Some of the changes proposed in France's 2006 Financial Law Bill have implications for non-residents who derive income from within France. Our tax experts in France explain the basics

The 2006 Financial Law Project (Projet de Lois) proposes to simplify the taxation system, primarily through two major changes: the 20 percent abatement that affects salary-earners and those independent taxpayers who submit their declarations via a recognised authority will be scrapped, and be integrated into the system of taxation brackets.

The rates would, under the plan, be reduced by 20 percent and the limits of each bracket increased by 25 percent in order to ensure those revenues that already benefited from the 20 percent abatement remain strictly neutral.

For the same reasons, certain abatement limits would be adjusted. Corrective measures would ensure, however, that the new plan would not create an excessive fiscal advantage for those who did not previously benefit from the 20 percent tax reprieve. These would include, amongst others, a smaller decrease in the top rate of taxation for people on very high income, and an increase in tax on dividends from 50 percent to 60 percent.

From the taxation of 2006 income onwards, the number of brackets in the reckoner will be reduced from seven to five, as follows:

- up to €5515: 0%  
- from €5,515 to EUR 10846: 5.5%  
- from €10,486 to EUR 24 432: 14%
- from €24,432, to €65,559: 30%
- above €65,559: 40% .

Revised Withholding Brackets for 2006

The changes will also affect withholdings: to incorporate the abatement of 20 percent  in the system’s rates, both the minimum rate of tax that non-residents’ incomes from within France are subject to, and the rates and limits of withholdings on the salaries of people who are not fiscally established (domiciled) in France, must be adapted correspondingly.

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