Finance Act for 2020

Finance Act for 2020

Promulgated on December 28, 2019, and published in the Official Journal on December 29, 2019

The main measures of the Finance Act for 2020, affecting both individuals and companies, were validated by the Constitutional Council in a decision dated December 27, 2019.

Tax Measures for Individuals

• The Finance Act reduces personal income tax by lowering the rate of the second bracket of the progressive scale from 14% to 11%.
• It also provides for the complete elimination of the residence tax (taxe d’habitation) on primary residences, regardless of taxpayer income, starting in 2023.
• Company executives with a head office in France and an annual turnover of €250 million or more will now be considered as exercising their professional activity in France and, therefore, as French tax residents, unless proven otherwise.
• The transfer tax rate on shared property in cases of divorce, civil partnership dissolution (Pacs), or legal separation is reduced from 2.5% to 1.8% in 2021, then 1.1% from January 1, 2022. This rate remains 2.5% for all other transfers between co-owners, co-heirs, or co-shareholders.
• The capital gains deferral mechanism (Article 150 OB ter of the CGI) is updated in two respects:

  1. The rules for indirect reinvestment through private equity structures are clarified.

  2. The minimum holding period for shares received as consideration by the donee when transferred by donation is extended from 18 months to 5 years (10 years if reinvested in a venture capital structure).
• As part of the fight against certain fraudulent behaviors, and for a three-year experimental period, the law allows competent administrations to collect and analyze publicly available data from social media sites and platform operators using automated processing systems.

Tax Measures Affecting Companies

• For financial years starting January 1, 2020, companies with a turnover under €250 million will benefit from a corporate income tax rate reduced to 28%, then 26.5% for fiscal years starting January 1, 2021, and finally 25% from January 1, 2022.
• The favorable tax regime for mergers now applies to operations without share exchanges, including:

  • Spin-offs of a company 100% owned by a parent company in favor of companies also 100% owned by that parent, and

  • Mergers of sister companies fully owned by the same parent company.
• Additionally, for mergers under the favorable regime carried out from January 1, 2020, the transfer to the absorbing company of previous losses, net financial charges carried forward, and unused deduction capacityof the absorbed company is exempt from approval, provided the transferred amounts are less than €200,000.
• This automatic transfer can also apply in the case of absorption of the parent company of an integrated group.

The Subirats Avocat firm remains at your disposal for any further information or clarification.