The Taxman Cometh

Maybe you’ve already heard. Newly elected President François Hollande is proposing new tax laws that he believes are designed to “tackle the crushing debt” of France, including raising taxes on businesses and the richest households. Part of the plan will affect foreign owners of properties with the rise of capital gains tax and income tax on rental income.

Currently, foreign owners are not subject to an additional “social charge” of 15.5% to pay for state benefits. Under Hollande’s plan, they will be. Rental income taxes would jump from 20% to 35.5%, and capital gains taxes on sales of property would almost double from 19% to 34.5%. The supplementary budget could become law by the end of this month and would apply immediately.

One can easily argue that legally, one cannot be taxed for something they do not receive and a constitutional court here in France could vote against it.

In addition, this could affect those with assets in France valued at more than 1.3 million euros. At the moment, the wealth tax is applied at 0.25% on taxable assets worth between 1.3 and 3 million euros, and then at 0.5% on wealth above that level. If Hollande’s plan is approved, it will be applied at six different rates ranging from 0.55% to 1.8%, starting at a 1.3 million euros.

Retirees may be seriously affected as those who reside in France for more than 50% of the year the new tax reform would apply not just to property, but to all of their worldwide wealth.

The consequences may be serious on many levels. I don’t believe that Hollande or his advisors understand the true consequences of these actions. From our foreign perspective, let’s look at what we believe may happen.

First, there will be fewer foreign buyers in France. That means that there will be less injection of capital from outside the country. While taxes are raised, there will be less income to tax, therefore reducing potential income for the State.

Secondly, foreign owners have the ability to easily ‘cheat’ on their taxes by receiving their rental income from foreign tenants in their home country, thereby non-declaring the income in France and therefore creating a larger ‘black market,’ further reducing the tax base.

Thirdly, those who are already residing in France or who are largely affected by the new tax laws, may decide to ‘take their money and run’ — meaning leave for tax havens  where they can enjoy a better life style (such as England where the tax base is competitive to attract foreign businesses), again further reducing the tax base.

Economically, these tax reforms may further stifle a nation already in an economic disaster and will not lead to a freer flow of money — resulting in fewer jobs, lower earnings and ultimately, less tax revenues for the State. But I am no economist. I can only guess that the plans may backfire.

In the meantime, as foreign owners, how can we deal with the reforms? One way is to fund the purchase of property in France with a mortgage, so that the assets are of limited personal value. Another is to think creatively about how you receive and report rental income until the next election when it will all change again!

News on Foreign Currency Exchange…

New regulations in the United States now require that any foreign Money Services Business register in order to operate there on a state by state basis. This currently affects Moneycorp clients residing in the U.S. until the licensing can be achieved. At this time, Moneycorp can open a new account to Florida residents only. Existing clients outside of New York and California can continue to do business with Moneycorp. Moneycorp (and the other foreign-based agencies) are diligently working on a state by state basis to acquire the licensing and hope to be in a position to re-establish their professional relationship as soon as possible.
 
To speak to someone in detail about this at Moneycorp, call +44 207 589 3000. We will be reporting any changes as we are informed of them.

A bientôt,

Adrian Leeds
Editor, French Property Insider

Email: [email protected]

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