It’s been a turbulent few months in the world of French politics. After a nail-biting general election four months ago, President Macron has only just formed a new government. The figurehead of this new government is a familiar face for British readers: Michel Barnier. The former Brexit negotiator for the European Union hasn’t wasted any time in his new post, and has quickly proposed a major new tax law for French businesses. So what is the law, and what else might this new government have in store, both for business owners and the economy in general?
New government, new ideas
The appointment of Michel Barnier as French Prime Minister raised a few eyebrows. The experienced conservative politician is perhaps the headline name in a government dotted with right-wing faces, seemingly putting it at odds with Macron’s centrist Renaissance party. The former Brexit negotiator, French Foreign Minister and Environment Minister (among other positions) is an experienced figure in a time of deep political divisions.
As much as the new government is designed to placate voters for National Rally, the government will also be focussed on economic stimulus. With growth struggling across Europe—most notably in neighbouring Germany—France seems keen to cut costs and raise additional revenue to address its substantial budget deficit.
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The flagship policy announced so far is a contentious one: a tax on big businesses. While little detail was provided in his initial speech, it’s believed the temporary tax would increase the top rate of tax for companies with a turnover above €1 billion. While this is a seemingly large and sudden increase, it would return France to the same rate as was used in 2017, before it was changed by Macron.
The proposed French tax changes
The tax is a so-called “exceptional contribution”, applying only to the top bracket of businesses. With around 300 French companies falling into this bracket, the government expects it to increase tax revenues by around €8 billion each year. This would help to ease the country's financial burden, with a current public deficit of €154 billion, equivalent to 5.5% of France's GDP. The Prime Minister has also asked for a “special contribution” from wealthy taxpayers, hinting at a rise in the top rates of income tax or stamp duty.
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However, these are not the only changes. A new tax on share buybacks is being considered, in order to dissuade businesses from buying back shares only to cancel them. This isn’t just an economic ploy, but a potential positive for employees, who often benefit much less from such buybacks than shareholders do. An existing increase in the minimum wage of 2% is also being brought forward by two months, which came in on November 1st.
Elsewhere, a new ‘Airbnb tax’ has been touted in order to raise more revenue from fully-furnished rental properties, as well as to limit the number of these in areas with a shortage of affordable housing, such as in Paris. Finally, an additional tax on polluting vehicles is being put forward to further accelerate the switch to electric vehicles, which Paris has committed to being the only vehicles allowed in the city by 2030. This will be part of a range of environmental commitments, including further investment in nuclear power, and a reconsideration of France’s strategy towards other renewable energy sources.
Taxing times for businesses?
Ultimately, these changes should not have a material impact on the majority of businesses in France. Perhaps the most consequential in the short term would be the additional tax on polluting vehicles, which may force businesses to replace vehicles in areas which may not yet have sufficient charging infrastructure. The other measures will affect publicly traded companies such as an SA or SAS, and the upper echelon of French corporations.
The move comes at a time of general economic pressures across Europe. Germany has lowered its growth projections for the rest of 2024 to 0%, while the new UK Prime Minister Keir Starmer has been frank about the cost savings that need to be made to stabilise the economy. Popular opinion is also increasingly massing behind the idea of higher ‘wealth taxes’, such as those used by many companies against utilities firms during the recent energy crisis.
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The bigger picture is that this is unlikely to be a French government that is unfriendly to businesses. The previous top rate of corporation tax was instituted by former President François Hollande, a member of the Socialist Party. The right-wing composition of the government should mean that any pain is only felt in the short term. The money raised should not only drive long-term sustainability, but also drive further innovation in electric vehicles and related technologies, where France already has a strong presence.
It also comes after seven years of President Macron’s business-focussed agenda. During that time, improving conditions for French businesses has been at the forefront of his agenda, often resulting in popular protests. Yet there can be no question that changes to employment law, working days, business rates, and visas have all contributed to making France a more competitive economy, and more welcoming environment for entrepreneurs.
While there may not be too many positives for big business, the picture should be largely unchanged for most small and medium sized businesses, and potentially more positive as the economy corrects itself over the term of this new government. There will be little to stop the momentum built by French startups in particular—with France now arguably the premier destination for entrepreneurs across Europe.
For more information on setting up a business in France, download our free guide below, or take a look at our French company formation page and feel free to reach out to us through our contact page where our bilingual team will be happy to help you.
Photo by Jon Tyson on Unsplash
