Authors:
Income tax: Measures that you can take before the end of the year
REF.: 070
Income tax: Measures that you can take before the end of the year
As the end of the tax year approaches, there are certain decisions that you can make in order to reduce your tax burden.
With regards to income tax, there are several methods that taxpayers can choose from before the end of the year that can reduce their tax bill, which are:
- Investing in an SME (Small-Medium Enterprise): this contribution may be made directly or indirectly through a holding company. The amount of the tax reduction is normally equal to 18% of the amount of payments made for all eligible subscriptions. The rate of the tax reduction is increased to 25% for payments made up until the 31st December 2019. Payments are withheld up to an annual limit of €50,000 for single, widowed or divorced taxpayers or €100,000 for married or civil union taxpayers who are subject to joint taxation.
- Buying shares in investment funds: This involves payments made by individuals for the cash subscription to shares of an innovative mutual fund (known as FCPI) or a local investment funds (known as FIP). The granting of this tax reduction is conditional on the taxpayer’s commitment to hold the shares for 5 years, and the taxpayer must not hold more than 10% of the fund’s shares and more than 25% of the rights to the profits. The rate of the tax reduction is increased to 25% for payments made up until the 31st December 2019. Payments are withheld up to an annual limit of €12,000 for single, widowed or divorced taxpayers or €24,000 for married or civil union taxpayers who are subject to joint taxation.
- Investing in SOFICA: natural persons who, until the 31st December 2020, make cash subscriptions to the initial capital or to capital increases of companies that finance cinematographic or audio-visual works (known as SOFICA) and that have been approved by the Ministry of Culture, can benefit from a tax reduction. This is also provided that the SOFICA’s capital has been approved previously by the Ministry of the Budget. The potential tax reduction is equal to 30% of the amount paid for subscriptions during the tax year, subject to a double limit of 25% of overall net income or of €18,000. This results in a maximum annual tax reduction of €5,400.
- Donations and grants: Donations or grants of a general interest are eligible for a reduction in income tax. For all donations (other than those made to organizations providing assistance to people in difficulty or for the restoration of Notre-Dame), the tax reduction is equal to 66% of the amount of the sums paid, withheld up to a maximum of 20% of taxable income. These kind of payments are eligible for a tax reduction, provided that the taxpayer is able to submit, at the request of the administration, receipts issued by the organizations receiving the payments.
- Hiring an employee in the home: Taxpayers who incur expenses for the remuneration for personal services rendered at their residence (either main or secondary) or, under certain conditions, at that of their relatives (in this case ascendants) located in France, receive a tax credit. The tax credit is equal to 50% of the amount of expenses incurred, normally withheld up to a limit of €12,000. This limit is increased by €1,500 per dependent child and per member of the tax household over 65 years of age, but may not exceed €15,000. This therefore amounts to a maximum benefit of €7,500 per year.
- Payment of compensatory benefits: The following payments can result in a tax reduction – capital compensatory benefits paid in the form of money; capital compensatory benefits paid in the form of an allocation of property (either ownership or a temporary or lifetime right of use); capital payments (in cash or in kind) replacing, by court decision, annuities. The tax reduction generally equal to 25% of the amount of payments made, property, or rights granted by a divorce decree (or the agreement approved by the judge or filed with a notary), withheld up to a maximum of €30,500 for the entire 12-month period. This means that the maximum tax reduction is €7,625.
This is a non-exhaustive list above of the possible tax reductions and credits that can be used to reduce the amount of income tax that you will be required to pay in France. If you would like some more information about the above methods, please do not hesitate to contact us.