Taxpayers taxed on income tax in France have a broad mechanism to reduce the amount of their tax. Through this article we will mention the main investments or expenses deductible from income or generating tax reductions or tax credits.
I – Real Estate investments
1) Rental investment “PINEL”
The purchase or construction of a new home for rent allows a tax reduction of:
- 12% of the value of the building if the owner agrees to rent it for 6 years,
- 18% of the value of the building if the owner agrees to rent it for 9 years,
- 21% of the value of the building if the owner agrees to rent it for 12 years.
The reduction is calculated on the purchase price or the cost price with a ceiling of € 300 000. Similarly, the cost per square meter of living space is capped at € 5500.
The main conditions for obtaining the reduction are:
- The dwelling must be in a zone provided for by law,
- Tenants’ incomes must not exceed certain ceilings,
- The rent per square meter is capped.
In the case of acquisition or construction of a property in a French overseas department or territory, the rate of the tax reduction is increased to:
- 23% for a lease commitment of 6 years,
- 29% for a lease commitment of 9 years,
- 32% for a lease commitment of 12 years.
2) Renovation of tourist residence
This reduction concerns housing intended for renting and located in a tourist residence whose construction has been completed for at least 15 years.
A tax reduction of 20% of the amount of the expenses of works can be obtained if the works are carried out by a company and if they relate to the whole of the co-ownership. The amount of works is capped at € 22,000 per dwelling.
3) Historical monuments
Owners of buildings classified as “historic” have the possibility of deducting from their tax revenue a set of charges, the main ones being as follows:
- The architect fees corresponding to works
- Repair and maintenance works,
- The reconstruction work, restoration, etc …
II – Financial investments
1) Subscription to the capital of small and medium-sized companies
Taxpayers domiciled in France may obtain a reduction of income tax through a subscription that complies with the following main conditions:
- The society:
- employs less than 250 people, has an annual turnover not exceeding € 50 million, the total of its balance sheet is € 43 million maximum;
- is not a society in difficulty;
- has its Head office in the EEC;
- its securities are not listed on a stock market;
- it is subject to corporation tax at a normal rate;
- it carries out a commercial, industrial, artisanal or liberal activity.
- The annual subscription ceiling is € 50,000 per taxpayer or € 100,000 for a couple.
- Subscriptions must be made by payment of money or debt compensation.
- Titles must be kept for 5 years.
- The rate of reduction is 18% of payments.
2) Subscription of shares of “FCPI” and “FIP”
Payments to such funds must imperatively:
- Be made in cash,
- Constitute a subscription of the new units,
- The shares must be kept for 5 years.
The payments are capped at € 12,000 (€ 24,000 for a couple) and the rate of tax reduction is 18%.
III – Overseas investment
An income tax reduction can be applied on the purchase price or the cost of building of a new home located in a territory or a French overseas department. The unit must be rented during 5 years or used as the principal residence of its owner.
The tax reduction is calculated on the cost price or acquisition of housing capped at € 2,449 per square meter of living space.
The rate of reduction is variable (from 18 to 45%) depending on a large number of different cases. Before making a decision, it is advisable to present your project to a chartered accountant who will determine the rate of reduction applicable to the project.
The realization of productive investments through a company subject to corporation tax allows to benefit from a tax reduction based on the amount of investment excluding taxes. Its rate varies according to the location of the investment.
The company must be small (maximum annual turnover: € 15 million for the year 2018).
3) Social housing
Taxpayers who make an investment in social housing overseas, benefit from a tax reduction of 50% of their investment provided they surrender 70% of the amount of the rent or the transfer price to the social organization tenant of the housing.
IV – Miscellaneous reductions and tax credits
- Donations to an organization of general interest: the reduction is 66% of the donation amount.
- The payment of contributions to certain pension organizations may be deductible from the overall income.
A number of tax credits are also planned for:
- The employment of an employee in the taxpayer’s home,
- Childcare costs for young children under 6,
- Works done in the taxpayer’s home to obtain better insulation of housing or energy savings. The list of admitted works is strictly limited by law and the company that carries them out must be labeled “RGE”.
It should be noted that there are other tools for tax exemption (investment in press or film companies, in the forests, etc.).
Anyone interested in a particular project who wishes to benefit from a tax exemption must contact a chartered accountant to verify if the project meets all the conditions provided for by law.
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