Tax on real and personnal assets

The information given below is applicable to distributions paid on or after 1^st January 2008 (dividends paid in respect of the 2007 fiscal year, for tax due in 2009).

Income distributed must be reported on the return of income, to which the copy of the tax declaration provided by the financial intermediary should be attached. If the shares are French shares - or non-French shares provided that the distributing company is based in a European Community State or has concluded a treaty for avoidance of double taxation with France - the taxpayer may opt for one among the two following methods of taxation:

• a French fixed-rate dividend tax ["prélèvement forfaitaire libératoire" (PFL)],
• income tax at progressive rates on this income.

The rate of fixed-rate dividend tax is 18%, or 29% including social security levies.

If income tax at progressive rates is opted for, the calculation of charge works as follows:

• an annual allowance of 40% of distributions;
• a deduction for depository fees;
• an annual allowance of €1,525 for single persons, widows/widowers or divorced persons, as well as for married couples electing for separate taxation, or €3,050 for married couples or civil partners electing for joint taxation;
• income tax at progressive rates (taking into account the 20% allowance applicable particularly to wages and salaries, now incorporated into income tax rates); in addition to income tax, social security levies are added (CSG : 8.2%, CRDS : 0.5%, general social security levy of 2.3 %, making a total of 11 %) calculated on the basis of dividends received, after deduction of depository fees, but before the two annual allowances. A fraction of the CSG social security levy (5.8%) is then deductible from the total income liable to tax;
• a tax credit reducing this liability: 50% of the dividend paid, with a ceiling of €115 for single persons, widows/widowers or divorced persons, and of €230 for married couples or civil partners electing for joint taxation; this is offset from the amount of tax payable for the year in which the dividends are received.

Please note: Opting for flat-rate dividend tax on some dividends will prevent the taxpayer benefiting from annual allowances or the tax credit in respect of other dividends received in the same year. Moreover, the fixed-rate dividend tax regime excludes the right to a deduction for part (5.8%) of the CSG social security levy.

In addition, social security levies on dividends will in future be withheld at source by the paying organisation, whichever option the taxpayer elects for (fixed-rate dividend tax or progressive rate income tax).

In the special case where dividends are paid between the time of execution of the stock exchange trade order and the completion of the trade, the buyer is considered to be the shareholder from the day of execution of the order for purposes of application of the 40% allowance or for flat-rate dividend tax (even though for legal purposes ownership of the shares does not pass until completion of the transaction).

Tax treatment is the same, whether the shareholder opts for payment in cash or payment in shares, where the latter is a possibility.

The net capital gain (difference between the selling price - net of fees and taxes - and the purchase price - uplifted for costs of acquisition) realised on sale of shares must be shown on a specific return (no. 2074) attached to the return of income. However, this is not taxable - nor need a return be filed - unless the overall amount of securities sold exceeds a certain threshold, set for example at €20,000 for taxes on income for the 2007 fiscal year, and increased to €25,000 for sales made on or after 1st January 2008: the calculation of the threshold includes the expenses of sale (basically brokers' fees), even though the capital gain is measured "net of transaction costs". Moreover, this threshold will in the future be reviewed upward annually, in proportion to the upper limit of the first income tax band for the year preceding the sale.

If it is taxable, the capital gain is taxed as follows:

• for 2007 income tax, at an overall rate of 27% which, as well as proper income tax (flat rate: 16%), includes social security levies (CSG : 8.2%, CRDS : 0.5%, general social security levy of 2.3 %, amounting to 11% in total);
• for 2008 income tax, at an overall rate of 29% which, as well as proper income tax (flat rate: 18%), includes social security levies totalling 11%.

In the case of a capital loss, the shareholder may offset it against capital gains made in the same year or in the following years, with a maximum carry forward of ten years.

Nevertheless, for these capital losses to be offset, sales must have exceeded the taxable threshold for the year during which the capital losses were realised.

Moreover, the tax liability for capital gains made on amalgamations, mergers, spin-offs or similar may be deferred; under this measure, the return of capital gains is made only once, at the time of the ultimate sale of the securities acquired. The amount of the capital gain to be returned will therefore be equal to the difference between the selling price of the shares acquired on exchange, and the original cost price of the shares contributed to the share exchange.

Gifts enable you to pass down moveables - including shares - as well as immoveable property.

Every six years, these gifts benefit from an exemption of €151,950 euros (per parent and per child) where they are made to children or to parents, and also to handicapped persons. For handicapped persons, the two exemptions can be combined, making €303,900. Gifts between spouses and civil partners qualify for an exemption of €76,988. An exemption of €15,195 applies to gifts between brothers and sisters.

For gifts between nephews and nieces, an exemption of €7,598 applies. For gifts to great-grandchildren, it is €5,065. Gifts of sums of money, made by persons aged under 65 to their children, grandchildren, and great-grandchildren (or if they have none, to nephews and nieces, or in their absence to grandnephews/nieces, if the nephews/nieces have died) aged over 18, are exempt to a limit of €30,390 if registered within one month at the beneficiary's local tax office.

Moreover, in the case of gifts arising from stock-options, the capital gain at vesting will now be taxable in the hands of the donor. This measure is however applicable only to options granted on or after 20 June 2007.

The PEA approved share savings plan is a special share account, allowing individuals resident in France for tax purposes to invest, on tax-advantageous terms, in:

• shares of companies based in France or in other European Economic Area states, excluding Lichtenstein,
• in venture capital or innovation mutual funds (FCPR or FCPI),
• and in SICAV mutual fund shares and units of mutual funds eligible for inclusion in the PEA approved share savings plan. SICAV mutual funds and mutual funds eligible for inclusion in the PEA approved share savings plan can include European securities (as well as Norwegian and Icelandic ones from 1^st January 2005) as part of the investments they are allowed to hold.

If the "normal" expected duration of a PEA approved share savings plan is 8 years, tax advantages start to accrue from the end of the fifth year of the plan.

From 1^st January 2003, investment in cash was raised to €132.000 per plan (married couples can open two plans), giving a maximum investment limit of €264,000 for a married couple electing for joint tax treatment. Dividends from securities held in PEA approved share savings plans can only be paid into the plan; they are added to capital free of tax (for listed securities).

If the account holder makes no withdrawal before the end of the fifth year, shares held in the PEA approved share savings account will be completely exempt from tax (but not from CRDS and CSG levies calculated by bands) on the gains realised and the investment income received. Furthermore, if a PEA approved share savings plan which is closed after more than 5 years returns a capital loss, it is possible to offset this loss against gains made on any share account during the same year or in the ten years following.

Shares of companies based in a European Community member state, received in exchange for quoted shares held by the plan, as part of an amalgamation, merger, spin-off or similar operation, may also be held by PEA plans.

Important note: making gifts of securities held in the PEA approved share savings plan before the end of the fifth year will result in the closure of the plan and a tax charge on the net gain realised, since the gift is considered as an early withdrawal of the securities concerned. If the gift is made between the end of the fifth year and the eighth year, it will result in closure of the plan, but the net gain realised since opening the plan will not be liable to tax (but is liable to social security levies). If the gift represents only a partial withdrawal from the PEA approved share savings plan and happens after the end of the eighth year, the plan will not have to be closed.

The information below, concerns bonds or contracts subscribed for on or after 26 September 1997. It has not been possible to take out new policies since 1^st January 2005, but existing ones can still be funded.

These involve bonds or contracts, with a duration of at least 8 years, invested mainly in equities, the funds of which are made up of at least 50% EU or similar equities, with at least 5% risk capital (venture capital funds, shares, risk capital funds).

This quota of 5% was widened as of 1^st January 2000 to companies listed on regulated markets for growth stocks in the European Economic Area, or in the growth stock compartments of these markets.

Provided these quotas are adhered to, along with the minimum holding period of 8 years, income arising from these contracts is exempt from personal income tax, but is liable to social security levies (11%).

If the quotas are not adhered to, and they are surrendered after the 8^th year, the income is charged to income tax at progressive rates, or optionally at a fixed rate of 7.5%, after deduction of an allowance of €4,600 for single persons and of €9,200 for a married couple. This income is also liable to social security levies (11%).

If they are surrendered within 8 years, the income is charged to income tax at progressive rates or optionally at a fixed rate (35% for under 4 years; 15% for between 4 and 8 years).

NSK type contracts replaced DSK contracts as of 1^st January 2005; they have the same tax advantages. The assets backing this new type of policy must include a minimum of 30% equities, including 10% in risk capital, of which 5% must be in unquoted companies.

Profits distributed by French companies to non-residents are subject to withholding tax at a maximum rate of 25% (this rate is reduced, subject to certain conditions, to 18% for European Union residents). However, these withholdings may be reduced or even removed all together by the effect of international tax treaties.

This is particularly the case where the legislation provides that only the state in which the beneficiary is resident may tax dividends received by the beneficiary.

As far as capital gains on moveables are concerned, persons who are not resident in France for tax purposes are expressly exempted from any tax charge in France (subject to certain conditions being met).