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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
 Taxes eligible to the tax shield are Individual income tax, Wealth tax and direct taxes not deductible from Individual income tax earnings categories when properly filed:
Taxes are:
- Income tax subject to brackets and/or subject to flat rate (e.g. capital gain on real estate and securities),
- Wealth tax after rebate for family allowance and leveling,
- Property and local tax related to the main residence.
Conditions to be met:
- Taxes must be paid: pending taxes cannot be included and penalties are always excluded,
- Paid in France. Taxes paid outside France are never eligible,
- Duly filed. Taxes paid after reception of a request from tax authorities or after a tax audit are not eligible.
Earnings eligible for the tax shield of a specific year N are:
- Taxable earnings of year N – 2 i.e. the year before the year N- 1 when taxes were paid,
- Non taxable earnings received in N – 2.
Definition of taxable income:
- Salaries after 10% professional expenses rebate and 20% rebate (2006 salaries only),
- Pension after the 10% rebate,
- Capital gain on securities net of capital losses of the year and the previous years. Gain made as from 2006 are included before rebate related to the the length of the holding period.
- Capital gains on real properties, after rebate for holding period (10% per year after a holding period of 5 years). Capital gain on the main residence is exempted and then is not taken into account in the tax shield.
Tax exempted earnings are also taken into account:
- Exempted revenues linked to employment contract : indemnity for end of employment contract, expatriation or impatriation indemnityies, etc,
- Exempted business earnings and business capital gains,
- Earnings exempted in France by virtue of a double tax treaty,
- Gains realized in a PEA (saving plan invested in EU member shares),
- Etc.
These earning are net of losses when eligible.
Taxes paid the year of earning (Withholding taxes, Capital gain tax on real estate) are taken into consideration the year of payment although related earnings will only be eligible the year after.
For example, capital gain tax paid on a real property sold in 2006 will be eligible for the tax shield of 2007 although the capital gain will be eligible for the tax shield of 2008.
Tax assessment after a tax audit must be added to the earnings while the related taxes are excluded.
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