France's constitutional council has overturned a top income tax rate of 75% introduced by Socialist President Francois Hollande.
Raising taxes for those earning more than 1m euros (£817,400) has been a flagship policy for Mr Hollande, who was elected in May.
The policy angered France's business community and prompted some wealthy citizens to say they would emigrate.
The new tax rate was due to take effect in the new year.
In its ruling on Saturday, the Constitutional Council said the new tax rate was excessive and rejected new methods for calculating the tax.
The government's tax policy has been the subject of fierce debate in France.
French actor Gerard Depardieu recently announced he was moving to Belgium to avoid taxes, sparking a furious reaction from some on the left.
There was also speculation that people employed in high-income jobs like banking and finance would move elsewhere, including to London.
Mr Hollande campaigned against the austerity policies used in many European countries affected by economic crisis, favouring higher taxes rather than spending cuts to bring down the deficit.
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