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Non-residents and Capital Gains Tax

Recently, the French Administration has updated the laws surrounding capital gains tax and non-residents meaning that from now on both residents and non-residents will be subject to the same regulations. Given this recent update, we thought it best to outline what this means for our clients.

For those who had previously been subject to a 33.33% tax rate on properties are now entitled to claim back the difference between this rate and the new rate of 19%, as long as it has not already been claimed back.

For those who are considered French residents (and were prior ro these changes) there is still an exemption of these taxes on first and secondary residences. However, if a French resident decides to put their principal residence on the market with the intention of moving out of France, they have to be aware that this exemption no longer applies in the same way if they are no-longer a tax-paying French resident at the time of the sale. From now on, non-residents will be able to benefit only once from an exemption and it will be limited to 150,000€ at entry-level and they must have previously been residents of France. The limitation of this exemption to only French residents should actually be considered as contrary to laws previously established thus far by the French state.

Welfare taxes that have been charged on capital gains tax before 1st January 2016 by someone who is dependent on social welfare in an EU member state or in Switzerland are refundable as long as they haven’t already been claimed back. For reasons too long to go into here, the French administration persistently refuses to refund welfare taxes of 2% owed before the 1st January 2015. The question of the French administration and conformity to European law has not for the moment been defined, although European law does not apply to welfare taxes that finance social welfare ‘without subsidy preconditions’ according to the jurisprudence of Ruyter. We can therefore wait for what the EU State Council or Justice Courts announce next on the question of social texes that were charged before 2015. The Administrative Court at the call of Douai took the decision on the 14th December 2015 contrary to the position of the Administration. The tribunals will also have to determine if, thanks to the non-discrimination clauses, French citizens living outside the European Community and Switzerland can benefit from the jurisprudence of Ruyter, permitting them to no longer be subjected to welfare taxes on their financial revenue and capital gains.

Since the 1st January this year (2016) residents of countries outside the EU have been subjected to the most up to date social tax and capital gains tax rates. In the same way that the issue of refunding taxes of 2% ozed before the 1st January 2015 needs to be debated, this legislation will also be debated by French tax payers in both French and European courts.

Since the 1st January last year (2015), only non-residents of third estates have had to appoint a financial representative in case the handover of their estate occurs. Tribunals will be held in future to decide whether this process should remain a legal necessity, as in reality it hinders movement of capital and results in residents having less freedom of movement themselves.