In France and around the world, there are many taxes and contributions such as income and corporate tax, housing tax, property tax, CFE for businesses, tax on wages, etc.
Everyone has already legitimately asked themselves one day the question of how to pay less taxes. Tax optimization reduces the tax burden on a natural person (individuals) or a legal person (companies).
It should be borne in mind that tax optimization strongly depends on the situation of each natural or legal person.
Now let’s find out in detail that tax optimization is the different way to reduce your tax burden.
Tax optimization means all means aimed at avoiding or reducing the amount of tax in compliance with the legal provisions in force in a given country, both for individuals and for professionals.
In most cases, optimization consists in making use of the incentive tax systems established by the State. This is the case for the following devices:
- For real estate: tax reductions through, for example, the Pinel law, Malraux law, etc.
- Manage accounting;
- Move your income to another jurisdiction, etc.
Another expensive but secure tax optimization solution is to call on professionals, specialized law firms or a tax specialist who analyzes the tax situation of the person or company in order to determine whether there are any exemptions, derogatory regimes, etc. can be applied depending on your situation.
It should be noted that a company can carry out tax optimization at the national level but also on the international scene, if it owns establishments / companies in other countries.
Differences with other mechanisms
Thus, it is a question of minimizing its tax exposure within the framework of a transaction for example, and this use does not constitute tax evasion or tax evasion, likely to engage the responsibility of the person who practices it.
Unlike tax optimization, tax fraud is a criminal and tax offense, which consists in illegally and deliberately evading or attempting to evade payment of the tax.
Ex: voluntary concealment of sums to be subject to tax, or insolvency organization, etc.
Tax evasion is punishable by imprisonment, a fine, and additional penalties depending on the circumstances.
Tax evasion is the act of subtracting one’s income or wealth from the taxation of one country and attributing it to another country in which taxation is more advantageous. It therefore relates to both fraud and tax optimization in an international context.
Ex: create a company in a tax haven on a black list and repatriate the income obtained in France in this company, change your nationality to escape the tax in a country, etc.
For information, it is therefore necessary to be vigilant as to the list of tax havens which is modified each year, and the list of non-cooperative states and territories. Setting up in these countries can be very expensive in the event of a tax audit.
Be careful to respect the legislation in force
The tax administration uses the rule of abuse of law to sanction all devices which are mainly intended to escape tax. In fact, since 2020, the abuse of rights no longer targets operations whose sole purpose is to escape tax but which have the main and non-exclusive object of avoiding taxation.
If there are many ways to optimize your tax, it will be necessary to pay attention to the laws in force both in the country of residence and at the international level, in order to respect for example the OECD principles, ‘European Union, and various tax treaties concluded between countries.
The means of tax optimization
Certain tax systems allow individuals to reduce and optimize their taxes. For this, in most cases, it will be necessary to have various types of income and not just a monthly salary, such as income from movable property, real estate, etc.
As for companies, the possibilities for optimization are diverse and depend on the size of the company, its international expansion, and the nature of the income received (financial, intangible, etc.).
Thus, a small medium-sized enterprise which markets products on French territory only will have few levers to optimize its taxes.
This part will describe the different ways to reduce its tax burden but it should be noted that the optimization schemes depend on each situation.
Nationality is a way to reduce your tax bill. Note that in most countries of the world, a person (individual) is taxable in this country if he spends more than 183 days, or 6 months. However, this system does not work for the United States where all American citizens are taxable regardless of their place of residence.
Also, it seems wise to spend less than 6 months in France, for example to avoid having to pay tax there, and to spend more time in a country where the taxation would be lower.
Warning ! There are many exceptions to this rule. For example, you will still be liable for tax in France if you own property there, even if you live in Australia.
For individuals, one of the optimization solutions is to invest in real estate while taking advantage of the measures put in place by the State to reduce taxes. For 2020, these include the following laws:
- The PINEL law: any person who invests in new real estate and who undertakes to rent his property for a certain period, can obtain a tax reduction of up to 21% of the amount of the acquisition within the limit with a ceiling of € 63,000.
- The Censi Bouvard law: anyone who makes a furnished rental investment to obtain a tax reduction of up to 11% of the amount of the investment for 9 years.
- Denormandie law: any person who invests a housing to be renovated, in an old degraded district, to put it in hiring can profit from a tax reduction from 12 to 21% of the price of the good for a duration of hiring of 6 at the age of 12.
- The Malraux law: any person who makes a rental investment in built buildings located in a remarkable heritage site or in certain degraded old districts can benefit from a tax reduction of 22 to 30% under conditions.
- The status of non-professional furnished rental company (LMNP): this micro scheme allows you to be taxed on 50% or 71% of your rental income, provided that this income is less than 23,000 euros per year or does not exceed not 50% of your overall income.
Accounting is one of the ways to optimize its tax burden for businesses. Indeed, the manager can control the way in which he will carry out his accounting. For example :
- He will be able to find the deductible expenses according to the law in force, then make these purchases in order to be able to deduct them from the accounts. It should be noted that the deductibility of expenses is limited in certain cases;
- He may also, depending on his needs, and as part of a loan whose interest will be deductible within a certain limit;
- Know how to manage the different deficits: the deficits of a company can be carried forward and backward, under certain limits and conditions;
The law has introduced numerous tax credits for businesses:
- Research tax credit (CIR): Do research & development according to the sector of activity concerned and under certain conditions;
- The tax credit for competitiveness and employment:
- Tax credit for manager training, etc.
Income to be collected
There are several types of income likely to be received by a person: wages, dividends, interest, royalties, property income, etc. Obviously, you will need to be accompanied to validate each operation upstream if you wish.
For dividends, interest, royalties, ..
This means of optimizing your tax requires certain special features. For example, having a presence in different countries through subsidiaries, branches, or establishments for a company.
With the help of various levers, this offshore establishment makes it possible to reduce the amount of this tax. These levers can be, for example, to choose to set up in a territory which has concluded an advantageous tax treaty with the country of the headquarters of the company (with an article providing for a low rate in case of collection of dividends or royalties paid to the company located in France, etc.).
For property income
Two options are available to you for this type of income:
- Direct ownership: you can choose to directly hold your income;
- Indirect ownership: you can also choose to manage your assets through an SCI. In this case, you can easily sell the shares if you wish to transfer your assets.
The idea here is to locate your shares in a holding company in another country where the tax system is advantageous, which will hold the shares of all the other companies, in the case of profits spread around the world.
Ex: establishment of a holding company in Mauritius. Thanks to various levers allowing the income to be raised to the holding company, the profits will be located in Mauritius, and the corporate tax at the rate of 15% Mauritian will apply (compared to 28% currently in France).
The goal is to minimize the tax exposure, i.e. the taxation of dividends and any capital gains.
This optimization scheme is not reserved for large groups but for all companies that carry out international activities.
There are still many other levers for optimizing your tax, subject to fulfilling certain conditions. But without being exhaustive, these are the following devices:
- Donations to associations;
- Subscription to the capital of PME;
- retirement savings;
- The exemption from social charges;
- The deduction of charges;
- The reduction in professional capital gains, etc.
Some practical advice
Set your goals
You need to set your priorities and goals to know exactly how the operation will be carried out. You must document yourself on the subject and call a professional to bring you support.
Be careful not to cross the limit
When developing your tax optimization plan, you should keep in mind the concept of abuse of rights. Indeed, your scheme must not have a primarily fiscal purpose of escaping the tax.
FREQUENTLY ASKED QUESTIONS
Is it really legal to optimize your taxes?
Yes, anyone can decide to reduce their tax burden thanks to the legal systems put in place by the state. Tax optimization is therefore legal since it is provided for by the laws in force. These devices or their ceilings are subject to change every year.
Are there limits that should not be crossed?
Yes, the limit not to be crossed is abuse of rights, tax evasion and tax fraud. You must therefore comply with them to avoid any tax adjustment or criminal sanctions.