Sharia-compliant financing : recent tax developments of Islamic finance in France
The French Ministry of Economy and Finance released on August 24th, 2010 four important guidelines dealing with the tax treatment of the following structures: Murabaha and Tawarruk (transaction in which the financing company acquires an asset and sells it later to the investor for a higher price), Sukuk (hybrid financing, whereby the remuneration and the capital depend on the return of an underlying asset owned by the issuer), Istina (financing of real estate construction) and Ijara (Lease purchase).
As of now, France is equipped with a tax neutrality regime aiming at facilitating the originating and trading of Islamic financial products such as Islamic bonds and certificates; cost-plus- financing; leasing and construction industry forward financing.
The four guidelines analyze the tax consequences of Sharia-compliant transactions at the level of the financing company as well as at the level of the investor. This constitutes a positive evolution, as the clear stated intent of the French authorities is to make France a European hub for Islamic finance and to facilitate the introduction of Islamic finance products into France.
