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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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PROPERTY

Why French homeowners face higher property taxes in 2023

As the 2022 deadline to pay property taxes in France approaches, homeowners will likely have to face higher property taxes in 2023.

Why French homeowners face higher property taxes in 2023

If you are a homeowner in France, you may want to consider putting some money aside as property taxes could increase significantly next year. 

The taxe foncière – a property ownership tax levied at local level – is a tax paid by all property owners in France. It is separate to the taxe d’habitation, which is paid by whoever occupies the property (whether they are an owner or a tenant) and applies to anyone who owns a building or land. The latter is being progressively phased out.

Why the possible increases?

A large reason property ownership taxes may increase in 2023 is due to the fact that property values are reevaluated each year in November according to inflation and other factors that have changed the value of the property such as home extensions or new swimming pools. 

In general, the rate of taxe foncière has increased in France in recent years is due to gradual scrapping of another property tax, taxe d’habitation that left local authorities short of cash.

Why did my bill go up for 2022 and what’s the deal for 2023?

For 2022, property tax payments are due on October 15th or 20th, depending on payment method. Many French homeowners were already met with an unpleasant surprise when they received their tax notices this year.

The revaluation to reflect inflation allowed for a 3.4 percent increase in 2022, which increased the property tax on all homeowners. Additionally, municipalities voted to increase local taxes. In Marseille, rates went up by 13.1 percent, for Tours it was 11.6 percent and Pau saw a rise of 10 percent. 

In 2023, these values could be even higher.

Theoretically, property values across France ought to be reevaluated to reflect skyrocketing inflation, which would lead to an increase of 7 percent (in comparison to the 3.4 percent rise that was seen in 2022). In June, the French Finance Minister Bruno Le Maire assured property-owners that this issue had been identified and that the government was considering capping the rate.

However, according to reporting by French daily Le Parisien, several senior officials have indicated that “no capped rate for the taxe foncière will be included in the finance bill to be presented in late September.”

READ MORE: Reader question: How can I challenge my French tax bill?

In effect, this means that the 2023 budget would allocate for an increase of property taxes by approximately 6.5 to 7 percent – a rise that would impact at least 30 million homeowners in France.

Various suggestions have been put forward aimed at keeping the taxe foncière bills down, such as capping increases to 3.5 percent or linking the the level of government assistance to local authorities to inflation (meaning local authorities would be less inclined to raise taxes).

Nevertheless, as of September 23rd, these solutions had not yet been put into place.

Second home owners to be harder hit

Second-home owners in France have to worry about the taxe d’habitation (residence tax) on top of the taxe foncière.

Even though the former is in the process of being phased out for most French residents – apart from the highest earners, those with second homes are still required to pay it.

And for many of those that do, the rates are going up.

In 2022, more towns have voted to increase it, while others gained the ability to add a surcharge for second-home owners, with French daily Le Parisien reporting that the taxe d’habitation “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.

READ MORE: Tax hikes of up to 60% for French 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.

In 2022, 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.

How is taxe foncière calculated generally?

The formula is complicated, and it is calculated each year for you by your local authority (though under the auspices of a formula set by the French finance ministry). Basically, it has to do with the rentable value of your property divided by two and then multiplied by the tax level set by your local authority.

READ ALSO: Taxe foncière: What is the French property tax and do I have to pay it?

The local authority’s tax rate varies hugely from place to place, which is why two people with similar sized homes in different areas can end up with wildly different bills.

In fact to make it more complicated it’s actually three local authorities – the commune, the département and the région – which all set their own tax rates then divide up your tax to pay for local services.

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