I. The main measures concerning individuals:
Evolution of the income tax scale
The 2020 Finance Law’s main objective is to lower income tax especially in regards to the middle class workforce. The rate of taxation for the first taxable bracket will indeed go from 14% to 11%. Withholding tax payments made from January 1, 2020 will take into account this tax reduction.
|Taxable Income||Taxation rate|
|Less than 10 064 €||0 %|
|From 10 064 to 25 659 €||11%|
|From 25 659 € to 73 369 €||30 %|
|From 73 369 € to 157 806 €||41 %|
|More than 157 806 €||45 %|
New tax domiciliation criteria for company directors
Article 4 B of the French Tax Code indicates that an individual is deemed to be domiciled in France for tax purpose if he (i) has his primary or usual place of residence there, or (ii) carry on a professional activity in France, salaried or not (iii) has the centre of his economic interests there.
The 2020 Finance Bill goes further by adding that the managing executives of major French companies having their registered office in France and whose turnover of EUR 250 million or more, will be considered as having their main professional activity in France (unless they can prove otherwise).
As a consequence, these executives are considered to have their tax residence in France, and will therefore be taxed on their worldwide income.
This measure is applicable to income received or realized from January 1, 2019, to the Tax on Real Estate Fortune due from January 1, 2020 and to inheritance and donations made from the date of publication of the Law.
Gathering of publicly available data for tax purposes
Article 154 of the 2020 Finance Law authorizes, as an experiment and for a limited period of three years, the Tax and Customs Administration to gather and use publicly available data found on social networks websites and B2B matchmaking platform. This measure only targets content that is publicly accessible on Internet and that does not require the use of a password.
This provision aims to bolster the fight against tax fraud and tax evasion. The Constitutional Council approved this measure since “the interference with the freedom of speech and expression is necessary, appropriate and proportionate to the objectives pursued’ (Decision n. 2019-796 DC, December 27, 2019).
Taxation arrangements for non-residents
As a reminder, the 2020 Finance Law had the major objective of aligning the taxation of French non-residents, to the taxation of residents.
However, this reform, which was supposed to come into force on January 1, 2020, has been postponed to January 1, 2021. This one-year delay concerns the suppression of the discharging power of the specific withholding tax applicable to salaries and pensions from French sources, paid to non-residents. Property income and investment income are therefore excluded and will be subject to the new tax scale from January 1, 2020.
In addition, the measure to increase the minimum tax rate from 20 to 30%, on income from French sources has been waived.
II. The main measures concerning companies:
Conformity with the EU Law concerning the withholding taxes for nonresidents companies
Article 12 of the 2020 Finance Law aims to transpose the decision of the Court of Justice of the European Union in the Sofina SA judgment of November 22, 2018. The CJEU has indeed considered that French Law, imposing withholding taxes on dividends paid to non-resident companies, constituted a restriction on the free movement of capital.
This provision resulted in a cash flow benefit for resident companies, which were not subject to corporate tax when they were in deficit. Thus, through the 2020 Finance Law, the legislator wishes to correct this by offering the possibility to unprofitable non-resident companies to obtain the refund of the withholding tax. In addition, an exemption from withholding tax for foreign companies in liquidation is now also possible.
Reduction of corporate taxes
The 2020 Finance Law continues the reduction of corporate taxes initiated by the 2018 Finance Law. The normal corporate tax rate for companies whose annual turnover is less than 250 million euros will therefore be 28% in 2020. Large companies with a turnover of more than 250 million euros will be taxed at a rate of 28% up to a turnover of 500,000 euros and then 31%. The goal is to achieve a single tax rate of 25% for all companies by 2022.
|Companies with a turnover of less of 250 000 million euros||Companies with a turnover of 250 000 million euros or more|
|Tax rate in 2020||28 %||28% up to a turnover of 500 000 euros, and then 31%|
|Tax rate in 2021||26,5 %||27,5 %|
|Tax rate in 2022||25%||25 %|
Update of the list of the non-cooperative Countries and territories in term of taxation
Although this measure is not adopted within the framework of the 2020 Finance Law, it can have a direct impact on companies and especially in multinationals companies. This list is composed by the following 13 countries (compared to 7 in 2019): Anguilla, Bahamas, Fiji, Guam, the United States Virgin Islands, the British Virgin Islands, Oman, Panama, American Samoa, Samoa, Seychelles, Trinidad and Tobago.
It should be noted that Anguilla, the Bahamas, the British Virgin Islands and the Seychelles are now on the list because of their lack of exchange of information with France.
Combating VAT fraud in e-commerce
Through article 53 of the 2020 Finance Law, the legislator wanted to transpose Directive (EU) 2017/2455 of 5 December 2017. Its main objective is to simplify the obligations of e-businesses concerning the VAT declarations.
The most important measure of this directive concerns the sale of goods in the UE. It sets a single turnover threshold of € 10,000, common to all the Member States of the European Union, beyond which VAT must be paid in the country of delivery of the goods.
In addition, e-businesses will no longer need to register for VAT in each country of delivery of the goods. The one-stop shop (mini-one-stop-shop or MOSS) will, in fact, be open to intra-Community sales of goods.
For control purposes, electronic platforms will be required to keep a register which must be kept for 10 years to allow the Member States where these deliveries and services are taxable, to verify that the VAT has been correctly paid.
All of these measures will be applied from January 1, 2021.
Request today an advise from our experts at Fidinam (Hong Kong)