Israel – France Tax Treaty

Business activity in France

Today France’s economy is very diverse, with tourism, manufacturing, and pharmaceuticals as its main economic profit points. France has a strong protection of property rights and a relatively efficient regulatory framework to facilitate entrepreneurial activity.

The government of France maintains a strong presence in such sectors as 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 the fields of technological development, research, and investment.

Bilateral agreements between France and Israel

Several agreements were signed between Israel and France:

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

Reciprocal Promotion and Protection Of Investments

The Israeli government has committed to use the flexibility offered by the law and does not apply reciprocity as a condition for granting banking licenses to applicants from OECD countries, such as France.

Double Tax Treaty between Israel and France

The Double Tax Treaty between Israel and France was signed in 1995 and became effective on January 1, 1997. 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.

Applicability of the MLI

The Multilateral Convention (MLI) serves as an automatic mechanism for modifying bilateral tax treaties. To implement it, both participating countries must sign the multilateral treaty and incorporate its provisions into their respective domestic laws. Israel and France both signed the multilateral convention in 2017 and officially ratified it on January 1, 2019. Consequently, the bilateral tax treaty between Israel and France underwent automatic amendments in line with the MLI convention and was subject to any reservations set forth by both countries as of January 1, 2019.

Residency for tax purposes in France

Residence of an individual

If you are residing in France, you may be eligible for tax consideration under the following circumstances:

1. Your primary residence is located in France, based on your presence in the country.
2. You predominantly live in France for more than 183 days in a year, either with your spouse, civil partner, and/or children, or independently.
3. You engage in professional activities in France as an employee, unless this activity is of secondary nature.
4. You pursue a primary occupation in France if it constitutes the majority of your actual work time.
5. The core of your economic interests is primarily centered in France.
6. Your income from sources within France surpasses your income from foreign sources.

Individuals who have their tax residence in France and fulfill these criteria may be considered as French residents.

Residency of a company

A company residency is determined by one or more of the following aspects:

• Is established in accordance with the commercial laws of France.
• Business activity conducted through an establishment (such as a fixed business installation operating with some degree of independence).
• Business conducted in France by a dependent agent.
• Existence of a complete commercial cycle in France.

The tax system in France

The France Tax Authority is called the “France Tax Administration”

Click here for the official website of the France tax authority

Income taxation: 0%-45%

Taxation of companies and branches: 25%

VAT: 5.5%-20% depending on what the good is, but the standard is 20%.

Capital gains tax: 19%

Withholding Tax

Relocation

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 culture changes, the taxes, however, are much higher than in other countries. When relocating, you may be taxed in both France and in 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%.

Real estate taxation in France

The taxes and the transfer of ownership costs for the purchase of an existing real estate, which is more than five years old, are around 7%– 8% of the purchase price. The registration fees are around 5.08% – 5.09%. If you buy real estate that is less than five years old, you will pay around 2%-3% tax in addition to VAT (20%). The registration fees are around 0.7% of the purchase price.

Impôt sur la Fortune Immobilière (IFI) is the annual wealth tax on property in France. The tax-free allowance is €800,000, and after that, tax rates start at 0,5% and may rise up to 1,5%.

There are several taxable assets in France, beyond just a home or apartment. These assets include:

• Apartments/homes being rented
• Buildings
• Agricultural land, building plots, and other non-built buildings
• Fractions of buildings (such as office spaces)

Transfer of funds from Israel to France

In accordance with Section 170(a) of the Income Tax Ordinance in Israel, certain money transfers from Israel to France require the approval of an assessor on behalf of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into euros, so it is important to consult before transferring the funds – 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 regards to the legal liability of shareholders.

The most prominent entities of France are:

1. The Limited Liability Company of France (SARL): The LLC; this 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.
2. 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
3. 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.
4. 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.
5. 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

In France, young and innovative firms are granted R&D (research and experiment) tax relief in the form of a volume-based tax credit and are also exempt from paying social security contributions (SSC). This incentivizes research and development activities by providing financial benefits to these businesses.

This tax law incorporates a significant aspect whereby the R&D tax credit is set at a rate of 30%. However, for R&D expenses surpassing the threshold of EUR 100 million, the credit rate gradually decreases to 5%. This structure encourages and supports research and development investments, particularly for smaller and medium-sized enterprises.

France Double Tax Treaties