Rich businessmen pulling out of France as tax-hit looms
A demonstrator holds a placard which reads,”Europe in social and democratic deficit”during a rally with banners and flags to protest against the austerity measures announced by the French government, in Paris, on Sept 30, 2012. A flood of top-end properties are hitting the market as businessmen seek to leave France before stiff tax hikes hit, real estate agents and financial advisors say. AP PHOTO/MICHEL EULER
PARIS—A flood of top-end properties are hitting the market as businessmen seek to leave France before stiff tax hikes hit, real estate agents and financial advisors say.
“It’s nearly a general panic. Some 400 to 500 residences worth more than one million euros ($1.3 million) have come onto the Paris market,” said managers at Daniel Feau, a real-estate broker that specializes in high-end property.
While it is not yet on the scale of the exodus of rich French after the election of Socialist president Francois Mitterrand in 1981, real estate agents said, the tax plans of France’s new Socialist President Francois Hollande are having a noticeable effect.
While the Socialists’ plan to raise the tax rate to 75 percent on income above 1.0 million euros per year has generated the most headlines, a sharp increase in taxes on capital gains from the sales of stock and company stakes is pushing most people to leave, according Didier Bugeon, head of the wealth manager Equance.
French entrepreneurs have complained vociferously against a proposal in the Socialist’s 2013 budget to increase the capital gains tax on sales of company stakes, which they argue will kill the market for innovative start-up companies in France.
Entrepreneurs in the high-tech sector in particular often invest their own money and take low salaries in the hope they can later sell the company for a large sum.
They say a stiff increase in capital gains tax would remove incentives to do this in France. They also argue that capital has already been taxed several times in the making.
The government has since backtracked, and Budget Minister Jerome Cahuzac pledged Friday to return to the status quo when someone who has created a company seeks to sell it later.
French officials are looking for ways to reduce the country’s excessive public deficit and debt, and Hollande won election on a platform of making the wealthy carry more of the load.
Bugeon said he was seeing start-up entrepreneurs looking to move their headquarters out of France and taking their families with them.
With the Internet “it is now possible to work in any corner of the world and come and spend one week a month in France,” said Thibault de Saint Vincent, president of Barnes France, the principal competitor to Daniel Feau.
“Those who are going abroad fear a future tax on capital movements,” he added.
Daniel Feau agreed that the profile of those who are leaving has changed, from the idle rich to “managers of major international corporations, entrepreneurs and investors much younger than previously who are scared of the marginal tax rate of 62.21 percent on sales of stock.”
The head of the French employers federation Medef, Laurence Parisot, has complained recently of emerging “anti-enterprise racism” in France.
No one is certain if the rush to the exit will continue, but Daniel Feau noted: “Nobody until now believed that the capital gains on shares would be taxed so high.”
And it is not only the Paris region, more offers are coming onto the market in other areas of the country as well, the realtors added.
The preferred destinations of those leaving are London, New York and Geneva, as well as Canada, Israel and Singapore, said Laurent Demeure, head of Coldwell Banker France.
He also noted that Brussels remains a favorite of those older, who have already sold their business interests, and are looking to benefit from Belgium’s lighter taxation of trusts to pass on inheritances to their children.
“Next year to have dinner with friends, instead of a taxi I’ll more likely need to take the Thalys for Brussels or the Eurostar to London,” joked Demeure, referring to high-speed trains that link the three capitals.
He said he is currently receiving on average one request per day to appraise a luxury apartment or home.
As a result, in the previous two to three months the price of large Paris apartments had slid by five percent.
The real estate agents don’t expect a collapse, however, as the offers to sell still remain low and interest by foreign buyers firm.
Finance Minister Pierre Moscovici said he has seen “no indication of a massive fiscal exodus.”
He told the daily Le Parisien that debate on the 75-percent income tax bracket was “closed” but noted that it was only a temporary tax for two years.
