The French Senate on 6 February adopted the Finance Act for 2025, which will be formally enacted after publication in the official gazette. The act introduces a number of significant personal tax measures.
The act confirms the primacy of double tax treaties over domestic French tax law with regard to the determination of French tax residency. Henceforth, an individual who is considered a non-resident of France for tax purposes under a double tax treaty cannot be considered a French tax resident even if the person meets the conditions of residency under domestic French tax law.
The act extends the statute of limitations in cases of false foreign domiciliation from three to 10 years. This extension allows the French tax authorities more time to investigate and address cases where individuals falsely claim to reside abroad to avoid French taxes.
The act clarifies the tax treatment of gains on the disposal of shares acquired by employees and directors as consideration for the performance of their duties in the issuing company, referred to as “management packages.”
In accordance with some 2021 decisions from the French Administrative Supreme Court, capital gains realised by managers are treated as salary income, rather than capital gains.
The act introduces a new tax regime for these gains, allowing the application of the capital gains regime up to a certain limit.
In principle, these gains are taxed as salary income exempt from social security contributions and employee and employer contributions on salaries until December 31, 2027, but are subject to a new 10% social contribution, payable by the employee.
However, a portion of the gains will be taxed under the capital gains regime if the following conditions are met:
In all cases, the gains acquired as consideration for these functions are no longer eligible for the French stock savings plan (plan d'épargne en actions, or PEA).
The Social Security Financing Bill increases the employer contribution rate on free shares (Attributions Gratuites d’Actions, or AGA) from 20% to 30%, effective 1 March 2025.
The act establishes a distinction between:
Introduced for French tax residents’ taxpayers whose reference tax income exceeds EUR 250,000 for a single person and EUR 500,000 for a couple.
This contribution is intended to ensure that the relevant taxpayers will be subject to an overall taxation of their annual income equal to at least 20% (excluding social security contributions) of their reference tax income (adjusted for purposes of calculating the contribution).
In principle, this contribution will apply to taxpayers whose income is mainly from capital (taxed at 12.8% income tax), which could raise the flat tax rate from 30% (12.8% + 17.2%) to 37.2% (20% + 17.2%) excluding the exceptional contribution on high incomes.
Cash donations to children, grandchildren, great-grandchildren, or nieces and nephews up to EUR 100,000 per donor and EUR 300,000 per recipient can be exempted from transfer rights. To qualify, the recipient must use the funds within six months for energy renovations in their primary residence or for the acquisition of a new building or sale in the future state of completion (VEFA) used as a principal residence or that of a tenant (third party) for a period of five years.
Non-professional furnished rental operators must now take into account depreciation deducted during the rental period of the property sold, when calculating their capital gains (in line with the regime for professional furnished rental operators).
Cyril Klajer
BDO in France
French Tax Residency – The Primacy of Double Tax Treaties
The act confirms the primacy of double tax treaties over domestic French tax law with regard to the determination of French tax residency. Henceforth, an individual who is considered a non-resident of France for tax purposes under a double tax treaty cannot be considered a French tax resident even if the person meets the conditions of residency under domestic French tax law.
False Domiciliation – An Extended Recovery Period for the French Tax Authorities
The act extends the statute of limitations in cases of false foreign domiciliation from three to 10 years. This extension allows the French tax authorities more time to investigate and address cases where individuals falsely claim to reside abroad to avoid French taxes.
Management Package
The act clarifies the tax treatment of gains on the disposal of shares acquired by employees and directors as consideration for the performance of their duties in the issuing company, referred to as “management packages.”In accordance with some 2021 decisions from the French Administrative Supreme Court, capital gains realised by managers are treated as salary income, rather than capital gains.
The act introduces a new tax regime for these gains, allowing the application of the capital gains regime up to a certain limit.
In principle, these gains are taxed as salary income exempt from social security contributions and employee and employer contributions on salaries until December 31, 2027, but are subject to a new 10% social contribution, payable by the employee.
However, a portion of the gains will be taxed under the capital gains regime if the following conditions are met:
- There is a risk of capital loss for the manager; and
- The manager observes a holding period of at least two years, with some exceptions.
In all cases, the gains acquired as consideration for these functions are no longer eligible for the French stock savings plan (plan d'épargne en actions, or PEA).
Employer Contributions on Free Shares
The Social Security Financing Bill increases the employer contribution rate on free shares (Attributions Gratuites d’Actions, or AGA) from 20% to 30%, effective 1 March 2025.
Bons de Souscription de Parts de Créateur d’Entreprise – BSPCE
The act establishes a distinction between:
- The gain realised upon exercise of the warrants: taxation under the specific BSPCE regime and ineligible for the tax deferral mechanism; and
- The gain realised upon disposal of the shares received in exchange for the BSPCEs: capital gains tax on sales of securities (with the possibility of tax deferrals).
Differential Contribution on High Incomes
Introduced for French tax residents’ taxpayers whose reference tax income exceeds EUR 250,000 for a single person and EUR 500,000 for a couple. This contribution is intended to ensure that the relevant taxpayers will be subject to an overall taxation of their annual income equal to at least 20% (excluding social security contributions) of their reference tax income (adjusted for purposes of calculating the contribution).
In principle, this contribution will apply to taxpayers whose income is mainly from capital (taxed at 12.8% income tax), which could raise the flat tax rate from 30% (12.8% + 17.2%) to 37.2% (20% + 17.2%) excluding the exceptional contribution on high incomes.
Family Donations – Introduction of New Exemptions
Cash donations to children, grandchildren, great-grandchildren, or nieces and nephews up to EUR 100,000 per donor and EUR 300,000 per recipient can be exempted from transfer rights. To qualify, the recipient must use the funds within six months for energy renovations in their primary residence or for the acquisition of a new building or sale in the future state of completion (VEFA) used as a principal residence or that of a tenant (third party) for a period of five years.
Furnished Rentals – Overhaul of the Calculation of Capital Gains
Non-professional furnished rental operators must now take into account depreciation deducted during the rental period of the property sold, when calculating their capital gains (in line with the regime for professional furnished rental operators).Cyril Klajer
BDO in France