Israel – France Tax Treaty

Business Activity in France

Today France’s economy is very diverse, with tourism, manufacturing, and pharmaceuticals as its main economic profitable sectors. France has a strong property rights framework and a relatively efficient regulatory framework to facilitate entrepreneurial activity. The government of France maintains a strong presence in sectors likewise power, public transport, and defense, and has both partially and fully privatized several large companies.

The business start-up process is generally easy, with no minimum capital required. The Tax burden in France is 45.4% of Gross domestic product, and the top individual corporate tax rates are about 45% and 25%. The 3-year government spending and budget balance averages are about 58.6% and –6.1% of GDP. There are close trade and industry relations between Israel and France, and over the years cooperation agreements have been signed in technological development, research, and investment.

Bilateral Agreements Between France and Israel

1. Double Taxation Agreement
2. Administrative Arrangements to the Convention on Social Security of 12/17/1965 (01/10/1966)

Convention on the Prevention of Double Taxation

The Double Tax Treaty between Israel and France was signed in 1995 and became effective on December 31, 1996. The primary objective of the treaty is to eliminate double taxation on income and to prevent tax evasion and avoidance. Israel and France are committed to developing optimal economic solutions for the benefit of both nations and their citizens.

To read the agreement in English click here.

Applicability of the MLI

Both France and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of July 2017, with its provisions entering into force on the 1st of January 2019. France on the other hand, affixed its signature to the MLI on June 7, 2017, and its provisions became effective as of September 26, 2018.

Residency for Tax Purposes in France

Residence of an Individual

According to the taxation laws in France, an individual is considered a resident when one of the following criteria is met:

• The individual’s primary residence is located in France.
• The individual lives in France for more than 183 days a year, either with your spouse, civil partner, and/or children, or independently.
• The individual carries on their main profession, occupation, or employment in France (in terms of time spent or income derived from such activity); or
• The individual has in France the center of his/her economic interest (i.e., make their major investments in France and the main portion of their income is from a French source).

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

According to domestic law, and subject to the relevant double tax treaties, a corporation is considered a French tax resident if its headquarters, as set out in its article of association, is in France or its place of effective management is in France.

The place of effective management is the place where key management and commercial decisions are made, i.e., generally the place where the senior management meets and makes such decisions.

To learn about how a company can be considered a resident of Israel, click here.

The Tax System in France

France Tax Authority is called the General Directorate of Public Finances 

Income Taxation: 0% to 45%

Taxation of Companies and Branches: 25%

VAT: 20%

Capital Gains Tax: 30%

Withholding Tax

Inheritance Tax and Estate Tax in France

According to French Law, the inheritance tax is levied progressively based on the categorization of the heirs. Hence the following rates are applied currently:

Direct Heir

Brothers and Sisters

Relatives up to and including the fourth degree are taxed at a flat rate of 55%. All other heirs are taxed at a flat rate of 60%.

Relocation to France

As France offers great education with prestigious universities, a vibrant culture and healthy lifestyle, and numerous career opportunities for its citizens with a robust economy, there are many reasons why Israelis, and people around the world, may choose to move here. In addition, since France is a part of the European Union, Israelis who hold European citizenship can live there without restriction. While moving to France offers beautiful scenery and fascinating cultural changes, the taxes, however, are much higher than in other countries. When relocating, you may be taxed in both France and Israel. The income tax will depend on how much money you make, but typically it’s 20-30%. For social security as an employee, you’ll be taxed between 15-24%, and you’ll have to register to pay VAT taxes (for goods and services), which is a tax of 20%.

France is home to the third largest Jewish community in the world, behind Israel and the United States, with around 500,000 Jews. France has been home to Jews since the early Middle Ages.

Real Estate Taxation in France

All properties in France are taxed at 3% of their market value each year. The tax is based on the share of ownership, whether direct or indirect. All owners, including those involved in any ownership chain, are responsible for paying the tax. Real estate transfers, such as the sale of land and buildings, are subject to a 5.80% registration duty, calculated on the total transfer price, including any associated costs.

Transfer of Funds from Israel to France

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm has extensive expertise in managing and navigating withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in France

France has several different types of business entities which are related to different kinds of companies. The operating rules of each entity differ; they have different consequences in regard to the legal liability of shareholders. The most prominent entities of France are:

The Limited Liability Company of France (SARL): The LLC; is the most common type of business creation in France. The partnership provides the benefit of a straightforward framework where partners’ liability is restricted to their respective contributions. There is no legal requirement for a minimum capital amount, and it is shared among a minimum of two partners. The partnership can be overseen by one or more managers, whether they are partners or not.

The single-person limited liability company (EURL): The EURL can be seen as a distinct type of limited liability company, distinguished by the fact that it has a single shareholder. The EURL’s profits are automatically subject to income tax in the shareholder’s name.

The private limited liability company (SELARL): The regulations governing it are similar to those of the SARL, while also considering the unique requirements and ethical considerations specific to the professions for which they were designed.

The Public Limited Company (SA): The SA requires a minimum of two shareholders and a minimum share capital of €37,000. It is led by a President and a Chief Executive Officer, who can be the same individual, along with a Board of Directors consisting of at least three members. An auditor appointment is mandatory for the SA. Due to its intricate operational regulations, the public limited company is typically recommended for projects of a certain scale. It is also suitable when non-active shareholders seek to exert control within the board of directors. Shareholders’ liability is restricted to the extent of their contributions.

The simplified joint stock company (SAS): The SAS is not suited for business ventures initiated by individual entrepreneurs. Although its regulations are similar to the SA, certain provisions have been simplified. For instance, there is no minimum requirement for share capital. Furthermore, the appointment of an auditor is only mandatory for larger SAS or those with capital connections to other companies. The SAS can be formed with just one partner.

Incentive Laws in France

Currently, the French framework on incentive laws includes the following categories:

Foreign Tax Credit: France avoids double taxation through various methods established in Double Taxation Treaties (DTTs), including tax credits, exemptions, and tax-sparing clauses that allow deductions on higher amounts than paid.

Decrease of Payroll Charges: As of January 1, 2019, the former tax credit to boost competitiveness (CICE) was replaced by a permanent reduction in payroll charges paid by employers, benefiting the French social security system.

R&D Tax Credit: Companies can claim a tax credit of 30% on eligible R&D expenses, up to €100 million, and 5% for amounts above that. Qualifying expenses include salaries of researchers (with enhanced rates for recent graduates), depreciation on R&D assets, and certain subcontracting costs. The rules around subcontracting expenses have been updated, capping certain costs and limiting the double-dipping of credits.

Research Collaboration Tax Credit: Introduced in 2022, this credit applies to expenses incurred in collaborative research with approved research organizations, offering 40% (50% for SMEs) of invoiced amounts, up to €6 million annually.

Green Industry Tax Credit: Effective from September 27, 2023, this credit provides 20% to 40% of eligible expenses for investments in green technologies, capped at €150 million per company.

Patent Box Regime: This regime allows a reduced corporate income tax rate of 10% on income from patents and related IP rights, provided the company conducted the R&D for these assets.

Tax Reduction on Charitable Donations: Donations are eligible for a 60% tax reduction (40% for amounts over €2 million) against the corporate tax liability, with limits based on turnover.

Inbound Investment Incentives: While there are no specific incentives for foreign investors, France encourages capital investment through various depreciation methods and development subsidies in underdeveloped areas.

France Double Tax Treaties