The Finance Bill for 2025 was approved by France’s Senate on 6 February 2025,1 following approval by the National Assembly a few days earlier.  It contains measures concerning the tax scale for individual taxpayers, the temporary minimum effective tax of 20 percent on "the highest incomes," the meaning of "tax residence," and the statute of limitations, among other things. 

The Finance Bill is now definitively adopted following examination by the Constitutional Court, and, by virtue, becomes the Finance Act (loi de finances pour 2025).2

The budget for 2025 was originally proposed in October 2024;3 however, in a turbulent political arena, full support for the original budget bill (called projet de loi de finances pour 2025) was elusive, and the government collapsed in early December.  Calendar year 2024 therefore came to an end before an updated bill could find support and pass into law.  Some key elements from the proposed draft bill have been adopted in the final version of the legislation, whilst others have been watered down or omitted entirely.

WHY THIS MATTERS

The introduction of a minimum tax on higher incomes is one of the key measures to make it from the draft budget into the Finance Bill, now Finance Act.  It is confirmed that higher earners will need to perform an additional calculation to check if their overall effective tax rate is less than 20 percent and if so, pay the difference.  The measure is proposed to apply to tax year 2025 revenues only.

A very welcome change from the draft bill in October is that employees benefitting from the “155B inpatriate regime” will not be impacted by the minimum tax on higher incomes.4  Under the original proposals, employees with a portion of their salary exempt from tax by virtue of the inpatriate regime, would need to check they had paid a minimum 20 percent on their total income taking into account the tax-exempt income.  However, under the measures adopted, the income exempted by the 155B inpatriate regime is outside of the calculation. 

Income Tax Brackets Confirmed

The Finance Act adjusts the individual income tax rates (impôt sur le revenu) for inflation.  According to the Finance Act, the income tax brackets will be as follows:

Source: KPMG Avocats in France

Taxable income

Rate (%)

Not exceeding €11,520

0

Between €11,520 and €29,373

11

Between €29,373 and €83,988

30

Between €83,988 and €180,648

41

Over €180,648

45

 

20-Percent Minimum Tax for High Earners

French-resident taxpayers with high incomes will have to pay a minimum 20-percent income tax.  The tax is called the Contribution Différentielle sur les Hauts Revenus (“CDHR”).

This tax will apply to individuals who are tax residents of France, whose household income (reference tax income) exceeds €250,000 for single taxpayers and €500,000 for joint taxpayers, when their effective tax rate is less than 20 percent of their adjusted reference tax income.  In such cases, taxpayers will have to pay the difference up to 20 percent. 

KPMG AVOCATS INSIGHTS

The good news for expatriates in France is that income that has been exempted under the application of the French inpatriate tax regime (155B) is not included in the calculation of the reference tax income.  This means that the benefit of the inpatriate regime in relevant cases is preserved.  Additionally, income excluded from French taxation by virtue of an applicable tax treaty, is also excluded from the reference tax income. 

The CDHR is limited – at least for the time being – to income for the 2025 year.  The original bill had proposed that it be a three-year measure, applying to 2024, 2025, and 2026 revenues.  It is now certain that 2024 will not be impacted.  Whether the measure will be extended beyond 2025 will be a matter for next year’s budget.

Additionally, an advance payment measure is to be introduced, mandating that an advance payment corresponding to 95 percent of the CDHR must be paid between the 1st and 15th of December 2025.  The penalty for total or partial failure to pay the CDHR will be increased to 20 percent of the amount unpaid.

Treaty Residence Paramount

Another measure relevant to expatriates that passed from the draft bill into the Finance Act concerns the meaning of “tax residence” in France.  The General Tax Code has until now stated that the French domestic law interpretation of residence was paramount; however, this was at odds with both general understanding and recent case law that gave precedence to residence in treaties. 

The Finance Act provides for the primacy of treaties when determining the residence of an individual in France.  It updates Article 4B of the General Tax Code, which defines the conditions for an individual to be considered a resident of France for tax purposes.  It now clarifies that even if a person meets one or more of the criteria in domestic law, he or she will not be considered a French tax resident if, under the provisions of international double taxation treaties, that person is regarded as a resident of another country.

Other Key Measures

  • Extension to 10 years of the statute of limitations for the tax authorities to challenge individual taxpayers’ declarations of foreign tax residence where the authorities believe the taxpayer has falsely declared the position.
  • Introduction of new audit procedures for tax credits and withholding taxes.
  • The surcharges of corporate income tax (CIT) proposed in the original budget also made it into the final legislation, but are restricted to one year only.  They apply to companies with French annual turnover in excess of €1 billion in 2024 or 2025.  The rate of the surcharge will be 20.6 percent for companies with an annual French turnover of less than €3 billion in 2024 or 2025, or 41.2 percent for companies with an annual French turnover of €3 billion or more in 2024 or 2025. 

 

KPMG AVOCATS INSIGHTS

There was concern that the 20-percent minimum tax would apply to 2024 revenues, as was originally proposed in October 2024. Announcing a minimum tax rate to income already received during 2024 caused much consternation.  Whilst they may find some relief in the fact that 2024 revenues are not affected, those planning for 2025 must now consider the impact on their finances.

The exclusion of income exempted under the 155B inpatriate tax regime preserves the intended benefit of the regime and perhaps will preclude requests that might have come had such income been included (rather than excluded) from the CDHR.  Further, employers with equalised assignees to France should not face higher costs as a result of the measures.

The need to make advance payment of the CDHR introduces an additional compliance step to check if payment is due.  This is out of sync with the normal compliance calendar, introducing a risk that relevant cases are not identified until after the payment window has closed, as well as the risk of non-compliance.

Some measures that had been proposed in October 2024, such as changes to tax rates on investment income and capital gains, and a wealth tax on unproductive wealth (impôt sur la fortune improductive), were not included in the final Finance Act.

It is essential to get in front of the changes described in this newsletter and to communicate quickly and clearly with key stakeholders, so that they can properly plan, budget, and make any necessary payroll and other adjustments, ideally in advance of their coming into force.

Taxpayers with questions about how the above-noted measures may impact them, and/or what steps they may need to take to be in compliance, should consult with their usual qualified tax professional or a member of the GMS tax team with KPMG in France (see the Contacts section). 

FOOTNOTES:

1  See the website for the French Senate, "Projet de loi de finances pour 2025" [Adopté définitivement] at: https://www.senat.fr/travaux-parlementaires/textes-legislatifs/la-loi-en-clair/projet-de-loi-de-finances-pour-2025.html.

3  See the budget.gouv.fr website "Loi de finances pour 2025 : renforcer la souveraineté de la France tout en garantissant l’avenir" at: https://www.budget.gouv.fr/reperes/loi_de_finances/articles/loi-finances-2025.

3  For prior coverage, see GMS Flash Alert 2024-202, 16 October 2024.

4  For more on the inpatriate regime, see section 2.8 in Taxation of International Executives: France, a publication of KPMG International. 

Contacts

stuart-mcglone
Stuart McGlone

Senior Manager

KPMG en France

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