amounts to:

• 3% for the fraction of income between '250,001 and '500,000 for single taxpayers (between '500,001 and '1 million for couples); and
• 4% for the fraction of income over '500,001 for single taxpayers (over '1 million for couples).

(b) How is the taxable base determined?

The rules on the determination of the taxable base are different for each category of income.

As a general rule, expenses incurred for receiving the income are deductible for the determination of the taxable basis.

(c) What are the relevant tax return requirements?

A large category of income is subject to a withholding tax levied on their payment, which is considered as a pre-payment of income tax (for resident taxpayers).

An annual income tax return must be filed by each household (composed, as a general rule, of the two parents and their minor or dependent children). A household annual tax return should be filed before the end of May of each year, reporting income received by its members during the precedent calendar year. The same delay applies for resident and non-resident taxpayers.

Households that are subject to wealth tax on their real estate - the so-called IFI (see question 2.7) - should add their wealth tax return as an appendix to their income tax return.

(d) What exemptions, deductions and other forms of relief are available?

Different deductions or relief may apply, such as those in relation to:

• gifts made to charities;
• childcare expenses;
• expenses in relation to energy transition for the home; and
• certain investments, such as forest investments.

2.4 With regard to capital gains: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Capital gains realised on the sale of real estate are subject to tax at the global rate of 36.2% for 2020 (income tax at a flat rate of 19% and social contributions at a rate of 17.2%). However, rebates apply taking into consideration the duration period of ownership (see question 2.4(d)).

The sale of shares of a...