Lower Employer Social Charges Rates Replace CICE
A Quick Review of CICE
The Competitive & Employment Tax Credit (CICE) was introduced in 2013 and was intended to help companies improve their competitiveness. It’s was a specific credit for employees whose yearly earnings fall below thresholds determined annually by the government. Every company, whatever their legal status, employing salaried personal and subject to corporate tax could benefit from this tax credit.
This credit tax has been strongly criticized over the years, for having cost an estimated to 20 billion euros per year for minimal results in term of new employment and investments. Its transformation was a promise made by Emmanuel Macron during the presidential campaign to make a clearer and more sustainable system.
On September 24 of this year, Macron made good on his promise. The Government announced, in its draft Finance Law for 2019, that the CICE will be scrapped and in its place will be lowered employer social charges rates.
Proposed Changes in 2019
The companies will benefit by a decrease of 6 percentage points in January 2019 for gross remuneration which doesn’t exceed 2.5 x the SMIC (French minimal salary, i.e. 44 950€ per year with 2018 rate).
Then, this will be followed up by a complementary decrease of 4 percentage points applied degressively to the gross remuneration not overcoming 1.6 x the SMIC (i.e. 28 770€ per year with 2018 rate) starting beginning of October 2019.
The impact is hard to describe yet, but the government forecasts an outcome of 100 000 new jobs created before end of 2021 along with a growth of 0.2 point of the GDP, figures which have already been contested by some economists.
What about years prior to 2019 ?
As a reminder, the amount of CICE tax credit was, as the case may be, a decrease in the amount of corporate tax due for the closing exercise. In case of surplus, the non-imputed amount was reportable for the three following years.
In the case where, at the end of the term of these three years, the surplus was still not imputed on a corporate tax, the company was allowed to ask for a refund. The dropping of the CICE in 2019, and in lowering employer social costs will have no effect on the tax credit for previous years. These companies will still be allowed to ask for refund/input on corporate tax due within 3 years, including the 2018 credit tax.
What will be the impact of this change ?
This measure will have a double impact on companies’ treasury for 2019: they will still benefit from the decrease of corporate income tax from 2018 tax credit, they will also have less social charges to pay during the year.
However, the reduction of the employer’s social charges will increase the profit before taxes, as the costs of employment on their financial accounts will drop. The good news is that, along with the reduction of corporate tax rate announced last year, the companies should not see too much of a difference.
We at Primexis will be following this and other issues affecting our clients in France.
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