French Local Taxation

French Local Taxation

French local taxation comprises a system of taxes and levies imposed by collectivités territoriales (local authorities) — principally communes, departments, and regions — to finance their expenditure. The system has undergone profound reform since 2010, including the progressive elimination of the taxe d’habitation and the reallocation of tax revenues between tiers of local government. Local taxes in France are characterised by their diversity, the involvement of central government in setting rates and collecting revenues, and the complexity of their interaction with State transfers.

Taxe Foncière: Property Tax

The taxe foncière (property tax) is levied on built and unbuilt property. The taxe foncière sur les propriétés bâties (TFPB) applies to buildings and structures, including residential, commercial, and industrial property. The taxe foncière sur les propriétés non bâties (TFPNB) applies to land not built upon, including agricultural land, forests, and undeveloped plots.

The taxe foncière is based on the valeur locative cadastrale (cadastral rental value) of the property — an estimate of the annual rent the property would command on the open market. The cadastral values, established in 1970 (for built properties) and 1961 (for unbuilt properties), have been periodically revalued but remain significantly out of step with market values. The tax rate is determined by the commune, department, and region (or by inter-communal structures). The taxe foncière is payable by the owner of the property as of 1 January of the tax year.

Exemptions apply to certain categories of property: new buildings may benefit from a temporary two-year exemption; public property used for public services; and low-income housing meeting specific criteria. Owners of agricultural land may claim exemption for certain categories of unbuilt land.

Taxe d’Habitation: Phased Out by 2023

The taxe d’habitation (residence tax) was historically the principal local tax on occupiers of residential property. It was levied on the occupier (owner or tenant) based on the valeur locative cadastrale of the dwelling. The loi de finances pour 2018 initiated a phased elimination of the taxe d’habitation for principal residences, reducing the tax by 30% in 2018, 65% in 2019, and abolishing it entirely for 80% of households by 2020. The suppression was extended to all households by 2023, with remaining taxpayers exempted.

The taxe d’habitation continues to apply to secondary residences and to vacant dwellings, at rates increased in certain high-demand areas (zones tendues). The loss of revenue for communes was initially compensated by the transfer of the departmental share of the taxe foncière and by the allocation of a portion of the VAT (taxe sur la valeur ajoutée). The complex compensation mechanism has been criticised for reducing local fiscal autonomy.

CFE: Cotisation Foncière des Entreprises

The cotisation foncière des entreprises (CFE) is a local business property tax, forming one component of the contribution économique territoriale (CET), which replaced the former taxe professionnelle in 2010. The CFE is based on the cadastral rental value of the business premises and equipment. It is payable by any person or entity that habitually exercises a non-salaried professional activity in France, including companies, sole proprietors, and liberal professions.

The CFE rate is set by the commune or inter-communal structure. Exemptions are available for new businesses (temporary exemption), low-turnover businesses, artisans, and certain agricultural activities. The CFE constitutes a significant portion of local tax revenue for communes, particularly in areas with a strong commercial and industrial base.

CVAE: Cotisation sur la Valeur Ajoutée des Entreprises

The cotisation sur la valeur ajoutée des entreprises (CVAE) is the second component of the CET, complementing the CFE. The CVAE is calculated on the value added produced by the business, determined by the difference between the turnover and certain deductible expenses. The rate is progressive, ranging from 0% for businesses with turnover below a threshold to 1.375% for businesses with turnover above a specified level.

The CVAE represents a significant reform of local business taxation, designed to link the local tax contribution to the economic activity of the business rather than merely its fixed assets. The CVAE is allocated between communes, departments, and regions according to a statutory formula. The loi de finances pour 2021 initiated a progressive reduction of the CVAE rate, aimed at improving the competitiveness of French businesses.

IFER: Imposition Forfaitaire sur les Entreprises de Réseaux

The imposition forfaitaire sur les entreprises de réseaux (IFER) is a lump-sum tax on network industries, including energy production, transport and distribution, telecommunications, and railway infrastructure. The IFER applies to electricity production plants (nuclear, thermal, hydroelectric, and renewable), electricity and gas distribution networks, fixed and mobile telecommunications infrastructure, and railway rolling stock. The rates are fixed by statute and allocated between communes, departments, and regions according to defined shares.

The IFER was introduced to compensate local authorities for the presence of network infrastructure that generates limited CFE or CVAE but imposes costs on the local community. The IFER on wind turbines and photovoltaic installations has been a significant source of revenue for rural communes hosting renewable energy projects.

Local Tax Autonomy

The fiscal autonomy of collectivités territoriales is guaranteed by Article 72 of the Constitution and implemented through the principle of libre administration. Local authorities may determine the rates of the taxes within their competence, subject to statutory limits. However, the progressive reduction of local taxes (particularly the taxe d’habitation and the CVAE) has reduced the share of locally-determined tax revenue in total local authority resources, increasing dependence on State transfers and shared taxes (fiscalité partagée). The Conseil constitutionnel has held that the principle of libre administration does not require a specific level of local fiscal autonomy, provided that local authorities retain the power to determine their own resources.