France - Income Tax

France - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

By law, the due date is 1 March but in recent years the tax administration has extended the date to mid-May (May 18 for the declaration of the 2015 income) Extended deadlines exist for internet filing.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in France?

In France the income tax return is generally a family return with spouses and dependent children reporting their income jointly. Married couples are required to file jointly - exceptions are allowed only under very limited circumstances. Single, divorced, and widowed taxpayers are also required to file a family return including their dependents. In certain cases, major children can be claimed as dependents: if they are under 21 years of age, or are less than 25 years of age and are students.

France uses an income-splitting system to determine the applicable tax rate – therefore, the larger the family size, the lower the income tax.

Income taxes for residents are payable in the year after the income is earned. The tax liability is payable in either three installments or 12 monthly payments, at the taxpayer’s option. Unless the taxpayer opts for monthly payments, he/she must make payments on 15 February and 15 May, each equaling one-third of the amount of the previous year’s total income tax. The final payment is due on 15 September after the actual assessment is received. The taxpayer may opt before October to make 10 equal monthly payments by bank transfer, beginning in January of the following year, totaling the full amount of the previous year’s income tax liability, and any additional tax due is payable when assessed ( so the two last installments are paid taking into consideration the 10 monthly installments already paid).

The French tax authorities will automatically refund (without action required from tax payer) any excess payment if the 2 or 10 installments are higher than the final income tax assessed.

Income tax for the initial year of residence in France is usually not due until the 15 September of the year following arrival, since no February or May estimated payments are required.

Residents

The taxpayer and spouse, if applicable, are required to file a joint French tax declaration reporting total taxable income received by the family unit (spouses plus dependent children) in the previous calendar year with their local tax office by the deadline in the year following the tax year. No payment of tax is due with the declaration.

Non-residents

Non-residents are subject to income tax in France on their French-source income only.

Employer income tax withholding is required when a non-resident receives compensation that is taxable in France, and a monthly withholding tax return must be filed by the employer. This income is subject to progressive income tax withholding rates of 0 percent, 12 percent, and 20 percent depending on the amount of total taxable compensation. When compensation reaches the 20 percent bracket, an annual individual non-resident income tax return is also required even though tax has been withheld at source. Similarly, if a non-resident receives taxable French-source income other than compensation, then an annual non-resident return must be filed.

The taxpayer and spouse, if applicable, are required to file a joint French non-resident tax declaration by May 18 for 2015 income and if the taxpayer filed his return via paper (In fact even if the official deadline is March 1st, extension is usually granted by French tax administration until mid-May). Extension of the deadline is possible when filing online.

Tax Rates

What are the current income tax rates for residents and non-residents in France?

In France, rates are voted at the end of the year for the year gone by.

In France, income taxes are calculated using a progressive rate scale. The finance law for 2016 confirmed the below rates and brackets applicable to 2015 income.

 

Residents

Income tax table for 2015 income

Taxable income bracket

Tax rate on income in bracket
From EUR To EUR Percent
0  9,700
0
 9,700
 26,791
14
26,791 
 71,826
30
71,826 
 152,108
41
 152,108
No limit 45

Please note that an exceptional contribution of 3 % or 4% on high income earners (i.e., where the income of reference exceeds € 250,000 for a single taxpayer and €500,000 for a married taxpayer) have been set up and is applicable as of 2011 income. The contribution will be repealed as soon as the deficit target of 3 percent is reached.

Non-residents

For 2015 compensation, the income tax withholding rates for non-residents are 0, 12 and 20 percent, depending on the amount of net compensation, as outlined below. The tax may, in some cases, be final. When compensation reaches the 20 percent bracket, an annual individual non-resident income tax return is also required even though tax has been withheld at the source. When an annual non-resident return is required for either French-source compensation income or other French-source income, this income is subject to the same progressive tax rates outlined above or a flat rate of 20 percent, whichever of the two is higher.

Non-resident withholding rates for 2016 income

Monthly taxable income bracket

Tax rate on income in bracket
From EUR To EUR Percent
0  14,446
0
 14,446
 41,909
12
 41,909
no limit 20

The maximum marginal tax rate on the graduated rate scale applicable to 2015 income is 45 percent, reached at EUR EUR 152,108  of taxable income for a single taxpayer; this amount is doubled for married taxpayers and increases according to family size.

The computation of income tax is quite complex. The total net income of the taxpayer must be determined and divided by a coefficient corresponding to the marital status and number of dependents in order to arrive at the net taxable income per part. The income tax table is then applied to the result and the income tax thus computed is subsequently multiplied by the same coefficient to arrive at the gross tax burden.

If however the net taxable income exceeds a certain ceiling, the benefit from additional dependents is gradually reduced so that a high earning taxpayer does not receive the full benefit of the coefficient system.

The coefficient system takes into account the taxpayer's marital status and the number of dependent children.

Table of coefficients

Status Coefficient
Single, divorced, or widowed persons with no dependents 1.00
Single or divorced persons with joint custody of 1 child 1.25
Single, divorced, or widowed persons with 1 dependent (the coefficient is 2 if the taxpayer does not live as if married with another adult) 1.50
Married persons with no dependents 2.00
Married or widowed persons with 1 dependent; single or divorced persons with 2 dependents 2.50
Married or widowed persons with 2 dependents 3.00
Single or divorced persons with 3 dependents 3.00
Married or widowed persons with 3 dependents 4.00
Single or divorced persons with 4 dependents 4.00
Married or widowed persons with 4 dependents 5.00
Single or divorced persons with 5 dependents 5.00
Married or widowed persons with 5 dependents 6.00
(For each additional dependent, the coefficient is increased by 1)  

In addition to the progressive income tax rates, , supplemental direct taxes are applied to interest, dividends and rental income and capital gains taxes are as follows:

2015 tax rate schedule Interest and dividends ** (%) Rental (%) Capital gains (%)
CSG* 8.2 8.2 8.2
CRDS* 0.5 0.5 0.5
RSA surtax 1.4 1.4 1.4
Prélèvement social and CAPS* 5.4 5.4 5.4
Sub-total 15.5 15.5 15.5
Capital gains income tax rate on securities sales,
including surtaxes***
-- --  Capital gains are not taxed at the flat rate od 19% anymore.They are now subject to the progressive tax rate up to 45%
Top marginal rate on interest, dividends and rents
(including 45% income tax where applicable)
 64.5
 64.5
 64.5

* These are considered income taxes on investment income, but social charges when assessed on salaries

** Please note that taxpayers can elect for a withholding at source for their dividends – the tax rate applicable for 2015 income should be 21% - it 24% for interest.

*** Please note that taxation at progressive rate is balanced with a system of specific abatement depending on the period the securities are hold by taxpayer (50% between 2 and 8 years holding period and 65% beyond 8 years)

RESIDENCE RULES

For the purposes of taxation, how is an individual defined as a resident of France?

Domicile does not refer to the Anglo-Saxon term, but is a term used in French tax law. It is roughly equivalent to the term residence in most jurisdictions.

The criteria for determining domicile are very broad. An individual will be considered domiciled in France for tax purposes in any one of the following circumstances, subject to tax treaty provisions:

  • The individual has his/her permanent home in France. A home is defined as being where the individual and his/her family ordinarily reside. A taxpayer may still be considered to have his/her home in France, even if he/she is not physically present in France for all or most of the year.
  • The individual has his/her main place of abode in France. If the taxpayer spends more time in France than in another country, then he/she will be considered a resident of France, regardless of whether he/she resides in a permanent home, hotel, or other dwelling. When an individual spends more than 183 days in a year in France, residence is presumed.
  • The individual performs professional activities in France (whether salaried or not) unless his/her activity in France is of an auxiliary or secondary nature. The principal activity is that on which the individual spends most of his/her time or which generates the largest part of his/her income.
  • The individual has his/her center of economic interests in France. This occurs when most of his/her assets are situated in France, are effectively managed in France, or the majority of his/her investment income arises from France.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country before their assignment begins?

An individual will become a resident of France as of the moment he/she meets any of the resident criteria outlined above, subject to tax treaty provisions.

If an individual works in France prior to formally beginning his/her assignment, these workdays will generate income taxable in France, although this income may be exempted under a tax treaty.

TERMINATION OF RESIDENCE

Are there any tax compliance requirements when leaving France?

Upon termination of French residence, the taxpayer should inform both his/her tax center (Centre des Impôts) and tax collector (Trésorerie) that he/she has left the country, and that all mail should be forwarded to his/her new address. Furthermore, he/she should indicate the name and address of a fiscal representative in France. The final year tax declaration should be filed by the normal filing deadline in the subsequent calendar year, and it should include all income earned during the period of residence in France, as well as French-sourced income earned after departure from France during the same tax year. Income tax related to the final year should be paid within the same time frame as for a resident of France.

French tax residents who transfer their tax residences abroad after having been French tax residents for at least six years at the time of the transfer, will be subject to a new exit tax. The taxable basis will be the unrealized capital gain as valued on the day preceding the date of departure.

Individuals will be liable for the tax if they hold, alone or with family members, directly or indirectly, at least 1 percent of financial rights in a company subject to corporate tax or similar taxation (implying that the exit tax will be due even if the company is not French), or if the value of the shareholding exceeds €1.3 million at the date of the transfer.

What if the assignee comes back for a trip after residency has terminated?

If an individual works in France after ending his/her assignment, these workdays will generate income taxable in France, although this income may be exempted under the personal services clause of a tax treaty.

Communication between immigration and taxation authorities

Do the immigration authorities in France provide information to the local taxation authorities regarding when a person enters or leaves France?

Immigration officials do occasionally ask for information from the tax authorities, especially when renewing visas.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

The final year tax declaration should be filed by the normal filing deadline in the subsequent calendar year, and it should include all income earned during the period of residence in France, as well as French-sourced income earned after departure from France during the same tax year. Income tax related to the final year should be paid within the same time frame as for a resident of France.

ECONOMIC EMPLOYER APPROACH

Do the taxation authorities in France adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in France considering the adoption of this interpretation of economic employer in the future?

Historically, no, the position of the French tax administration has been to look at the legal employer. However, there is a trend towards taking the economic employer approach where there is a recharge of the remuneration costs to the French entity.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Not applicable.

TYPES OF TAXABLE COMPENSATION

What categories are subject to income tax in general situations? Residents of France are subject to tax on their worldwide income, for example:

  • Earned income including salary, wages, bonuses, allowances, etc.. Under certain conditions, assignment-related allowances may be exempt in France.
  • Fringe benefits are taxable as employment income, generally at their actual value. Taxable fringe benefits include such items as a car, meals, housing, and the payment of utilities bills by the employer. Special valuation methods exist for housing and private use of company cars.
  • Non-commercial activities (such as activities performed by individuals in the legal and medical profession).
  • Dividends, although at reduced amounts, interest are included on the tax returns and taxed according to the graduated rate scale or flat rate taxation at the option of the taxpayer. Net rental income is taxed at normal progressive rates. Rental losses up to EUR10,700 excluding mortgage interestexpenses may be deducted from other income...
  • Capital gains on securities are taxable irrespective of the amounts of gross proceeds. In addition, since 2013 income, gains are taxed at the marginal rate of the taxpayer for personal income tax plus (plus 15.5 percent surtaxes). If net losses result, they may be carried forward for 10 years for use against subsequent capital gains of a similar nature. Capital gains on real estate and personal property are taxed differently. A rebate is also applicable after two years of detention of the shares.

TAX-EXEMPT INCOME

Are there any areas of income that are exempt from taxation in France? If so, please provide a general definition of these areas.

The following categories of income are exempt from income tax:

  • termination or severance payments within certain limits
  • damages for breach of employment contract, under certain conditions
  • sick pay resulting from professional injury or sickness under certain circumstances
  • the employer's social security, unemployment, and retirement contributions
  • expatriate allowances: Most moving and temporary living expense reimbursements are generally not taxable and lump sum relocation allowances for unsubstantiated expenses may be tax free if it can be demonstrated that the amount was actually spent in connection with items that would normally be reimbursed free of tax
  • income from certain bank accounts: Livret A, Livret pour le Développement Durable
  • expatriate allowances when the conditions for exemption are met under the special impatriate regime (see below).

Double taxation treaties may provide exemption from French tax on certain items taxable elsewhere; for example, compensation for services rendered and paid in a treaty country, or rental income on property situated in a treaty country.

EXPATRIATE CONCESSIONS

Are there any concessions made for expatriates in France?

Are there any concessions made for expatriates in France?

The economic modernization law contained noticeable changes to the specific tax regime applicable to inbound assignees (impatriates), which was initially introduced in 2004 with the stated aim of making France more attractive to foreign talents.

The impatriate regime covers employees sent to France by a non-French employer to perform professional duties for a limited period of time, provided that the impatriate takes up French tax residence and has not been a French tax resident during the five calendar year period preceding the start of the assignment.

People directly recruited abroad by a French employer and self-employed individuals are brought within the scope of the regime if arrived before December 21, 2012.

Exemption from income tax is provided to the end of the fifth year following arrival for the portion of the salary compensating for the transfer to France (impatriation premium) and the the portion paid specifically for duties performed outside of France but for the benefit of the French host company.

There is a global exemption limit: the application of regime must not lead to the exemption of more than 50 percent of the impatriate's total remuneration. However; if this option proves to be more favorable, the employee may chose to have the total impatriation premium fully exempt from tax but with a limit on the salary paid for duties performed abroad of 20 percent of the net taxable salary.

For employees hired directly from abroad by a French entity, and for self-employed individuals, the income tax exemption will generally be a flat 30 percent of the remuneration.

Under the impatriate regime, passive investment income (such as interest and dividends), capital gains from the sale of securities, copyrights and royalties received from a country with which France has entered into a double tax agreement including a mutual assistance clause, are only liable to income tax on half of the amount. Surtaxes of 15.5% will remain due on 100 percent of the amount.

Impatriates are also exempt from French wealth tax on their assets held outside France for the first five years, whatever the reason for their arrival in France, provided they have been outside of France for over 5 calendar years.

Headquarters entities: Employees of headquarters entities that have obtained a special ruling may exclude from their French taxable income employer reimbursements for additional housing over home country costs, school tuition, home leave and tax protection or equalization. In this case the excluded amounts are subject to corporate French tax at a negotiated rate. Nonetheless, a major benefit is the elimination of the tax-on-tax snowball effect at the individual level.

If none of the above exemptions apply (impatriates or Headquarters) individuals expatriates who were not resident in the fiscal year immediately before the year of arrival and whose assignment is not expected to last more than six years may exclude from taxable compensation the following payments:

  • pre-assignment trips (travel costs for taxpayer and spouse)
  • agency costs in finding accommodation
  • storage costs in home country
  • travel and subsistence for the employee and his/her family during the moving period
  • removal costs and travel costs at the beginning and end of assignment
  • temporary car hire during a maximum of two months at the beginning and end of assignment
  • temporary accommodation at the beginning and end of assignment (maximum three months)
  • language lessons for employee and family and for dependent children at school
  • home leave trips once a year for employee and his/her family
  • cost of one trip to the host country for dependent children at school abroad
  • school fees for dependent children in fee-paying education and in home country language
  • emergency trip to home country for the employee and his/her family
  • garden maintenance costs in home country
  • other costs such as customs, driving license, conversion of vehicles, etc.
  • these exemptions may be taken into consideration whether or not the special impatriate regime applies.

SALARY EARNED FROM WORKING ABROAD

Is salary earned from working abroad taxed in France? If so, how?

Taxable salary of residents cannot be reduced by allocating income to foreign business trips. However, there are a number of exclusions:

1) under the impatriate regime (please see above)

2) residents who are citizens of tax treaty countries (and countries with reciprocity agreements), who travel outside France on business may benefit from a tax-free expatriation indemnity paid by their employer for work performed outside France. To qualify, this premium should be paid in addition to the usual salary and should be provided for in writing prior to claiming the exemption. It should be calculated by reference to the number of business trips actually made (that is time spent working abroad). The amount should be reasonable in relation to normal salary and in any case may not exceed 40 percent of daily taxable remuneration per day spent abroad. While exempt from income tax, such indemnities are taken into account for exemption with progression and subject to French social charges, if applicable.

TAXATION OF INVESTMENT INCOME AND CAPITAL GAINS

Are investment income and capital gains taxed in France? If so, how?

Are investment income and capital gains taxed in France? If so, how?

In general, investment income, including dividends and interest, is taxed at ordinary progressive tax rates, subject to tax treaty provisions.

  • Capital gains from the sale of securities are taxed applying the French profgressive rates and brackets . Capital gains, and also other investment income, including rental income, are subject to additional surtaxes of 15.5 percent for 2015 gain. The surtaxes are assessed via the same tax bill as the French personal income tax. 
  • The gain generated from the sale of a principal residence is free of tax. For other properties, resident French taxpayers are taxed at 19 percent plus 15.5 percent surtaxes for 2015 gain on the taxable capital gain from real property and the income tax is withheld at the time of the sale. Some rabate can be applied depending of the number of years of detention of the property. Non-resident taxpayers leaving outside of the EU are taxed at 33.33 percent, although special conditions and exemptions apply to citizens of EU member countries, Iceland and Norway, who have resided in France for at least two years prior to the sale. These special conditions and exemptions also apply to citizens from other countries that have a double taxation treaty with France that contains a non-discrimination clause.
  • U.S. tax treaty exemptions: Unique and favorable provisions exist in the French-U.S. income tax treaty for U.S. citizens living in France. U.S.-sourced interest, dividends, and capital gains from the sale of securities realized by U.S. citizens residing in France are exempt from French income tax and surtaxes.

Dividends, interest, and rental income

Dividends received since  January 1st, 2013, are subject to the following taxes and levies:

  • The dividends are taxed according to the graduated ordinary income tax rates after applying a 40% reduction to the gross dividend.  
  • The dividends are also subject to the social surtaxes of 15,5%.  The 40% deduction does not apply to the basis for the determination of the social surtaxes. 
  • In addition, prior to being subjected to income tax at the graduated income tax rates, these dividends are subject to an obligatory withholding at a 21% rate plus social contributions at a rate of 15.5%.  This withholding is considered to be a pre-payment of income tax to be deducted from the final tax liability, and refundable if applicable.
  • However, this last provision above does not apply to households whose previous year reference income is less than EUR 50,000 (single taxpayers, divorced or widowed) or EUR 75,000 (taxpayers filing jointly). 

Interests received since  January 1st, 2013, are subject to the following taxes and levies:

  • The interests are taxed according to the graduated ordinary income tax rates.
  • In addition, prior to being subjected to income tax at the graduated income tax rates, these interests are subject to an obligatory withholding at a 24% rate plus social contributions at a rate of 15.5%.  This withholding is considered to be a pre-payment of income tax to be deducted from the final tax liability, and refundable if applicable. 
  • The interests are also subject to the social surtaxes of 15,5%.  
  • However, this last provision above does not apply to households whose previous year reference income is less than EUR 25,000 (single taxpayers, divorced or widowed) or EUR 50,000 (taxpayers filing jointly).

Rental income is taxable at the normal progressive rates, though different rules apply depending on whether the property is rented furnished or unfurnished. For unfurnished rentals, a default regime exists to allow a deduction of 30 percent of gross receipts. This 30% deduction is only applicable if the gross annual rental income is lesser than EUR 15,000. Alternatively, it is possible to deduct actual expenses including interest, local property taxes, and other related expenses. Generally, rental losses from unfurnished properties of up to EUR10,700, excluding interest expenses, may be deducted from other income in the current year. Rental losses from unfurnished properties in excess of this amount and that portion of rental losses created by interest expenses may be carried forward and applied against rental income of the following 10 years. Income from furnished rentals is taxed as business income and different rules apply.

Gains from stock option exercises

Qualified plans

- Period between 27/04/2000 and 27/09/2012

For qualified plans, taxation takes place at the sale of the shares. A social security tax exemption is applied to the acquisition gain if a holding period from option grant to the sale of the shares of 4 years is met (options granted as of 27 April 2000). If, in addition to the above period an additional holding period of two years from option exercise to the sale of the shares is met, the more favorable capital gains' tax rate applies on the portion of the acquisition gain not exceeding EUR152,500.

- Period starting from 28/09/2012

For qualified plans, taxation takes place at the sale of the shares. A social security tax exemption is applied (subject to duly notification to French social authorities) to the acquisition gain if a holding period from option grant to the sale of the shares of 4 years is met (options granted as September 29 2012). However a specific employee and employer contribution has been implemented (10% paid by employee at date of sale on acquisition gain and 30% paid by employer at grant date on a specific basis subject to company’s election).. For tax purposes the acquisistion gain is taxable as salary and thus subject to progressive tax rate from 0 to 45% and eventually 4% marginal rate of tax on high revenues.
The capital gain is taxed is also to progressive tax rate from 0 to 45% and eventually 4% marginal rate of tax on high revenues. Nevertheless, taxation at progressive rate is balanced with a system of specific abatement depending on the period the securities are hold by taxpayer (50% between 2 and 8 years holding period and 65% beyond 8 years)

Please note that there is a specific regime for qualified RSUs in France

Non-qualified plans

For non-qualified plans, taxation takes place at exercise and the acquisition gain is treated as salary for income tax and social security purposes

Non qualified RSUs are taxable at delivery of the shares.

A new withholding tax has been imposed on the gains of non-residents on the French source portion of the gain, whether the plan is qualified or not.

Principal residence gains and losses

Capital gains on the sale of real property located in France are generally taxable whether or not the owner is domiciled in France. The disposal of a principal private residence by a resident taxpayer (and in some circumstances by non-residents) is not taxable provided that it was the taxpayer’s principal residence at the time of sale. A gain resulting from the sale of real estate for gross proceeds of up to EUR15,000 is exempt from French tax and if the property was held for 15 years or more. No deduction is allowed for losses arising from the sale of real property in France.

Capital losses

Capital losses on the sale of securities can be deducted from capital gains of the same nature in the same year or carried forward and set off against future gains for up to 10 years.GiftsGifts are, in principle, not subject to capital gains tax in France. However, gift tax could be applicable.

Gifts

Gifts are, in principle, not subject to capital gains tax in France. However, gift tax could be applicable. 

ADDITIONAL CAPITAL GAINS TAX (CGT) ISSUES AND EXCEPTIONS

Are there additional capital gains tax (CGT) issues in France? If so, please discuss?

None in particular.

Are there capital gains tax exceptions in France? If so, please discuss?

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

GENERAL DEDUCTIONS FROM INCOME

What are the general deductions from income allowed in France?

The following items of expenditure may be deducted from taxable income.

  •  Employee social security contributions are generally deductible from gross employment income. Compulsory pension contributions and a portion of the CSG surtax are deductible from taxable employment income, within certain limits. Mandatory employee social security contributions paid to the home country scheme are generally deductible for income tax purposes.
  • A standard 10 percent deduction to account for professional expenses (limited to EUR 12,170 on 2015 income) is applied to the employment income of each member of the household. Actual professional expenses may be claimed instead, without limitation, as long as they can be justified.
  •  Pensions: The 10 percent deduction applied to pensions is limited to EUR 3,711 per household on 2015 income.
  •  Deductions are allowed for alimony made pursuant to a court order and child support payments for minor children that are not part of the fiscal household of the taxpayer. Deductions of child support payments are allowed for children over 18 if the children need parental support (such as a student) provided the children are not part of the fiscal household of the taxpayer; however this deduction is limited to EUR 5,732 per child for tax year 2015. Support paid to or on behalf of parents is also deductible provided the payments are not disproportionate to the taxpayer’s earnings and that the recipient is in need). Such payments would generally constitute taxable income in the hands of the recipients.
  •  Cost of supporting a person over 75 years of age in the taxpayer's home.
  •  Rental losses from unfurnished properties up to EUR10,700.
  • Losses from the exercise of a business or independent professional activity.
  • Contributions to qualified supplementary retirement plans, PERP, PERCO, or contributions made to a plan under the Loi Madelin are deductible from income within certain limits.
     

TAX REIMBURSEMENT METHODS

What are the tax reimbursement methods generally used by employers in France?

As taxes are paid one year in arrears in France, the one-year rollover method is most generally used for tax reimbursements. In the year of departure, all income paid and earned for the period from 1January to the departure date should be reported. A current year gross-up calculation should generally be performed if the tax reimbursement is not exempt under the expatriate regime.

Income tax differentials resulting from tax equalization or tax protection are fully taxable in France, unless the assignee falls under the specific tax regime for impatriates.

CALCULATION OF ESTIMATES/ PREPAYMENTS/WITHHOLDING

How are estimates/prepayments/withholding of tax handled in France? For example, pay-as-you-earn (PAYE), pay-as-you-go (PAYG), etc.

Resident taxpayers generally pay their taxes in the year after the income is earned. The tax liability is payable in either three installments or ten monthly payments, at the taxpayer’s option. Unless the taxpayer opts for monthly payments, he/she must make payments on 15 February and 15 May, each equaling one-third of the amount of the previous year’s total income tax. The final payment depends on when the assessment is issued but generally this will be on 15 September. As there is no withholding of income tax in France, it is prudent to set aside money for taxes. (Note: Surtaxes are assessed separately, usually in October/November.)

Pay-as-you-go (PAYG) withholding

There is no pay-as-you-go withholding in France for resident taxpayers. However the French government is actually is preparing to implement a pay-as you –go withholding in France fro French tax resident from 2018 year onwards.

Employers must withhold/ on a quarterly basis (starting January 1st, 2016) income tax from compensation paid to non-residents, using the progressive non-resident income tax rates of 0 percent, 12 percent, and 20 percent. The tax may, in some cases, be final.

PAYG installments

This is not applicable, although, taxpayer may opt before October of the tax year to make ten equal monthly payments by bank transfer, beginning in January of the following year, totaling the amount of the previous year’s total income tax payment. Any additional tax due is payable when assessed. Income tax for the initial year of residence in France is usually not due until 15 September of the year following arrival, since no February or May estimated payments are required.

When are estimates/prepayments/withholding of tax due in France? For example, monthly, annually, both, etc.

See above.

RELIEF FOR FOREIGN TAXES

Is there any Relief for Foreign Taxes in France? For example, a foreign tax credit (FTC) system, double taxation treaties, etc?

France has a broad network of income tax treaties, some of which also cover wealth taxes. Beneficiaries of income tax treaties may be exempt from French income tax on certain income, but such exempt income must nevertheless be reported on the tax declaration and is taken into account in determining the tax rate to be applied to the non-exempt income (that is exemption with progression). Income exempted under treaties concluded by France often includes salaries paid from abroad for services actually rendered abroad, income from the rental of foreign real estate, and income from a foreign business. Foreign tax credits are often available under treaties with respect to taxes paid at source on foreign dividends, interest, and royalties. A notable exception to most of France’s tax treaties is the current income tax treaty with the United States. Under this treaty, American citizens who are tax residents of France must declare their worldwide income in France but are entitled to a tax credit in respect of most U.S.-source income (interest, dividends, capital gains, rental income) provided that it is taxed in the United States. Please note that these provisions apply to U.S. citizens only, and are not applicable to U.S. permanent residents (green card holders).

In the absence of an income tax treaty, internal relief for double taxation may be available to French tax residents working abroad for a French or other EU employer, or for an employer situated in a country that has signed a tax treaty with France containing an administrative clause, provided the foreign tax paid represents at least two-thirds of the tax that would have been charged in France. The foreign-source income must relate to activities in construction, oil or mineral exploration, or navigation on a French-registered ship and spend at least 183 days abroad in any consecutive 12-month period, or 120 days abroad if he/she or she is in sales prospecting. The exempt income must nevertheless be reported on the tax declaration and is taken into account in determining the tax rate to be applied to the non-exempt income (that is exemption with progression).

GENERAL TAX CREDITS

What are the general tax credits that may be claimed in your country? Please list below.

Several credits may be claimed against the taxpayer's tax liability, for example:

  • School credits: For residents of France, a tax credit may be claimed for each dependent member of the household at the level of college, lycee, or university. The credits are EUR61, EUR153, and EUR183, respectively.
  • Charitable donations: A credit of 75 percent of qualifying charitable donations of up to  EUR 529 is available, for donations that have been made to organizations that provide food, shelter or medical care to people in need. A further credit of 66 percent of additional charitable contributions is available, to the extent that total donations do not exceed 20 percent of taxable income.
  • Domestic employee: A tax credit of 50 percent of the expense of a domestic employee (salary and related social charges paid by the taxpayer) is available to resident taxpayers. The credit may not exceed EUR6,000, except in certain situations. This limit is increased by EUR750 per dependent child. A domestic employee is defined as one who works in the home, providing, for example, child care, housecleaning, gardening, tutoring, or other services.
  • Residential insulation energy expenditure: Tax credits are allowed to homeowners or renters who undertake qualified expenses related to home insulation or installing energy efficient equipement.
  • Child care expenses: A tax credit is available to taxpayers for child care expenses for children under six years of age outside of the home. The credit is 50 percent of the expense, limited to EUR2,300 per child (thus a maximum credit of EUR1,150 per child).
  • Mortgage interest: In most circumstances, the credit for mortgage interest paid on a loan has been scrapped for purchases made after 1 January 2011.

SAMPLE TAX CALCULATION

This calculation assumes a married taxpayer resident in France with two children who is on assignment that begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2014 USD 2015 USD 2016 USD
Salaray 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = EUR0.82

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
  • The impact of the impatriate regime with regards to passive income has been ignored.
  • No foreign workdays.

 

Calculation of taxable income

Year-end 2014 EUR 2015 EUR 2016 EUR
Days in France during year 365 365 365
Earned income subject to income tax      
Salary 82,000 82,000 82,000
Bonues 16,400 16,400 16,400
Salary      
Net housing allowance      
Company car 4,920 4,920
4,920
Moving expense reimbursement      
Home leave      
Education allowance      
Total earned income      
Other income 4,920
4,920
4,920
Total income 108,240 108,240
108,240

 

Calculations of tax liability

  2014 EUR 2015 EUR 2016 EUR
Compensation income** 103,320 103,320
103,320
Less standard deductions:      
10% deduction 10,332 10,332
10,332
Net taxable compensation income 92,988 92,988
92,988
Taxable investment income 4,920 4,920
4,920
Net taxable income 97,908 97,908
97,908
Total income tax 15,079 15 063
15063
CSG/CRDS and surtaxes on investment income 763
762 762
Total French tax 15,842 15,845
15,845

* Note that the  2016 income tax calculation is estimated based on the 2015 rates. The 2015 rates are now available and have been applaied for 2015 year calculation.

** The beneficial rules for impatriates apply; therefore, the assignment-related allowances are not considered taxable and are not included in this calculation. 

* Note that the 2012 and 2013 income tax calculation is estimated based on the 2011 rates. The 2012 rates will be voted late in the year.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
  • The impact of the impatriate regime with regards to passive income has been ignored.
  • No foreign workdays.

Calculation of taxable income

Year-end 211 EUR 2012 EUR 2013 EUR
Days in France during year 365 365 365
Earned income subject to income tax      
Salary 65,000 65,000 65,000
Bonues 13,000 13,000 13,000
Salary      
Net housing allowance      
Company car 3,900 3,900 3,900
Moving expense reimbursement      
Home leave      
Education allowance      
Total earned income      
Other income 3,600 3,600 3,600
Total income 85,500 85,500 85,500

Calculations of tax liability

  2011 EUR 2012 EUR 2013 EUR
Compensation income** 81,900 81,900 81,900
Less standard deductions:      
10% deduction 8,190 8,190 8,190
Net taxable compensation income 73,710 73,710 73,710
Taxable investment income 3,600 3,600 3,600
Net taxable income 77,310 77,310 77,310
Total income tax 7,389 7,389 7,389
CSG/CRDS and surtaxes on investment income 486 486 486
Total French tax 486 486 486

* Note that the 2012 and 2013 income tax calculation is estimated based on the 2011 rates. The 2012 rates will be voted late in the year.

** The beneficial rules for impatriates apply; therefore, the assignment-related allowances are not considered taxable and are not included in this calculation.

1 Certain tax authorities adopt an economic employer approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the economic employer and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the economic employer approach.

© 2016 FIDAL, a French société d’exercice libéral à forme anonyme à directoire et conseil de surveillance. FIDAL is an independent legal identity that is separate from KPMG International and its member firms. All rights reserved.

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