The novelty: The main tax measures of the new French President’s project concern individuals (CSG, capital gains, investment income tax, ISF) as well as companies (Corporate Income Tax, CICE, social costs).

The new French President’s plan outlines tax measures that could, at least for some of them, be implemented in 2018 after the adoption of the finance laws at the end of this year.

The main measures concerning personal taxation are the following:

  • Elimination of medical and unemployment employee contributions for private sector employees (ie a 3.15% reduction in salary expenses). Reductions in expenses with a similar impact will be implemented for self-employed workers and civil servants.

  • Funding for the reduction in employee contributions through a 1.7% concomitant increase of the CSG (general social contribution): this would affect neither modest retirees nor unemployment benefits. It would however cover all other income categories: earnings (salaries and similar earnings, self-employment income), retirements subject to the full CSG rate (annual income of the taxable household greater than 14,375 € for a single person or 22,051 € for a couple), financial capital income (income from household capital and gains) and real estate (property income).

  • Introduction of a single flat-rate levy (prélèvement forfaitaire unique, or PFU) on savings income and capital gains: this single levy of 30%, including social levies (such as the new CSG rate) would be applied to all income from capital gains (interest, dividends, capital gains on the sale of securities, etc.) in replacement of the various levies that currently exist. Taxpayers may however opt for a progressive Income Tax rate if this benefits them. The tax and social regime of the PEA would remain unchanged.

  • Replacement of the Solidarity Tax on Wealth (ISF) with a Real Estate Wealth Tax (IFI): the IFI would no longer concern financial savings (stocks, shares, company shares) but would be based solely on real estate assets under the same conditions as the current ISF (same threshold, same rate and same rules).

  • Exemption of housing-tax on main residences by 2020 depending on income (if income is less than € 20,000 per year per person).

  • A one-year delay of the Income Tax Waived at Source from salaries, other professional income and property income is only expected to be implemented starting January 1, 2019.

Concerning business taxation, let us focus on the following measures:

  • Decrease of the Corporate Income Tax from 33.3% down to the European average of 25%: the decrease would begin in 2018 and be gradually implemented over the five-year presidential term.

  • Transformation of the CICE into a sustainable reduction of expenses to facilitate hiring, especially of low-qualified employees.

  • Reinstatement of social contribution exemptions for overtime hours.

Our comments: The announced changes are expected to affect the taxation of company executive securities sales with the introduction of a 30% PFU. These gains currently stem from the Income Tax rate after the application of different types of deductions for holding periods.

The CSG increase should more particularly have a negative impact on wealthy retirees (for whom the CSG increase would not be compensated by a decrease in expenses on professional income) as well as taxpayers with property income (who would not benefit from the new PFU that is generally more favorable than the progressive tax rate).

With regard to the Corporate Income Tax rate, the finance law adopted at the end of 2016 currently provides for a gradual generalization to all companies by 2020 of a rate of 28%.