Today is: 30 July 2010
Important Note: - The information given here is for information only and is of a general nature and is not exhaustive or comprehensive. Tax law is a technical and complex area of law and you should not act or refrain from acting without comprehensive specialist advice on the facts of your case. Please note that Sykes Anderson LLP does not provide investment advice.
Q: I'm thinking of moving to France. Currently, the value of my French assets makes me liable to French Wealth Tax. I have heard that there is a tax shield in France. Can I use the tax shield to lower what I pay in Wealth Tax?
A: The tax shield is only available to French tax residents, so you cannot currently use the tax shield.
Q: Is it true that once I move to France I have to pay Wealth Tax on my worldwide assets? Will the tax shield help me once I move to France?
A: French tax residents have to pay Wealth Tax on their worldwide assets. Once you are a French tax resident you may be able to use the tax shield.
Q: Does it matter what assets I own?
A: Yes, the nature of your assets will influence whether or not you can use the tax shield. The tax shield provides that a French tax payer cannot pay more than 50% of his income in direct taxes. Direct taxes include French Wealth Tax. So, if you are capital rich and income poor, the tax shield will be very advantageous to you.
Q: How does the tax shield work?
A: If you have paid more than 50% of your income out in direct taxes you are entitled to a refund. Your right to obtain a refund is acquired on 1st January of the second year which follows the year for which the taxes were paid. (In France you are generally taxed on a year's income during the following year and not the same year). This means that you need unfortunately to pay any French Wealth Tax due and then reclaim any amount of taxes paid over the 50% threshold.
Q: So assuming I have net assets of €2M in France but almost no income I will effectively not pay Wealth Tax.
A. You will still have to pay the Wealth Tax but can reclaim it because 50% of a very low income will be much lower than the Wealth Tax liability.
Q. As I understand it this means that if you are capital rich but have a low income you are better off for Wealth Tax being a French resident.
A. Counter intuitively this is the case.
November 2008