Starting a business in France became easier with the introduction of the auto-entrepreneur business structure in 2008 by Sarkozy. Entrepreneurs can start a business and only pay taxes on what they earn, limiting their losses when testing a business idea. If the business starts earning over a certain amount, then the entrepreneur must change to a different business structure. This was a great step forward to encourage people to turn dreams into reality, even if the main objective was to get residents to declare income earned on the side.
President Francois Holland is releasing a series of measures that discourages entrepreneurship in France. There are business owners who are satisfied with earning enough for survival, however, people who dream of coming up with next big thing since Facebook or Pinterest will not stay in France. I noticed a trend in his policies – penalizing large corporations, and helping small family businesses. While I believe in offering breaks to small businesses, this country still needs its large corporations to stay competitive. And it also needs its entrepreneurs and wealthy investors to stay within its borders.
Measures that will hurt entrepreneurship & innovation in France:
- Raise ISF taxes on the wealthy. The solidarity tax on wealth (ISF) will increase for residents with a net worth of more than 1.3 million euros. Individuals who have their fiscal domicile in France, and who have assets with a net worth in France and outside France greater than or equal to 1.3 million euros on 1 January 2012, are subject to this tax and must sign a declaration. This includes individuals who do not have their fiscal domicile in France but who have assets with a net worth greater than or equal to 1.3 million euros.
- Raise income taxes on the wealthy. Impose a 75 percent tax on earnings over 1 million euros and raise the rate to 45 percent for the income bracket between 150,000 euros and 1 million euros per year.
- Ended Sarkozy’s policy of “work more, earn more.” This means that overtime hours will not be exempted from payroll charges and income tax.
- Executive pay is capped at 450,000 euros for state firms. The French finance minister Pierre Moscovici was quoted by France 24 saying that this measure was needed to “make state companies more ethical,” that it’s a matter of justice and morality. In 2013, they will be targeting stock options, “golden parachute” clauses, and other components of executive salary packages.
- Increase payroll and profit taxes. Increase total tax level to 46.9 percent in 2017 from 45.1 percent in 2012 (payroll and profit).
- Impose a tax on financial transactions.
- Increase tax on biggest companies to 35 percent.
- Reduce tax on small and medium companies to 15 percent.
On a positive note, Britain is happy about these measures and is preparing policies to welcome French citizens who are fleeing the country. Many wealthy French citizens are expected to jump across the channel or to other neighboring countries. During the election, I watched an interview of a wealthy man who said he went over the numbers with his accountant and found that it was not possible for him to stay in France if Holland was elected. This man had too many investments and earnings, he would not be able to maintain the same quality of life. He owned a local company and had many employees – I am not sure if he was planning on closing his business or running it from afar. It makes sense though. Wealthy citizens have bills to pay too. If their wealth is instantly cut, it may mean switching to a smaller home, cutting major expenses, and selling off investments.
While my husband and I are small business owners, these policies hurt our dreams of one day becoming successful in France. I better start cozying up with the idea of one day living in Britain before writing a New York Times best-selling novel.
Resources:
Impôt de Solidarité sur la Fortune – Les Impôts
French President-Elect Francois Hollande’s Economic Proposals – BusinessWeek
Lower house votes to end exemptions, raise taxes on wealthy – France 24
France to cap executive pay at 450,000 Euros for state firms – France 24
Britain to ‘roll out red carpet’ for French tax exiles – France 24
Image Credit: TF1 News
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