France’s 75 percent tax rate: The damage report

As France bids a discreet adieu to its divisive 75 percent "super-tax" on the rich, The Local looks at the impact of a reform some critics declared would turn l’Hexagone into "Cuba without the sun" and propel the country's high earners head to the exits.

France's 75 percent tax rate: The damage report
Photo: Philippe Huguen/AFP

When Francois Hollande was bidding to oust conservative rival Nicolas Sarkozy in 2012, his most famous promise to left-wing voters was a 75-percent super-tax on the country's millionaires.

As popular as the move to tax salaries above €1 million initially might have seemed at the time, the socialist leader has since been dogged by the so-called super-tax.

His political rivals argued it would prompt big earners in the business, sporting and artistic world to leave France and deter new foreign talent from coming in, turning the country into a European version of Cuba, but "without the sun", as former banker and current Economy Minister Emmanuel Macron put it at the time.

But how damaging has Hollande’s super-tax actually been for France? And did it help rein in the public debt as the socialist leader argued it would?

“The story of the 75 percent tax rate is not positive at all,” economist Eric Heyer, from the French Economic Observatory, told The Local.

Let's look at the stats. According to France’s Finance Ministry, the annual proceeds of the super tax were €260 million in 2013 and €160 million in 2014.

As large as the sums may seem, they’re minute in comparison with a budget deficit of €84.7 billion, on its way to becoming the biggest in the eurozone by 2016.

"The effect of the tax rate on the public finances was only marginal and it had a negative impact on the image of France and its attractiveness.”

Others agreed: “The reform clearly damaged the reputation of France and its competitiveness,” Jorg Stegeman, director of headhunting firm Kennedy told the website

“It has clearly become more difficult to attract senior international leaders to France,” he added.

One of the main complaints from foreign investors in France is the ever-changing tax rates and France's dabbling with the 75 percent tax rate will have only added to their list of grumbles.

"The first thing investors complain about is the fiscal and social instability and we understand it” says Chiara Corazza, the head of the Greater Paris Investment Agency told The Local. “They don’t complain about the amount of taxes they pay, just that it is always changing."

There were also fears that the tax would spur France's own high earners to flee to foreign shores, prompting UK Prime Minister David Cameron to provocatively declare that he would “roll out the red carpet” to those leaving France for sunnier financial climes.

“Some have gone abroad to Luxembourg or the UK,” said Jean-Philippe Delsol, a tax lawyer and author of the book “Why I am leaving France”.

However Delsol says that most millionaires were able to just "find a solution" with their company to avoid paying the tax.

The French Economic Observatory’s Eric Heyer agrees that it’s important not to exaggerate the negative impact of Hollande's super tax because it didn’t exactly cause the mass exodus of the rich and the famous that doomsdayers predicted.

“In reality it hardly affected anyone in France as it was fairly easy to avoid it, but many abroad got the impression that everyone in France was paying 75 percent of their wages in taxes,” Heyer said. 

Heyer stressed that the super tax was a symbolic measure but in the end it was misjudged and poorly prepared.

“It was badly thought through and was basically an attempt by Hollande to rally his support on the left of the party," he said.

“He wanted to show that it was not just the middle classes who would pay for austerity through tax rises.”

Since then however, the left of the party has turned against Hollande as he embraced more liberal economic policies. 

Survey's suggest the French public never really saw any need for the tax.

A poll in early 2013 showed that although six out of 10 French voters supported the existence of a higher tax on the wealthy, only 21 percent thought it should be as high as the 75 percent proposed by the government.

And it continued to spark opposition from all walks of life. Most famously actor Gerard Depardieu quit France for either Belgium or Russia because of the high taxes, before later denying it. 

Even France’s top football clubs threatened to go on strike as league chiefs claimed the tax would make it impossible for France to attract players of the likes of PSG's Zlatan Ibrahimovic and former Monaco striker Radamel Falcao, both of whom earn millions.

The country’s Constitutional Council also showed its disapproval of the super tax by deeming it illegal and unfair to tax individuals earning more than €1 million at 75 percent, later approving an amended law that would see companies carry the financial burden.

When the tax rate is removed on January 1st Hollande himself will probably be more relieved than any of the country's millionaires as he will finally be rid of this old thorn in his side.

by Alex Dunham

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The vocab you need to understand French taxes

Declaring and paying taxes in France can be a complicated affair, especially for first-timers, and the intricate French vocabulary does not exactly simplify the process. This language guide might help.

The vocab you need to understand French taxes
Illustration photo: Miguel MEDINA / AFP

If you are encountering the French tax system for the first time, just looking at the various forms can make you dizzy, as the vocab isn’t exactly everyday-French.

Even French natives sometimes struggle to understand what they are being asked about, which is why the government has created a tax lexicon (available HERE).

It is 23 pages long, but we have picked out the key terms and added a few that might be unfamiliar to foreigners.

If, however, you are looking for a specific term that doesn’t appear in the list below, we recommend you check the official guide. 

We have also explained in detail how to fill out the annual tax declaration HERE.

Nom – as with all French forms, nom refers specifically to your surname or family name. Your prénom (first name) comes later. Tax forms generally ask for your nom de naissance which is the family name you were born with (even if you have changed your name through marriage) and will then ask for nom auquel vos courriers seront adressés or name for correspondence to be addressed to.

EXPLAINED: What’s in a name? Understanding how to fill out forms in France

Avis d’imposition – tax notice. This is for your annual tax return. If your main residence is in France you must fill in a tax return – even if all your income comes from another country. France has double taxation agreements with most countries, so if you have already paid tax on, say, income from a rental property in the UK you will not be liable for more tax in France on the same income. But you must still tell the French tax man about it.

EXPLAINED: Who has to make a tax declaration in France in 2021?

Déclarant – refers to the person declaring the taxes. The verb is déclarer and un déclarant is la personne qui déclare – the person who declares. The form has spaces for two déclarants because married couples and those in a civil partnership file a joint return. If you are declaring as a single person just ignore the column for déclarant 2.

Foyer fiscal – tax household. France bases taxes on the household and you will be asked about it in detail when filling out your declaration. Couples who are married or in a civil union (Pacs) should make one joint declaration rather than two. If you got married halfway through the year you can now declare one common declaration for the whole year.

Etat civil – civil status. Choose between célibataire (single), marié (married) or Pacsé (in a civil partnership). 

Parent isolé – single parent. This only goes for those who were not living with a partner on December 31st the year before declaring the taxes. If you got divorced, separated or lost your partner after that date, you have to wait until next year to declare it. In addition to parents, this category also includes singles who are taking care of a disabled person.

Enfant mineur – child under 18 years old.

Enfant majeur – a child over 18 years old. Parents in France may attach their adult child to their tax declaration until the age of 25, under certain conditions.

READ ALSO: What the French government doesn’t tell you about filing taxes

Personne à charge – means ‘person to take care of’, and means that you have a person in your household that you are financially responsible for, usually referred to in English as a dependant. 

Concubinage – a couple who live together but aren’t married or in a civil partnership. If that’s you, you’re not allowed to tick the box of parent isolé if you have children.

Numéro de sécurité sociale – social security number. If you’re registered with French social security this number (15 figures) appears on your Carte Vitale health card and if you’re an employee it should appear on your payslips. If you don’t have a social security number in France, tick the box “pas de numéro de sécurité sociale“.

Prélèvement à la source – This sounds confusing, because it’s sometimes translated as “withholding tax”. However it just means the tax that is automatically deducted from your salary each month if you are an employee. Usually referred to in English as ‘taxation at source’ or PAYE (pay as you earn), it’s a relatively recent innovation in France.

READ ALSO: The French tax calendar for 2021 – which taxes are due when?

Revenus des indépendants – income for the self-employed. Whereas employees get their taxes deducted automatically from their payslip, self-employed people, contractors or freelancers have to declare all their income and social benefits, if any, on their tax declarations. 

Micro-entrepreneur – this is a specific professional status that self-employed people may opt for if their income is below a certain threshold. It used to be known an auto-entrepreneur.

Comptes à l’étranger – foreign bank accounts. If you have a bank account in a country other than France, you have to declare that to the tax man, or risk a €1,500 fine (€10,000 for those with an account in a country that doesn’t have a tax evasion deal with France) per account. New international banking rules aimed at money-launderers mean it is increasingly easy for countries to find out this information.

Contribution à l’audiovisuel public – this means ‘contribution to the public audiovisual’. It is the French equivalent of a TV licence and is paid by almost everyone. You pay it if you have a TV in your property, even if you don’t watch French TV.

Abattement – rebates. France has a long list of specific tax rebates, some of which are directed professional groups while others go to parents for costs like childcare and domestic help. Find out more about the deductions available here.

Paiement en ligne – online payment.

Coordonnées bancaires – bank information (such as the account holder’s name, account number, BIC and IBAN) you are given the option to add this to your tax declaration so that payments can be taken – or refunds credited – directly.

Taxe d’habitation – the housing tax paid by those living in a property, not the owner, is in the process of being phased out and most people won’t have to pay it this year. However second home owners are excluded from the phasing out and still have to pay it, bar a few exceptions. This is separate to the annual tax declaration and bills are sent out in the autumn.

Taxe foncière – this is the tax for property owners, second home owners pay both this and the taxe d’habitation. The tax on property owners has risen in many areas over the past couple of years.

READ ALSO What is taxe foncière and do I have to pay it?

Revenus fonciers – this means ‘property income’, but it only refers to income coming from properties that are rented out unfurnished. If you rent out a furnished property that also has to be declared, but under the box called bénéfices industriels et commerciaux (BIC).

READ ALSO: Five things to know about renting out your holiday home in France

Micro foncier – the box to tick if the revenus fonciers are up to €15,000 annually, which allows for a 30 percent tax rebate on the gross income.

Régime réel – the box to tick if the revenus fonciers exceed €15,000 annually, in which case there won’t be any tax rebate available.

Pensions – pensions. You have to declare any pensions you receive, whichever type it may be, even if they are paid by another country. There are several other similar terms that belong to the same category as pensions.

Allocations – economic help schemes.

Indemnités – allowances.

Retraites – pensions.

Rentes – annuities. 

Prime – bonus.

Revenu brut – gross revenue.

Revenut net – net revenue.

Demande gracieuse – means ‘gracious request’ and is what you may do if, upon receiving your tax notice, you realise you could have paid less tax if you had ticked a different box somewhere or given additional information. The term ‘gracious’ is there to signify that the tax man can choose to accommodate your request if he so pleases, but there’s no rule saying he has to. As a general policy we would recommend always being very polite to tax authorities.