New French Premier announces tax and payroll stimulus package

10.04.2014 By: Ernst & Young

On 8 April 2014, the newly nominated French Prime Minister announced a series of measures to reduce unemployment and public deficit, during his General Policy Statement before the National Assembly. The measures include a tax and payroll tax stimulus package which would be implemented gradually over the coming years, starting with the amended Finance Bill for 2014 (a draft of which should be tabled before Parliament in early summer 2014). Together with the tax credit for competitiveness and employment introduced at the end of 2012, the Government’s objective is to reduce the cost of labor by €30 billion by 2016.

The key tax and payroll tax cut announcements affecting companies are summarized below.

Detailed discussion
Progressive decrease of the standard corporate income tax (CIT) rate to 28% by 2020

The current standard CIT rate is 33 1/3%. It would be decreased in two steps, in 2017 and in 2020, to ultimately 28%.

Repeal of the temporary additional contribution to CIT in 2016
The temporary additional contribution to CIT for companies with a turnover exceeding €250 million, introduced in 2011 at 5% of the CIT and recently increased to 10.7%, would be abolished as of Fiscal Year (FY) 2016. Going forward, taking into account the social contribution to CIT of 3.3%, the overall maximum CIT rate would be of 34.43%,1 reduced to 28.92%2 by 2020.

Repeal of the social solidarity contribution over three years
Companies with a turnover exceeding €760,000 are currently subject to a social security contribution of 0.16% (including surtaxes) assessed on their turnover. This tax would be progressively repealed over a period of three years.

Repeal of numerous “small taxes” to reduce the administrative burden of French companies
France currently imposes numerous sector specific taxes with low yield for the French Treasury and which are burdensome to administer. The French Prime Minister announced that “several tens” of these taxes would be abolished.

Payroll tax cuts
The French Prime Minister announced that employer social security contributions (payroll taxes) in relation to employees earning the legal minimum wage would be completely abolished as from 1 January 2015. He also announced that, for wages up to 3.5 times the legal minimum wage, the family contributions (a component of payroll taxes) would be reduced by 1.8 points on 1 January 2016.

Endnotes
1. Standard rate of 33.33%, increased by 3.3% social contribution.

2. Standard rate of 28%, increased by 3.3% social contribution.