New taxation of Trusts in France
Further to the definitive adoption of the French 2011 Amended Finance Bill, a new specific trust tax has been introduced in France.
The French 2011 Amended Finance Bill defines trusts and makes them subject to French Tax law, thereby creating a new tax regime. The new tax regime will have an impact, among others, on the following taxes:
- Wealth tax;
- Gift and inheritances taxes;
- Income tax.
Furthermore, trusts will be subject to new reporting requirements to the French tax authorities.
This new tax regime will be clearly far reaching and could be also applicable to structures similar to trust.
WEALTH TAX
The setllor (or following death of the latter the beneficiaries) is subject to wealth tax on net assets held in any kind of trust if the value exceeds EUR 1,300,000.- (excepted trust whose beneficiaries are charitable entities pursuant article 795 of the French Tax Code) subject to the following alternative conditions:
- the settlor is French tax resident ; or
- one of the beneficiaries is French tax resident; or
- the trust estate includes French taxable assets.
On a related note, if the trust assets are not included in the settlor’s or the beneficiaries’ estates for wealth tax purposes or if the trust has not been disclosed to French tax authorities, the trustee will be jointly liable with the settlor or the beneficiaries for the payment of a specific tax of 0.5% based on the trust’s assets as of January 1st.
This provision will come into force in January 2012.
GIFT AN INHERITANCES TAXES
As from 31st July 2011, each gift and “inheritance” (donation ou succession) concerning assets held in a trust that is subject to the new tax regime will be liable to French gift and inheritance taxes at the date of the transfer of such assets to the beneficiaries or if earlier, at the date of the death of the settlor. The tax rate will depend on relationship between the settlor and the beneficiaries and whether the transfer can be qualified as gift or inheritance. If such qualification is not possible, the assets will be considered as transferred to the beneficiaries at the settlor decease. If such qualification is not possible and if it is not possible to determine the part received by each beneficiary, the assets will be considered as transferred to the beneficiaries at the death of the settlor. The beneficiaries and the trustee will be jointly liable for the payment of the tax. The tax rate is set up at 45% if the beneficiaries and the settlor are members of the same family, if not the tax rate is set at 60%. This tax rate is also due if the trust is governed under the law of an uncooperative jurisdiction or if the trust is set up by a French resident on or after May 11st, 2011.
INCOME TAX
Income distributed by a trust will be subject to French income tax. Income which is not distributed but reinvested in the trust will not be subject to French Income tax.
REPORTING REQUIREMENT
As from January, 1st 2012 and to the extent that:
- the settlor is French tax resident ; or
- one of the beneficiaries is French tax resident; or
- the trust fund includes French taxable assets.
The trustee will have to disclose to French tax authorities information regarding the Trust such as:
- the terms of the trust and any variation thereof;
- the net asset value of the trust as of January 1st of each year.
If the required information is not disclosed to French tax authority, a penalty of 5% (or EUR 10,000.-) of the trust estate will be due. The trustee will be jointly liable with the settlor and beneficiaries of the payment of the said penalty.
Betty Prudhomme
Senior Vice President Tax
betty.prudhomme@sgg.lu
Pierre-Siffrein Guillet
Senior Advisor
pierre.siffrein.guillet@sgg.lu
