Recent French Government announcements provide five year outlook on tax policy

  • Share

Jean-Pierre Lieb
Ernst & Young Société d'Avocats – Paris
+33 1 55 61 16 10

Following a series of public announcements, including the President of the Republic's announcement to Congress on 3 July, the Prime Minister's policy speech on 4 July, and the Minister for Ecological and Inclusive Transition’s speech on 6 July, it is possible to draw up a list of the main fiscal measures to be undertaken in France during the five-year period 2017-2022.

These measures will impact both companies and individuals, and many are designed to drive France’s competitiveness from a tax perspective. This reflects France's responsibility and solidarity pact which has the objective of reducing the tax burden on companies, reducing constraints on business in order to create more hiring, and making companies more competitive.

Detailed discussion

Tax reform measures for companies

Reduction of the standard corporate income tax (CIT) rate

A reduction in the rate of corporation tax from 33.1/3% to 28% by 2020 has been voted in the Finance Bill for 20171. Confirming a presidential campaign promise, the corporate tax rate should be further reduced to 25% by 2022.

Transformation of the Tax credit for competitiveness and employment (CICE)

Announced during the presidential campaign, the transformation of the CICE into a reduction of social security contributions could not be implemented as planned in 2018. This reform is expected to enter into force on 1 January 2019.

Currently, the CICE is based on wages that an entity pays to its employees over the course of the calendar year. The wages paid by the company are taken into account for the calculation of the CICE within the limit of 2.5 times the minimum wage. The CICE generates a receivable against the French Treasury, which can be offset against CIT or refunded after three years. The rate of the CICE increased from 6% to 7% for wages paid as from 1 January 2017.

Increase of the carbon tax

The French Minister for Ecological and Inclusive Transition has announced in his climate plan his goal to achieve carbon neutrality in 2050. To achieve this, the Minister plans to increase the carbon tax in order to raise the price per ton of CO2 to more than €100 as compared to about €40 today.

Tax reform measures for individuals and companies

General supplementary social contribution (CSG) increase

The French Prime Minister has confirmed that the abolition of the health insurance and unemployment insurance contributions will be financed by an increase of 1.7 percentage points in the general supplementary social contribution (CSG) from 2018.

Implementation of a withholding system on salaries and revenues

The French Prime Minister has announced a one year delay in the implementation of a French withholding tax on salaries and revenues. This will now enter into force on 1 January 2019.

“The right to make mistakes”

The bill on “the right to make mistakes” will be presented to the Council of Ministers on 19 July and debated in Parliament in autumn.

The “right to make mistakes” is based on a principle of presumed good faith: any natural or legal person who has unintentionally ignored a rule applicable to his situation for the first time will no longer suffer penalties or interest for delay if he or she rectifies the error under his or her own initiative or at the request of the administration. However, this rule would not apply if such person advances evidence of bad faith or fraud, or commits recidivism. In the event of misconduct revealed during a tax audit, late payment interest, also known as default interest, would be halved, falling from 4.80% to 2.40% for both individuals and companies.

Tax reform measures for individuals

Wealth tax (ISF) reform

As a result of reform, the wealth tax should apply only to real estate, leading to a reduction in the tax base of the wealth tax. Currently, the wealth tax (applicable to French residents whose net worldwide assets are valued at or above €1.3 million, and non-French residents whose net assets located in France (except financial investments in France, which are exempt) are valued at or above €1.3 million) applies to all assets whatever their nature with exceptions, especially for professional assets. The French Prime Minister announced that the reform of the wealth tax which was expected to come into force in 2018 will only come into force in 2019.

Dwelling tax reform

According to the French Prime Minister, the reform of the dwelling tax would be implemented by 2022, and an exemption from the dwelling tax should be available for 80% of taxpayers by that date. Nevertheless, the Prime Minister did not refer to the term exemption in his speech, instead mentioning a "consultation on the reform of the tax" and an "improvement of the system."

30% flat tax on capital income

Previously expected to come into force in 2018, the introduction of a flat tax of 30% on financial income should only come into effect on 1 January 2019. Passive incomes currently are subject to social levies at a 15.5% rate and income tax at progressive rates up to 45%.


The French President’s affinity with the start-up world becomes concrete with some of the measures that will be taken in the coming years, such as the reduction of the corporate income tax rate, the 30% flat tax on capital income and the reform of the wealth tax. These future reforms, along with others, demonstrate the will of the Government to reinforce the tax attractiveness of France for investors.

Employers in particular should continue with their plans for implementing a withholding tax, in particular, but also carefully follow the outcome of any subsequent government announcements, and be sure that they fully assess how the introduction of the new system will impact their payroll operations and internal procedures.

See EY Global Tax Alert, French Parliament approves Finance Bill for 2017, dated 21 December 2016.