Newsletter February 2025

Finance Act 2025: Key measures you need to know

The French Finance Act for 2025, now definitively passed, introduces several measures affecting individuals, businesses, and the real estate sector. Here’s an overview of the main changes.

Measures for private individuals

• Indexation of the income tax scale

The 2024 income tax scale has been indexed to neutralize the effects of inflation, and the brackets have been raised by 1.8%. The new scale is as follows:

• The Differential Contribution on High Income (CDHR)

The 2025 budget, adopted under article 49.3, introduces a new tax on high incomes, in addition to the existing one. This measure ensures that top earners pay a minimum effective tax rate of 20% by combining income tax and the existing high-income contribution. If their current tax burden falls below this threshold, the new Contribution Différentielle sur les Hauts Revenus will apply to reach the required level.

This contribution affects only those already subject to the Contribution Exceptionnelle sur les Hauts Revenus, i.e., individuals earning over:

• €250,000 for a single person
• €500,000 for a couple

The measure mainly impacts households with capital income (interest, dividends, capital gains on securities, etc.), who currently benefit from the single flat tax rate of 12.8% (income tax) + 17.2% (CSG-CRDS). This reform effectively increases their overall tax burden.

• Stricter environmental penalty

he 2025 Finance Act further tightens the ecological malus on new vehicle purchases, effective March 1, 2025. Key changes include:

• A lower CO₂ emission threshold, now starting at 113 g/km
• An increase in the maximum malus, rising from €60,000 to €70,000 for the most polluting vehicles

Further adjustments are planned for 2026 and 2027, with stricter thresholds.

Additionally, from 2025, the weight tax threshold has been lowered to 1,500 kg (compared to 1,600 kg in 2024), at a rate of €10 per kg, with an increment of €5 per additional 100 kg. This primarily targets SUV and large vehicle buyers.

Since January 1, 2025, this tax also applies to plug-in hybrid vehicles, based on their weight. However, a 15% deduction is granted to offset battery weight.

• Changes to the definition of tax residence in France

The Finance Act 2025 amends Article 4 B of the French General Tax Code (CGI), which defines tax residence. A key clarification now states that a person who meets at least one of the French tax domicile criteria cannot be considered a French tax resident if, under an international tax treaty, they are deemed a resident of another country.

This amendment reinforces the primacy of international tax treaties in determining tax residence status.

Measures for small and medium-sized businesses

• Lowering the VAT exemption threshold

This measure sparked significant controversy! The 2025 Finance Act initially lowered the VAT exemption threshold to €25,000 for all businesses. This meant that any company exceeding this sales threshold, whether selling goods or providing services, would be required to charge VAT.

However, following strong public backlash, the government has decided to suspend the measure.

• Postponement of the total abolition of the CVAE and introduction of an additional contribution

Originally planned for 2024, the gradual abolition of the Cotisation sur la Valeur Ajoutée des Entreprises (CVAE) was set to be completed by January 1, 2027. However, the government has now postponed its complete removal to 2030.

Additionally, an extra contribution to the CVAE has been introduced for 2025 only, applying to all businesses subject to this tax. This contribution amounts to 47.4% of the CVAE due for 2025 and must be paid as follows:

• 100% advance payment by September 15, 2025, based on the previous year’s CVAE.
• Final balance due by May 5, 2026.

Notably, the value-added ceiling outlined in Article 1647 B sexies of the French General Tax Code does not apply to this additional contribution.

• Innovation Tax Credit (CII) extended for three year

The Innovation Tax Credit (CII) has been extended until 2027, but the tax relief rate has been reduced from 30% to 20% for eligible expenses incurred from January 1, 2025.

• Abolition of tax reduction for members of Organismes de Gestion Agréés (OGA)

Businesses subject to the BIC, BNC, and BA tax regimes that were members of Organismes de Gestion Agréés (OGAs) previously benefited from a tax reduction covering two-thirds of their accounting fees. This reduction will be abolished starting from the 2025 tax year.

Note: Since the removal of the 25% surcharge on non-OGA members’ profits in 2021, many businesses have opted not to renew their membership, rendering this tax reduction largely obsolete.

Real estate measures

• The new “Prêt à Taux Zéro” (PTZ – zero interest loan)

The Prêt à Taux Zéro (PTZ) is a government-backed, interest-free loan designed to help first-time buyers finance part of their primary residence purchase. The 2025 Finance Act aims to reinvigorate the real estate market by introducing several key changes:

• Nationwide availability: The new PTZ is now accessible across all of France, no longer restricted to high-demand urban areas (zones tendues) and rural regions.
• Eligibility for all property types: First-time buyers can once again use the PTZ to purchase a single-family home, not just apartments.
• Increased financing: From 2025, the PTZ can finance up to 50% of a property purchase, up from 40% (since April 2024).

The PTZ will remain in effect until December 31, 2027.

• Exemption for donations towards the purchase of a principal residence

The 2025 Finance Act introduces a new tax exemption for monetary gifts. Now, individuals can receive up to €100,000 tax-free from a parent, grandparent, great-grandparent, uncle, or aunt to finance:

• The purchase of a new primary residence
• Energy renovation work on a primary residence

This exemption applies until December 31, 2026.

• Possible increase in registration fees on real estate acquisitions

Starting April 1, 2025, the Finance Act allows local authorities to raise property transfer fees (commonly known as “frais de notaire”) by 0.5 percentage points. This could bring the average transaction tax on older homes to 8.5%.

However, individual departments retain discretion over whether to implement this increase.

• Reintegration of LMNP depreciation on resale

A major tax loophole is closing! Under the new system, capital gains on the resale of LMNP (Non-Professional Furnished Rental) properties will now include previously deducted depreciation under the real tax regime.

However, certain types of depreciation remain exempt, including those related to:

• Construction
• Rebuilding
• Expansion
• Improvement

(As per Article 150 VB, II, 4° of the French General Tax Code).

Additionally, this measure does not apply to sales of:

• Student residences
• Senior residences
• Social and medical-social facilities
• Nursing homes

This new rule will take effect the day after the law is enacted.