Tax relief of more than 20% on average
The abolition of the local business tax in the French government’s 2010 budget represents one of the most important tax reforms of recent years in France. Overall, businesses stand to gain significantly from this reform, as the current tax burden on companies established in France will be reduced by €6.3 billion (before the effect on corporate tax is taken into consideration). In 2010, the introductory year, these tax cuts will be even larger (€12.3 billion).
In practical terms, the cost to companies of making productive investments will be reduced by more than 20% on average for an investment made over 10 years. For industry, tax relief will amount to 32%, while for SMEs the benefits of this reform are even more tangible: companies with a turnover of less than €3 million will see their tax bill reduced by 50-60% (source: French Ministry for the Economy, Industry and Employment).
The end of taxation on productive investments
Since January 1, 2010, the local business tax has been replaced by the “local economic contribution” (Contribution Economique Territoriale – CET), in response to criticisms that the former local business tax penalized investment in real estate and movable property, which restrained productive investment.
Companies still contribute to the financing of local authorities, but taxation on productive investment, which used to account for 80% of the corporate tax base, has been abolished.
International comparisons
France is not the only country where local authorities levy business taxes. In Europe, such taxes come in three forms:
- Taxes based on property (rental value, monetary value, market value). This type of taxation is used in Ireland and Great Britain.
- Local taxes imposed on companies according to different tax bases: profits in Germany; salaries in Austria; the business sector in Spain; value added in Italy; operating profit in Luxembourg.
- National taxes apportioned according to various methods: this approach is used in nine European countries, including Germany, Austria, Finland, Italy and Poland.
Benoît Dambre, Partner,
Taj, a member of Deloitte Touche Tohmatsu.
