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TAXES

France to make wave of tax cuts (just in time for elections)

With next year's presidential elections looming large, the French government will make a raft of tax cuts for households and businesses.

France to make wave of tax cuts (just in time for elections)
Photo: AFP

France's government unveiled Friday plans to lower taxes on households and companies, as the ruling Socialists lined up
their budget for the 2017 election year.

The gesture to households would “take the form of a reduction in income taxes by 20 percent for the middle class,” Finance Minister Michel Sapin told AFP.

Around 5 million households would benefit from the 1-billion-euro ($1.1 billion) reduction in income taxes, worth about 200 euros per family.

Sapin also said that the headline tax rate for small and medium-sized companies would be reduced to 28 percent — the European average in 2017 and 2018 — and for all companies from 2020.

That is a drop from the current headline rate of 33 percent, although small companies benefit from a lower rate on a certain amount of profits.

However Sapin said that despite the tax cuts France would honour its pledge to the EU to reduce its public spending deficit to 2.7 percent of gross domestic product in 2017.

“We've made that promise to parliament and EU authorities and we're going to keep it,” said Sapin.

The announced cuts to  income tax, coming just over seven months from the presidential election, would take the total reduction since 2014 to six billion euros.

Polls show that President Francois Hollande, who has not announced his intentions regarding a run for a second term in office, and other prominent Socialists would face an uphill battle to make it to a runoff vote.

Criticised for sharp tax hikes at the start of his five-year term, Hollande has since turned towards a gradual reduction in tax rates, although the French economy has posted only modest growth and unemployment remains near record highs.

Sapin also announced a change allowing all retirees to deduct expenses for at-home services, a change which should benefit 1.3 million households at a cost of a billion euros.

In addition, Sapin announced an increase in the tax credit for companies with low-wage employees, which he said would put an extra 3.3 billion euros in their accounts.

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SECOND HOMES

Tax hikes of up to 60% for French second home owners

Towns and villages through France are raising property tax rates for second-home owners, with many areas voting for the maximum 60 percent increase.

Tax hikes of up to 60% for French second home owners

Even though France’s taxe d’habitation (householders’ tax) is in the process of being phased out for most French residents, second-home owners are still required to pay it.

This year more towns have voted to increase it, and others have recently gained the ability to add a surcharge for second-home owners, with French daily Le Parisien reporting that the residence tax “continues to soar.” 

Municipalities in zones tendues (areas with a housing shortage) have the ability to choose to increase taxe d’habitation by up to 60 percent for second home owners.

From 2023, several new areas – including Nantes – will join the list of zones tendues, meaning they will be able to vote to increase taxes for second-home owners.

This year, large cities such as Bordeaux, Lyon, Biarritz, Arles and Saint-Jean-de-Luz saw their city councils vote to increase the tax at the maximum 60 percent.

READ MORE: Why some French cities are increasing taxes for second-home owners

Some areas have still not chosen to apply the increase, but those looking to buy a second home in France should beware that these municipalities could vote to increase the taxe d’habitation in the future.

In 2020, cities on average voted to increase the residence tax on second homes by 248.50, in comparison to €217 in 2017. This year, that amount is expected to be even higher.

On top of the taxe d’habitation, second-home owners also have to pay the separate taxe foncière property tax, which is itself rising sharply in many areas.

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