Finance Act for 2021: Main provisions concerning companies

In this second part of the finance law, we outline the most important measures that may be of interest to managers of small businesses.

They are presented according to the following plan:

• Determination of tax results and corporation tax calculation;
• VAT;
• Local taxes;
• Various measures.

I – Determination of tax results and corporation tax calculation

1. Measures concerning tax results

• Gradual elimination of the 25% increase for non-members of Authorized Management Organization (OGA): for those taxpayers liable to income tax under a real tax regime (BA, BIC or BNC), the tax base (the net taxable profit) is increased by applying a multiplying coefficient fixed at 1.25.
  The increase coefficient is removed over 3 years.
  This gradual decrease is reflected as follows:
  • YEAR 2020: Profit increased by 20%;
  • YEAR 2021: Profit increased by 15%;
  • YEAR 2022: Profit increased by 10%;
  • YEAR 2023 and following: No increase.
• Exemption from aid granted to self-employed workers: exceptional financial aid, in order to face the economic and social difficulties linked to the Covid-19 epidemic are exempt from corporation tax, income tax and all other contributions of legal or contractual origin.
  In addition, the amount of aid is not taken into account for the assessment of the limits of micro schemes, certain exemption schemes for professional capital gains, etc.
• Extension of exemption regimes: a large number of tax exemption regimes applicable in certain areas of the territory which expired on December 31^st 2020 are extended until December 31^st The exemption system in the event of takeover of ailing companies is also postponed until 2021.
  The law also provides for identical measures for exemption from social security contributions and from companies’ property contributions.
• Free revaluation of assets: in the event of a revaluation observed at the end of the 2020, 2021 or 2022 fiscal years, the imposition of the revaluation surplus will not be immediate but will be subject to a spreading or a suspension of taxation, depending on the depreciable or non-depreciable nature of the revalued asset.
• Extension to December 31^st 2024 of excess damping devices for low-polluting trucks: this excess damping device for the acquisition of heavy-duty vehicles concerns vehicles using natural gas, biomethane fuel or ED95 fuel, electrical energy, hydrogen or B100 fuel.
• Cancellation of trade receivables: they are deductible when they are granted as part of a safeguard or recovery plan. From January 1^st 2021, they are also deductible as part of the conciliation procedure.
• Renewal of the deduction of rent waivers: the rents which are due to the owners of premises (between April 1^st 2020 and June 30^th 2021) during the economic crisis linked to Covid-19 and not collected, can be deducted from the taxable income whatever the method of taxation (property income, BNC, BIC, IS).
  In addition, lessors can benefit, under certain conditions, from a tax credit of 50% of abandoned rents for the month of November 2020.

2. Measures concerning capital gains

Spreading of the capital gain in the event of the sale of a building to a leasing organization: in order to facilitate the refinancing of companies, a spreading mechanism is planned for disposals made from January 1^st 2021 to June 30^th 2023.

3. Tax reductions and tax credits

• The corporate tax reduction for the provision of a fleet of bicycles is extended until December 31^st 2024: this reduction is limited to 25% of the purchase or rental price of the fleet of bicycles made available free provision of their employees for their trips between their home and the workplace.
• A new tax credit, for expenses incurred between October 1^st 2020 and December 31^st 2021, is open to small and medium-sized industrial, commercial, craft, liberal or agricultural companies subject to IS or IR depending on a real tax regime.
  The expenses must be devoted to the energy renovation of buildings used as offices assigned to their activity built for more than two years.
  The amount of the tax credit is equal to 30% of the cost price excluding tax of the expenses.
• Agriculture tax credits:
  • The organic farming tax credit is extended until 2022;
  • A new tax credit is created for the “High Environmental Value” (H.V.E.) certification valid on December 31^st 2021 or obtained in 2022. The amount of the tax credit is € 2,500;
  • A tax credit has been created to help agricultural businesses no longer using products containing the active substance of glyphosate during the years 2021 and 2022, provided certain conditions are met. The amount is € 2,500.

• Several tax credits are provided for entertainment companies:
  • A new tax credit specific to theatrical performances is created;
  • More flexibilities for the tax credit for live musical or variety shows;
  • The music tax credit is extended and adjusted;
  • New works are eligible for the cinema and audiovisual tax credit.

4. Tax calculation and reporting obligations

• The turnover threshold is revalued to benefit from the reduced corporate tax rate of 15%: for fiscal years beginning on or after January 1^st 2021, the turnover limit to claim the application of the reduced corporate tax rate of 15% is raised to € 10 million. The condition that the capital is fully paid up and at least 75% owned by natural persons is of course maintained.
• 19% tax on capital gains from the sale of real estate to be converted into housing, this device is amended as follows:
  • The device is extended until December 31^st 2022;
  • The scope of transferee companies has been extended: the system now applies to all assignees regardless of their legal or fiscal status (they no longer have to be subject to IS). This provision applies to fiscal years ending on or after December 31^st 2020;
  • The methods for calculating the fine in the event of non-compliance by the transferee with his conversion or construction commitment have been modified: the fine is now equal to the amount of the tax savings made by the transferor.

• Tax declaration for micro-entrepreneurs who have opted for the micro-social system: these taxpayers pay, on the same declaration, the sums due for income tax and the sums due for social contributions. Exemptions from social contributions are granted due to the health crisis. As a result, an independent mechanism for declaring and collecting the flat-rate withholding tax on income tax is planned. The amounts of turnover or revenue deducted from the monthly or quarterly returns will be reported in the 2020 tax return (2042 C Pro) filed in 2021 or the 2021 tax return filed in 2022.

II – VAT

1. New provisions concerning complex offers

To take into account the various decisions of the European Court of Justice, the finance law gives the following definition of complex offers: the elements which are so closely linked that they are inseparable and economically form a single service, and whose decomposition would be artificial, form the same operation. When an element is accessory to one or more other elements, it is subject to the same operation as the latter.

Consequently, from January 1^st 2021, the VAT rate applicable to a single transaction must be that applicable to the main transaction. When an operation includes items other than ancillary items falling at different rates, the rate applicable to this operation is the higher rate.

Additional details:

• There is an exception concerning the reduced rate: if the items are eligible for the reduced rate of 2.10%, this reduced rate does not apply to ancillary items when these fall under a different rate;
• However, the rules concerning the single service provision of travel agencies remain unchanged;
• Special rules have been laid down for subscription offers comprising several services.

2. Payment deadline for social housing “LASM”

For self-deliveries (LASM) of social housing benefiting from a reduced rate, the 3 months VAT payment period is increased to 6 months.

3. Electronic commerce and distance selling regime reform

We have already dealt with this subject through our article “VAT THE REFORM OF DISTANCE SELLING” that you can consult on our website.

We note, however, that the finance law postponed the application of this reform to July 1^st 2021.

4. Exemption from services rendered to their members by certain groups for 2023

As of January 1^st 2023, the exemption will be reserved for services rendered to their members by groups made up of natural or legal persons exercising an activity exempt from VAT:

• Under the activities referred to in Article 261.4 of the CGI (care, education, childcare, etc.);
• As non-profit organizations meeting the conditions mentioned in article 261, 7 of the CGI.

5. Creation of the VAT group regime for 2023

It will be possible to opt for this regime if the group meets certain conditions of financial, economic and organizational ties.

The consequences of the option will be as follows: each member will no longer be subject to VAT individually. Transactions between members will not be subject to VAT but will in principle become subject to payroll tax.

6. Electronic invoicing

The device for the generalization of electronic invoicing in business-to-business relations will apply as of January 1^st 2023. All businesses must therefore start preparing now to be able to transmit their invoices electronically in 2023.

III – Local taxes and miscellaneous measures

1. CVAE – halving of tax rates

For the contribution on the added value of companies (CVAE) due by taxpayers for 2021 and the following years, the tax rates are as follows:

• For companies whose turnover exceeds € 50 million: 0.75%;
• For companies with a turnover of less than € 500,000: zero;
• For companies with a turnover of at least € 500,000 without exceeding € 50 million, the tax rates vary depending on the turnover due to the application of a tax relief.

Remarks:

• When the company’s turnover is less than € 2 million, the CVAE obtained from the effective rate is reduced by € 500 instead of € 1,000;
• The amount of the minimum CVAE goes from € 250 to € 125;
• For down payments due by taxpayers for 2022 and subsequent years, the threshold for payment is reduced to € 1,500.

2. Territorial Economic Contribution (C.E.T.)

For the CET due for 2021 and subsequent years, the cap rate is reduced to 2% of the added value. The new rate applies to the sum of the CFE due and the CVAE due for 2021.

3. Decline in rental value of industrial establishments

For taxes established from 2021, the rental value of industrial fixed assets liable to property tax on built properties is determined by applying to the cost price of their various elements, the interest rates set by law at:

• 4% (instead of 8% previously) for soils and land;
• 6% (instead of 12% previously) for constructions.

4. Vehicle tax reform

The overhaul of the passenger car registration procedure has enabled the establishment of an electronic certificate of conformity, in accordance with the new test cycles imposed at European level, known as “WLTP” (Worldwide Harmonized Light Vehicles Test Procedure).

The main measures can be summarized as follows:

• Hardening of the penalty:
  • Reduction of the threshold for entering the penalty of 5 grams per year, from 2021 to 2023;
  • Increase in the penalty limit of € 10,000 per year, from 2021 to 2023.
• An adjustment is made to the level of reductions and exempt vehicles;
• From January 1^st 2022, a component based on the vehicle’s mass in running order will be added to the CO2 penalty. This component will be due upon the first registration in France of passenger vehicles;
• Company vehicle tax: the tariff is updated in 2021 for vehicles subject to the new registration procedure;
• Other vehicles are eligible for the temporary exemption of the first component from 2021. These are vehicles combining:
  • Either electricity or hydrogen on the one hand and natural gas, LPG, petrol or superethanol E85 on the other hand;
  • Either natural gas or LPG and on the other hand gasoline or superethanol E85.
• An overhaul of the tax on company vehicles is planned for 2022.

If you need more explanations, feel free to contact us!