The French government presented the Finance Bill 2025 during a press conference in Paris on Thursday, 10 October 2024, with the goal of reducing the deficit from 6.1% of GDP this year to 5% next year.

To achieve this, the government plans to implement spending cuts and tax increases totalling EUR 60.6 billion, as reported by local media outlets.

“The primary aim of this budget is to reduce our deficit and contain our debt,” said Finance Minister Antoine Armand. “This reduction has to start now, it’s necessary to protect France’s financial credibility and more broadly ensure our economic stability.”

Significant taxes are to be imposed on major corporations and individuals with exceptionally high earnings. The increase in taxation on the wealthiest individuals is projected to yield an additional 2 billion euros by the year 2025.

There will be a decrease in the workforce within the public sector, resulting in 1,196 job eliminations across various ministries and an additional 1,005 positions being cut at public operators.

“We need to do better with less staff. We are proposing around 2,200 job cuts, divided between ministries and State operators,” said the Budget Minister, Laurent Saint Martin, with the promise of targeted reductions rather than indiscriminate cuts.

The budget allocated to the Sports Ministry will experience significant reductions. However, the education sector is expected to experience the most significant impact, with over 4,000 teaching positions set to be eliminated.

Parliamentary discussions are set to begin on 21 October and are expected to conclude with a vote and enactment by the end of December 2024.

Corporate income tax

Temporary corporate surtax introduced for large companies

The finance bill introduces a temporary surtax on corporate income tax targeting companies with an annual turnover of at least EUR 1 billion. For tax groups, the threshold applies to the combined revenue of all group members. This surtax will apply for the first two fiscal years ending on or after 31 December 2024, based on the total taxable income calculated under Article 219 of the French Tax Code, before deductions for tax credits or receivables.

Two surtax rates will apply, depending on turnover: Companies earning between EUR 1 billion and EUR 3 billion will face a 20.6% surtax in the first year and 10.3% in the second, raising their effective tax rate (ETR) to 30.15% and 27.58%, respectively. Companies with turnover exceeding EUR 3 billion will be subject to higher surtax rates of 40.2% in the first year and 20.6% in the second, resulting in an ETR of 35.30% and 30.15%, excluding the 3.3% social surcharge.

To ease the burden, companies whose turnover exceeds the thresholds by only EUR 100 million will benefit from a mitigation mechanism. The surtax is payable in full at the time of the corporate tax balance payment, without advance payments or deductions for tax credits. The increased ETR may also require adjustments to deferred tax for temporary differences expected to reverse in the following fiscal year.

Airline ticket tax and energy sector adjustments

The aviation sector is facing stricter ecological penalties along with the introduction of a tax on airline tickets. In the energy sector, the electricity tax (TICFE), which was lowered during the energy crisis, will rise in February 2025. Previously set at around EUR 33 per MWh, the tax will increase to approximately EUR 50 per MWh. However, the Ministry of the Economy has assured that electricity bills for most households won’t go up due to a decrease in market prices.

Although the government has expressed willingness to discuss the changes in parliament, the fragmented political environment may lead Prime Minister Michel Barnier to bypass a vote by invoking the controversial Article 49.3 of the French constitution.

Technical modifications to Pillar Two regulations

The 2024 finance law implemented the EU Council Directive (EU) 2022/2523 of 14 December 2022, establishing a global minimum tax rate of 15% for multinational corporations and large domestic groups within the EU, known as the “Pillar Two directive.”

The upcoming 2025 finance bill proposes technical modifications to align with the recent OECD administrative guidance regarding Pillar Two. Additionally, the bill aims to revise the regulations governing France’s qualified domestic minimum top-up tax (QDMTT) to confirm its qualification status.

Restructuring transactions

The 2025 finance bill proposes extending the tax-neutral regime currently applicable to mergers to include partial demergers. This measure is expected to be applied retroactively to transactions filed with the commercial court starting from 1 July 2023.

New temporary tax for major shipping companies

Shipping companies, under certain conditions, can choose to be taxed under the tonnage tax regime instead of corporate income tax. A new temporary tax will be applied to the operating income of those opting for tonnage tax with a turnover of at least EUR 1 billion for the first two fiscal years ending after 31 December 2024. The tax rate will be set at 9% for the first fiscal year and 5.5% for the subsequent year.

Modifications to the CET cap mechanism

The Contribution Économique Territoriale (CET) consists of two taxes: the immovable property contribution (CFE) and the Cotisation sur la Valeur Ajoutée des Entreprises (CVAE). Currently, the CET is capped at 1.531% of the value added by a business. The finance bill proposes to maintain this cap at 1.531% until 2027, after which it will be reduced to 1.438% in 2028, 1.344% in 2029, and ultimately to 1.25% starting in 2030.

Extension of CVAE phase-out and CET cap adjustments

The 2024 finance law originally planned for the gradual elimination of the added value contribution (CVAE), a French tax based on company-generated value, to be completed by 2027. However, the 2025 finance bill proposes to extend this timeline by three additional years, pushing the abolition to 2030.

The CVAE is currently levied at a flat rate of 0.28%, but a decreasing allowance based on turnover affects the effective tax rates (ETRs). The new bill outlines a gradual reduction in ETRs for 2028 and 2029, with maximum rates of 0.19% and 0.09%, respectively. Adjustments to deferred tax may arise from this extended phase-out.

Personal income tax

New temporary exceptional contribution on high incomes

The finance bill introduces a temporary exceptional contribution for households earning over EUR 250,000 for individuals and EUR 500,000 for couples. This contribution will be levied if the household’s average tax rate falls below 20% of their taxable income, effectively raising it to meet this threshold. It will be applicable to income taxation for the years 2024, 2025, and 2026.

Measure for non-professional furnished rentals

The bill mandates that any depreciation claimed during the rental period will be considered when calculating capital gains upon the property’s sale, effective for sales occurring from 1 January 2025.