We present below the main measures of the French finance act for 2023 (law N ° 2022-1726 of December 30th 2022) as well as the second amending finance act 2022 (law N ° 2022-1499 of December 1st 2022).
This article has three chapters:
- Tax calculation measures;
- Measures concerning certain tax categories;
- Miscellaneous provisions.
We will complete our presentation of this finance act through our next article in which we will outline the provisions concerning companies.
This act also includes a number of measures that do not seem sufficiently relevant to us to be explained here, we are obviously at your disposal to provide you with more details on your request.
I – Tax calculation measures
1. Calculation of income tax
Scale: As every year, the income brackets of the income tax scale as well as the thresholds and limits associated with them, are indexed to the forecast evolution of the consumer price index excluding tobacco of the past year (2022/2021). Thus, the tranches are increased by 5.4%.
Withholding tax adjustment: We remind you that the downward modulation of the levy is only possible if the amount of the levy estimated by the taxpayer in view of his situation and his income for the current year is lower by more than 10% of the amount of the levy that it would bear in the absence of this modulation. This threshold is lowered to 5% from 2023.
Income paid by a foreign employer for an activity carried out in France by an employee: They will be subject to the withholding tax deposit system. According to this system, the French tax administration deducts from the taxpayer’s bank account an amount determined according to his last income known to the administration.
- Employers concerned: this concerns employers established outside France in Member State of the European Union or in another State or territory that has concluded an administrative assistance agreement with France in order to combat fraud and tax evasion, as well as a mutual assistance agreement for collection.
They must declare each year to the tax authorities, for each beneficiary, information relating to the net amount subject to income tax. Sanctions are provided for in the event of breach of these obligations.
- Employees concerned: these are French tax residents working for employers located in other Member States of the EU, the European Economic Area or in Switzerland who occasionally carry out part of their activity in France, for example by resorting to telecommuting. Employees seconded under social security and sent to France by a foreign company are therefore not affected by the new down payment system.
- Action required of the employee: to implement the spontaneous installment from January 1st 2023, the taxpayer freely determines the amount he wishes to pay to the administration. In practice, he makes his choice by declaring on his personal space (impots.gouv.fr), in the “Manage my withholding tax” service, the estimate of the amount of income from foreign sources between the date of the start of collection of this income and on December 31st of the same year.
This system concerns income received from 1st January 2023.
Tax notice: it will now mention the taxpayer’s average tax rate (for the calculation of the withholding tax) as well as his marginal tax rate (i.e. the tax rate of the last bracket).
2. Tax reductions
Subscription to the capital of PME: the enhanced tax reduction rate of 25% is extended until December 31st 2023.
The transitional rate increased by 25% as part of the income tax reduction for cash subscriptions to the capital of solidarity real estate companies responsible for a service of general economic interest (SIEG) is also extended until 31st December 2023.
3. Tax credits
Employment of an employee at home: new reporting obligation.
The beneficiary of the tax credit for the employment of a home-based employee must indicate on the 2042 income tax return the personal service activities for which he incurred eligible expenses.
Childcare expenses: taxpayers domiciled in France can benefit from a tax credit equal to 50% of the expenses actually incurred for the care of children under the age of six for whom they are responsible.
These expenses are retained within the limit of a ceiling which will be set at €3,500 per dependent child (compared to €2,300 previously) and at half of this amount when the child is deemed to be equally dependent on one and the other of his parents.
Installation of electric charging stations: the application of the tax credit is extended until December 31st 2025.
Abolition of the tax credit for the subscription to a periodical newspaper: this tax credit is abolished from December 31st 2022.
Forestry investments: taxpayers domiciled in France can benefit from a tax incentive system for forestry investment which has two components:
- An income tax reduction for the acquisition, subject to conditions, of forests or shares in forestry groups (GF) or forest savings companies (SEF) (DEFI Acquisition) as well as insurance contributions paid for cover, in particular, the risk of storms (DEFI Assurance);
- An income tax credit for forestry work carried out directly by the forest owner or through a GF or an SEF on certain plots (DEFI Works) and on the remuneration paid within the framework of a timber and forest management contract (DEFI Contract).
This article makes several changes to this device:
- The tax reduction is transformed into a tax credit so that the most low-income taxpayers can benefit from this tax advantage;
- DEFI Acquisition: the area of the management unit after acquisition must now be between 4 and 25 hectares;
- DEFI Works: the area of the property on which the work is carried out is removed (the area condition was 10 hectares until now);
- Increase in tax credit rates: the tax credit rate is increased from 18% to 25%;
The rate is increased to 76% for “storm” or “fire” insurance contributions. - Increase in expenditure ceilings giving rise to the tax credit: the annual expenditure ceiling for the DEFI Acquisition is raised to €6,250 per single person and €12,500 per couple.
For the DEFI Assurance, the ceiling for eligible expenses per hectare is increased from €6 to €15 and opens the benefit of the tax credit to the subscription of insurance covering the risk of fire.
Entry into force: the system thus reformed will apply from January 1st 2023 until December 31st 2025.
Overseas tax aid:
- Overseas investments: the tax system in force is extended until December 31st 2029 in order to provide a stable legal and tax framework for project promoters;
- Renewal of the fishing fleet in Reunion: the text approves the aid scheme for the renewal of the fishing fleet of vessels from 12 to 40 meters in Reunion Island.
II – Measures concerning certain tax categories
1. Property income
Increase in the land deficit chargeable in the event of energy renovation: the ceiling for allocating the property deficit to the overall income is increased to €21,400 (instead of €10,700) when this deficit is linked to the carrying out of expenditure for works of energy renovation allowing a property to pass from an energy class E, F or G to an energy performance class A, B, C or D.
The justification will result from the Energy Performance Diagnosis (DPE): the taxpayer must have a diagnosis carried out before the works and another after the works.
This system applies to energy renovation expenses for which the taxpayer justifies the acceptance of an estimate from November 5th 2022 and which are paid between January 1st 2023 and December 31st 2025.
2. Salaries and wages
Restaurant ticket: the limit of exemption from the employer’s share is raised to 6.50 (€ instead of 5.69 €).
To be exempt from income tax and contributions, the employer’s share must be between 50 and 60% of the value of the title.
3. Income from movable capital
Regime of partial contributions of assets: the allocation of securities to the members of the contributing company in return for the cancellation of the securities of this company is generally not considered as a distribution of movable income when the partial contribution of assets is representative of a complete branch of activity.
On the other hand, when the contribution is not representative of a complete branch of activity, approval is required so that the allocation of shares to members of the company is not considered as a distribution of movable income.
One of the conditions for obtaining the approval specified by article 115-2 bis of the CGI is:
“b) The allocation is justified by an economic reason, resulting in particular in the exercise by the transferring company of an autonomous activity and the improvement of the structures, as well as by an association between the parties formalized by a commitment to retain securities of the contributing company by its partners for three years from the completion of the contribution.” (It should be noted, however, that this obligation only concerns partners holding at least 5% of the capital as well as certain managing partners).
The finance act exempts shareholders holding at least 5% of the voting rights of the contributing company from the holding requirement referred to above if the following conditions are met:
“- The contributing company is not controlled by a shareholder or a group of shareholders acting in concert within the meaning of Article L. 233-3 of the French Commercial Code;
– The shares of the contributing company are admitted to trading on a French or European regulated market;
– The shareholder holding at least 5% of the voting rights of the contributing company does not exercise significant influence over its management.”
4. Real estate capital gains
Extension of exemptions for social housing: the temporary exemptions of real estate capital gains from transfers to social organizations or local authorities are extended until December 31st 2023.
5. Local taxes
Reductions in property tax and housing tax for those on a modest income: This law provides for the abolition of the conditions relating to cohabitation required for the benefit of reductions in the property tax on built properties and the housing tax on second homes.
In fact, until now, local tax relief for those on a modest income, the elderly or disabled was granted only on the condition that no third party occupied the accommodation (or by adding the income of all co-occupants).
Tax on vacant dwellings: Vacant dwellings are defined as dwellings that are habitable but unoccupied and devoid of any furnishing.
Currently, this tax is applicable in municipalities belonging to a continuous urbanization zone of more than 50,000 inhabitants located in a “tense zone”, that is to say an area where there is an imbalance between supply and demand for housing with a high level of rents.
From 2023, the tax is applicable to municipalities not belonging to an agglomeration zone of more than 50,000 inhabitants located in areas qualified as “tense areas”.
In addition, the tax rate is increased, from 12.5% to 17% the first tax year and from 25% to 34% from the second year.
III – Miscellaneous provisions
1. Tax control
Examination of Personal Tax Situation (ESFP): From January 1st 2023, from the start of the control, the administration asks financial institutions to obtain the statements of bank accounts opened in France of which it is already aware (this saves the taxpayer from having to carry out sometimes complex procedures). The verification notice mentions the list of accounts known to the administration.
For his part, the taxpayer will only provide the administration with the list and the statements of the other accounts, if applicable.
Request for information on capitalization and life insurance contracts: We remind you that the administration is entitled to ask the taxpayer for information or justifications on life insurance contracts taken out with organizations established outside France. In addition, all capitalization contracts or investments of the same nature, which are subject to the same tax regime, must be declared annually by the taxpayer.
The administration’s power of control, which only targeted life insurance contracts, is now extended to capitalization contracts or investments of the same nature.
We have presented here the main provisions concerning personal taxation of the French finance law for 2023: if you have any questions about a measure we do not have explained in this article, do not hesitate to contact us! Also, wait for our next article: we will explain you at this moment the provisions concerning companies.
