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The reform of the wealth tax (ISF) was implemented in accordance with Emmanuel Macron’s presidential program, thus replacing the ISF with the real estate wealth tax (IFI). In this new system, savings, financial investments and other assets such as yachts, luxury cars or works of art are no longer included in the tax base. Only the value of real estate is taken into consideration. The primary objective of this reform is to attract foreign shareholders and encourage them to invest in French companies. The IFI scale follows that of the ISF, with a threshold of 1.3 million euros and tax brackets ranging from 0% to 1.5%.
Emmanuel Macron’s wealth tax reform aims to encourage investment in French companies. The finance law for 2018 maintained the 30% reduction for the main residence, as well as the ceiling which limits the amount of tax to 75% of income. In addition, the provision authorizing deductions for donations, up to a maximum reduction of 50,000 euros, remains in force. This provision allows taxpayers to deduct 75% of the donation amount from their ISF obligation.
However, the reduction previously granted for investments in small and medium-sized enterprises (SMEs) would be removed. This removal is part of the government’s objective of encouraging investment in French companies. The objective announced by Mr. Macron was to strengthen investment in these companies. As a result, taxpayers who were eligible for ISF may no longer have an incentive to invest in these small businesses. This situation could lead to a significant loss, especially for startups. We hope that the government or the national assembly will recognize this harmful consequence and quickly adopt an amendment to remedy it.
In addition, the new real estate wealth tax risks hindering the fluidity of the real estate market. For example, an individual who has owned property in Paris since the 1950s might consider purchasing additional real estate for rental purposes, generating monthly income. This would have been a positive contribution to the rental market. However, under the exclusively real estate tax regime, these people are now encouraged to invest in alternative securities such as shares on the stock market, rather than in the French real estate market.
In summary, Emmanuel Macron’s ISF reform was put in place, replacing the ISF with the real estate wealth tax, thus excluding non-real estate assets from the taxable base. The main objective is to encourage foreign shareholders to invest in French companies. Although some provisions, such as principal residence reductions and gift deductions, remain intact, removing the SME investment reduction could have negative effects on small businesses. Additionally, the real estate tax can hamper the fluidity of the real estate market by discouraging real estate investments and diverting funds to other securities.