Under Article 978 of the French tax code (FTC) certain charitable gifts can give rise to a tax credit against the real estate wealth tax liability. But most interestingly, taxpayers are often unaware that this tax credit can also benefit non-French tax residents providing that certain conditions are met. The conditions to benefit from this tax credit have been thoroughly commented on by the French tax authorities in their tax guidelines BOI-PAT-IFI-40-20 of 8 June 2018. Let us consider the main aspects of this legislation.
Which taxpayers can apply for the tax credit?
The tax guidelines provide that taxpayers who are liable for the real estate wealth tax can benefit from the tax credit. The real estate wealth tax is due when the net value of the taxable asset (e.g. a French residential property or the shares of a company owing a French residential property) exceeds €1,300,000. Non-French tax resident taxpayers whose French sited assets exceed this amount can therefore claim the tax credit.
Which kind of gifts are deductible?
According to Article 978 of FTC only gifts of cash or gifts of shares in French or foreign quoted companies can result in the tax credit. It must be a real gift without any consideration or counterpart.
Which charities can qualify?
Article 978 of FTC provides a list of charities which are eligible for the tax credit. This list is exhaustive.
The following organisations are, in particular, listed: public or private research and further education institutions; foundations of public utility (the foundation must satisfy certain conditions provided by Article 200 of FTC); occupational integration associations; the national research agency; university foundations.
More importantly, as far as non-French tax resident taxpayers are concerned, the tax credit is also available for gifts made to charitable organisations established in an EU and EEE country which has been accredited by the French tax authorities. The agreement is granted to organisations pursuing similar objectives and having similar characteristics to those established in France and listed above.
Where a gift has been made to a non-accredited organisation, the tax credit deducted can be claimed back by the French tax authorities unless the taxpayer provides, within the deadline to file the real estate wealth tax return, evidence showing that the EU or EEE charity pursues similar objectives and has similar characteristics to organisations established in France and which comply with the conditions laid down in Article 978 of FTC.
Each category of eligible charity must satisfy specific conditions detailed in the tax guidelines BOI-PAT-IFI-40-20 of 8 June 2018. Before claiming the tax credit, it is therefore important to ensure that the recipient of the gift can be regarded as an eligible charitable organisation from a French tax perspective.
It should also be noted that the benefit of the tax credit is subject to the compliance of Commission Regulation (UE) no 1407/2013 of 18 December 2016 on the application of Article 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid. Broadly speaking, under this Regulation, the total amount of de minimis aid granted per Member State to a single enterprise shall not exceed EUR 200,000 over any period of three fiscal years. This rule also applies to some charitable organisations and a gift to a charitable organisation which has not fulfilled the Regulation shall not give rise to the tax credit.
How to claim the tax credit?
In order to claim the tax credit, the taxpayer must file a real estate wealth tax return as normal. He must therefore disclose his taxable assets and their value. The tax credit is then claimed on the same return by disclosing the gifts made and by providing the necessary justifications (e.g. gift confirmation from the charity, nature and purpose of the charity etc).
The tax credit directly applies to the tax due. The tax credit is equal to 75% of the amount donated capped at €50,000 per year. If the amount of the tax credit exceeds the tax liability, the balance is definitely lost as it cannot be reimbursed or carried forward to the next year.
For instance, a non-French tax resident taxpayer has made various gifts to various EU charities for a total of €70,000. He owns a property in France valued at €6,000,000 on which the real estate wealth tax liability amounts to €48,000. 75% of the gifts amounts to €52,500 but the reduction would be capped at €50,000. The taxpayer would then be able to benefit from a tax credit of €50,000 on his €48,000 tax liability. No tax would be due but the €2,000 remaining would be totally lost.
The gifts which are eligible for reduction in a particular tax year are those made by the taxpayer between the deadline to file the real estate wealth tax return of the previous year and the deadline to file the real estate wealth tax return of the current year.
Limit to reduction
Article 978 of FTC provides that the amount of the charitable gift giving rise to the tax credit cannot give rise to any other tax benefits in respect of another tax. A taxpayer cannot for instance deduct the same charitable gift from both his income tax and real estate wealth tax liabilities. Although this limit is primarily aimed at French tax residents it should equally apply to non-French tax residents. If the charitable gift has been used to reduce for instance the income tax liability of a non-French tax resident in his own country of residence it should not be used again against the real estate wealth tax liability in France.
For can assist and advice with this legislation and the required formalities.
For any questions on this matter please do not hesitate to contact Frederic Mega at firstname.lastname@example.org or call on +377 97 97 00 64.