ADOPTION OF THE 2026 BUDGET ACT

Now that the Finance Bill has just been passed by the National Assembly, you will find below a summary of the key measures included in the final version of the bill, following numerous amendments.

 

INDIVIDUALS:

1. Differential Tax on High Incomes (CDHR)

The tax introduced by the 2025 Finance Act is extended and will remain in effect until the year in which the general budget deficit falls below 3 percent of gross domestic product.

 

2. The income tax brackets have been adjusted upward by 0.9 percent.

 

3. Increase in Social Security Contributions on Investment Income (Social Security Financing Act)

Social security contributions have been increased by 1.40%. As a result, the PFU (flat tax), which applies to dividends, interest, and capital gains on securities, will rise from 30% to 31.40% effective January¹, 2026.

 

4. Tax on asset-holding holding companies (“cash box”):

For fiscal years ending after December 31, 2026, a new tax at a rate of 20% is being introduced on assets not used in operational activities.

Who?

This tax applies to family holding companies that meet all of the following criteria:

• The market value of all the assets they hold is equal to or greater than 5 million euros;
• At least one individual and his or her immediate family (spouse, descendants, ascendants, and siblings) hold more than 50 percent of the voting rights or financial rights, or one individual effectively exercises decision-making authority there;
• They generate passive income representing more than 50 percent of the combined total of operating revenue and financial income for the entire fiscal year, excluding reversals of provisions and depreciation. The aforementioned passive income consists of:
  • Dividends;
  • Interest, bond proceeds, receivables, deposits, and surety bonds;
  • Royalties from the transfer or licensing of operating licenses, patents, trademarks, manufacturing processes or formulas, and other similar rights;
  • Copyright-related products;
  • Rent;
  • Proceeds from the sale of property that generates income falling under a category listed herein, when such proceeds constitute operating income or financial income.

About what?

The tax is based on the market value of the following assets held by the company as of the end of the fiscal year for which the tax is due:

• Property used for hunting and fishing;
• Passenger vehicles, yachts, sailboats, motorboats, and aircraft;
• Jewelry and precious metals;
• Racehorses or show horses;
• Wines and spirits;
• Housing units that an individual reserves for his or her own use: housing units occupied, either free of charge or for rent below market rate, whether or not they serve as the primary residence, as well as housing units rented on a nominal basis.

Who pays?

The parties liable for this tax are:

• A company, provided that it is subject to corporate income tax and has its principal place of business in France.
• A partner who is an individual and whose tax residence is in France, in proportion to his or her ownership interest in a foreign company.

The condition regarding the ownership threshold will be deemed to be met when the rights are held through a trust.

This tax will not be deductible from the corporate income tax base.

It is specified that the assets subject to this tax will not be subject to the wealth tax.

 

5. The Status of a Private Landlord

A flat-rate depreciation of 3.5% (calculated on 80% of the property’s purchase price) is applied when a property is purchased for the purpose of renting it out as a primary residence.

This deduction is granted subject to compliance with the following conditions:

• The property is purchased new or as a pre-construction sale;
• The owner agrees to rent the property for a minimum term of 9 years;
• The lease must be entered into within 12 months of the property’s acquisition or completion.

This provision applies to residential properties purchased between the day after the date of publication of the 2026 Finance Act and December 31, 2028.

 

6. Management packages:

Clarifications have been made to the rules governing management packages, including:

• Applicable social security system: extension of the existing social security system, which was originally scheduled to end in 2027.
• Limiting the exemption from the CSG and social security contributions to only those gains that carry a risk of capital loss and have been held for more than 2 years.
• The 10% special tax now applies only to the portion of the net gain that exceeds the capital gains tax threshold defined in Article 163 bis H of the General Tax Code (and no longer to the entire portion of the net gain taxed as wages and salaries).
• Terms and conditions for withdrawing management packages held in a PEA: Tax-neutral withdrawal of a management package from a PEA when such withdrawal occurs before any triggering event that would result in taxation of the gain.
• Rules governing gifts: The net gain is determined and taxed directly in the donor’s name for the year of the gift or manual donation.
• Tax deferral may be available for salary-like earnings taxed at the progressive tax rate and reinvested in the company.

 

7. Entrepreneurial Share Subscription Warrants (BSPCE)

The provision is extended to subsidiaries when the company issuing the warrants holds at least 75% of their share capital (compared with 85% previously).

To qualify, at least 15% of the issuing company’s capital must be held directly by individuals (compared with the current 25%) or by legal entities that are at least 75% owned by individuals.

 

 

HERITAGE:

 

1. Dutreil Pact

The 2026 Finance Act extends the duration of the individual commitment to hold securities subject to the Dutreil Pact, increasing it from 4 to 6 years.

Furthermore, certain assets will be expressly excluded from the exemption scheme if they have not been used exclusively for the company’s business activities for at least three years prior to the transfer or since their acquisition, and until the end of the individual retention commitment. This applies to:

• Items related to hunting and fishing;
• Racehorses and show horses;
• Passenger vehicles;
• Jewelry and precious metals;
• Works of art;
• Wines and spirits;
• As well as housing and residential buildings.

This exclusion also applies to the portion of the market value of the shares representing the same assets when they are held by a company controlled by the company that is the subject of the transfer.

 

 

COMPANIES:

 

1. Contribution-cession

The reinvestment period has been extended from 2 to 3 years.

If the securities are sold within three years of the contribution, the recipient company will now be required to reinvest 70% of the proceeds from the sale—up from 60% previously—in order to retain the benefit of the tax deferral.

 

2. Special surtax on the profits of large corporations

This provision is extended to the first two fiscal years ending on or after December 31, 2025.

Companies subject to corporate income tax will be subject to this tax if their revenue exceeds 1.5 billion euros for the second fiscal year in which the tax is due and 1 billion euros for the first.

 

3. Deductibility of Amortization of Goodwill

Extension of the option to deduct depreciation for business goodwill acquired through December 31, 2029.

 

4. Pillar 2

Amendments to certain rules to reflect the OECD’s June 2024 administrative guidelines and DAC 9.

5. Business Property Tax (CFE)

Clarifications have been provided regarding the entities subject to this tax: in order to include entities without legal personality in the CFE, the term “company” has been replaced with “entity.”

 

6. Innovative High-Impact Startup (Impact-Driven Startup)

A category for innovative startups has been created. To qualify for this designation, companies must meet all of the following criteria:

• Be an SME established less than 8 years ago;
• Be majority-owned by individuals;
• Of which research expenses account for between 5% and 20% of total expenses;
• Meet the criteria for social-purpose startups.

Once all of these criteria are met, payments made in connection with the subscription to the company’s capital will qualify for a 40% tax reduction.

It should be noted that this program will end on December 31, 2028.

 

 

Other measures:

• Changes to the requirements for electronic VAT invoicing,
• Three-year extension of the tax credit for investments in green industry,
• Implementation of a tax on small packages from third countries (€2 per item).

 

 

Some measures that were not adopted (in this law):

 

1. Income Tax for Retirees

The measure to introduce a tax deduction capped at 3,000 euros has been abandoned. Consequently, the flat-rate deduction of 10 percent of income from pensions and retirement benefits remains in effect.

 

2. Wealth Tax (IFI)

The plan to replace the IFI with a tax on high net worth individuals has been abandoned.

 

3. VAT Exemption Threshold

The article regarding the new thresholds that were to modify eligibility for the VAT exemption scheme has been deleted.

 

4. Preparing for the Elimination of the CVAE

The provision regarding the early elimination of the CVAE in 2028 has been removed. This tax will therefore remain in effect until 2030.

 

 

Would you like more information about how these measures will affect your situation? Please feel free to contact us through the “Contact” section of our website.