A flat tax rate of 30% is being proposed in France, and it will reportedly apply to certain insurance contracts as soon as the 2018 budget bill is announced on September 27, 2017.
According to French newspaper
Les Echos (The Echoes), the reformed taxation of savings will take effect for insurance once the budget is unveiled this week – and not at the start of 2018, as is the case for the rest of the bill’s articles.
Affected payments are those for life insurance worth €150,000 (€300,000 for a couple) and above. While some distributors have advised clients to anticipate the reform, others prefer to wait for clarity.
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The report added that the flat tax will be less advantageous than the current scheme – and implementing it immediately will prevent optimisation behaviours.
As explained by accounting firm Roche & Cie on its website, a policyholder is either taxed on income tax when he makes withdrawals from his life insurance contract, or he can opt for a deduction based on the contract’s age. The flat rate of 30% is higher compared to the current rate for older contracts.
However, as mentioned, not all contracts are impacted by the flat tax that French President Emmanuel Macron wants to be set up.
“So only about 3% of the contracts will be subject to reform,” said Muriel Brault, head of tax representation at Roche & Cie. “The government has not yet defined how it would be put in place for life insurance contracts and in particular how the flat tax threshold is determined.”
Brault continued: “If applicable, the taxpayer will have the choice between a flat-rate tax of 30% or a submission to the progressive scale of income tax.”
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