French President Unveils Stimulus Plan

by Ulrika Lomas, Tax-News.com, Brussels

09 December 2008

Endeavouring to tackle the global economic crisis head-on, and to protect vulnerable French businesses, President Nicolas Sarkozy has unveiled a bold stimulus plan, centring around new tax initiatives, and amounting to around EUR26bn, or approximately 1.3% of Gross Domestic Product.

Announcing the plan, the President revealed that, at the heart of France’s response to the ongoing economic downturn lay investment, vital to modernising businesses, improving competitiveness, and encouraging innovation, and, ultimately, to assuring the country’s future.

Underpinning the stimulus plan are the following key fiscal measures, pivotal to improving cash-flow, and to kick-starting investment:

Accelerated payment of tax credits to businesses

According to Sarkozy, French companies will benefit from approximately EUR11.5bn in accelerated tax credit payments over the course of the coming year.

Traditionally reimbursed over a three-year period, tax credits obtained for research will now be repaid at the beginning of 2009 in one lump sum, a measure estimated at roughly EUR3.8bn. Value-added tax credits will also be reimbursed immediately, amounting to a further EUR3bn. Registered losses, incurred by businesses in 2008, will be compensated, with EUR2bn available from next year.

Regarding corporate tax, companies paying a tax deposit this month, based on projected profits, will see their excess payments swiftly returned in January, 2009. Previously, this overpayment has been delayed until April.

Other measures, designed to alleviate the burden on businesses, include accelerating depreciation on new investments in 2009, thereby reducing corporate tax, and an initiative whereby the government pledges to increase its deposit payments from 5% to 20%, following the signing of a public contract.

Measures to assist small businesses

Small businesses, with fewer than ten employees, will be exonerated from payment of social contributions at minimum wage level (14% of social security contributions), when they recruit new staff, amounting to an effective tax relief of EUR180 per month. However, a sliding scale will apply, until 1.6 times the minimum wage.

Further measures outlined in the plan, designed to prevent unemployment by rewarding businesses able to retain staff, either full or part-time, amount to EUR500m.

Incentives to boost the car industry

From December 4, 2008 until December 31, 2009, individuals trading in a car more than ten years old will be entitled to receive a bonus payment of EUR1,000 in order to buy a new, environmentally-friendly vehicle, emitting less than 250 grams of carbon dioxide per km. This fresh measure replaces the existing system of awarding EUR300 for trading-in vehicles older than 15 years.

Car firms Renault and PSA, specialists in providing credit for car purchases, will each receive additional funds of EUR1bn, to ensure continued activity.

In a bid to encourage the research and development of hybrid and electric vehicles, national car manufacturers will receive loan guarantees from the government, although restrictions apply. In addition, an investment fund of EUR300m will be created to facilitate restructuring within the car industry.

Tax measures to support the housing sector

President Sarkozy has detailed an incentive designed to stimulate the housing sector, notably the measure to double zero-rate loans in 2009, applying to the purchase of new builds.

The French President’s latest stimulus plan follows his announcement at the end of October of another rescue package, designed to shelter small businesses from the effects of the economic storm, prevent the threat of a takeover by multinationals and also to kick-start investment. These measures included exonerating firms from local business tax on fresh investments temporarily, and creating a strategic investment fund.

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