French Income Tax
This page outlines
- Taxable income
- French income tax rates
- French income tax declaration and deadlines
- Unearned income, interest & gains
- French Social Taxes
- Foreign Bank Accounts
- French Income Tax Optimisation
Although France has a reputation for high taxes, income tax is generally no higher than many other developed countries - in particular for couples. Certain “excessive” increases initially proposed by President Hollande were rejected by the Conseil Constitutionnel - showing that no elected French government has unlimited freedom.
Couples are subject to 41% on income above 143k€ pa and 45% above 304k€. See below for further details.
French social taxes are in addition - and remain a key problem.
It is important to wrap long-term savings capital within an assurance vie (French life assurance policy) or similar French-recognised wrapper - to prevent annual taxation of gains and income - especially for those subject to higher tax bands.
All those living in France should note that all foreign unearned income (bank interest, dividends, etc) must be declared and “tax on account” paid up front (21% or 24%) by the 15th of the month following receipt. Previously optional, this is now mandatory except for those below the specified income thresholds (see below). This does not apply to income rolled up within French-recognised capital wrappers such as Assurance Vie and PEA.
French Income Tax captures a wide spectrum of revenues, including
- Salaried employment
- Professional & personal company income (BNC / BIC)
- Financial investment income (dividends, interest, etc)
- Property rental income
- Capital gains (property and financial gains)
French residents must declare all such income and gains on a worldwide basis - normally including foreign property income and deducting foreign taxes where specified by the appropriate dual tax treaty. Non-residents normally only need to declare income and gains from French property.
If the taxman considers you've declared insufficient income for the lifestyle you lead (based on an old fixed list of signs of wealth including houses, cars, ... and horses) - he can tax you on estimated income, calculated according to specific rules.
FRENCH INCOME TAX RATES
Various deductions are allowed including:
- 10% off salary (within certain limits) (see below for additional deductions for those coming to work in France)
- 40% off dividends (dependent on certain rules)
Many other deductions can be applied, ranging from employing baby-sitters to home insulation - see below.
To calculate French income tax, add up income for the household, divide by the number of parts (based on household members), apply the rates below, then multiply back by the number of parts.
When calculating the number of parts, note that the first & second child count only as a half-part, whereas the third child counts as a whole part. Live-in grannies usually count for the same as a child.
Please note that there is a limit on the benefit obtained through multiple parts.
According to the Loi de Finances 2017 the revised bands for income received in 2016 are:
- to 9,710€ 0%
- 9,710 to 26,818€ 14%
- 26,818 to 71,898€ 30%
- 71,898 to 152,260€ 41%
- above 152,260€ 45%
There is a small but complex reduction for couples earning less than 41k€ (or 20.5k€ if single) - and slightly higher ceilings apply to families with children.
There is an additional “temporary” French income tax on global (earned or unearned) income above 250000€ known as “Contribution exceptionnelle sur les hauts revenus”. The rate is 3% from 250k€ to 500k€ and then 4% thereafter. These thresholds are doubled if you are declaring income as a couple. If income is higher than the previous two years, it can sometimes be possible to calculate on an average basis. These additional taxes are supposed to last until the level of French public debt returns to below 3%.
FRENCH INCOME TAX DECLARATION AND DEADLINES
If your 2015 income was above 28000€, residents are obliged to declare their 2016 income online.
New residents are obliged to make their first declaration using the paper forms - unless you have specifically received a letter confirming that you can declare online.
The deadline for paper declarations is 18/5/2016
The deadlines for internet declarations depend on the department where you live.
The dates for 2017 are :
- 23/5/17 (Departments 01-19)
- 30/5/17 (Departments 20-49)
- 06/6/17 (Departments 50-976 and non-residents)
You should be able to access the online declaration service (www.impots.gouv.fr) as from mid April 2017.
FRENCH TAX ON DIVIDENDS, BANK INTEREST and CAPITAL GAINS
All income & gains from capital (whether fixed or dividends) are taxed at the above band rates (earned & unearned income are added together) plus the usual social taxes. This is generally being called “barémisation”.
Unless prior year taxable income (revenu fiscal) was under 75k€ (50k€ if single) and a request for exemption is made, tax on dividends must be deducted at source at 21%. Unless prior year taxable income was under 50k€ (25k€ if single) and a request for exemption is made, tax on bank interest & other fixed income must be deducted at source at 24%. This is considered to be a “payment on account” and would in fact be reimbursed if total tax based on band rates is lower. All French banks will automatically deduct & declare these amounts for you. For assets abroad, you should declare and pay yourself before the 15th of the month following receipt (unless you fall below the above mentioned limits).
No “prior declaration” or “payment on account” is required for capital gains. Gains realised are “baremised” as described above”. Losses can only be offset against future gains.
Capital gains are reduced by 50% for shares held at least 2 years and 60% if held 8 years or more. The reduction does not apply to the social taxes. Additional reductions (up to 85%) are available for the sale of shares in small companies under specific circumstances.
The increases in taxes on unearned income brings an added incentive to use tax wrappers such as the Assurance Vie - untouched by the recent tax changes - and so the principal rate on withdrawn gains still remains 7.5% (and zero if gains remain inside the wrapper).
FRENCH SOCIAL TAXES
In addition to Income Tax and the above mentioned fixed rate taxes, French residents must also pay CSG, CRDS and Prélèvement Social on worldwide income and gains.
Since 2012, non-residents have also been subject to these social taxes (15.5%) on their French property income and gains.
It was confirmed at European level (Ruyter, European Court of Justice 26 February 2015) that France cannot collect these taxes from those that depend on the social system of another European country (according to EU law, you only pay social charges in ONE country) since these taxes form part of the French social system.
In July 2015, the French “Conseil d’Etat” confirmed and accepted the EU ruling - and the Ministère des Finances has issued instructions on how to make a claim (reclamation) for those who have “incorrectly” had to pay these social taxes. The link to the instructions on restitution des prélèvements sociaux can be found here.
The government has since modified the rules and broken the direct link between these social taxes and the French social system - enabling them to charge social taxes to everyone again as from 1st January 2016. The modified rules may well however be challenged again at European level.
Although these are called social taxes, note that they do not give right to any benefits. Please do not confuse with French Social Security contributions. A better term would be "additional income taxes".
For salaries and pensions this is usually deducted at source.
For professionals & personal companies (BNC and BIC) it is collected by the URSSAF or RSI along with the standard French social security contributions.
French social taxes also apply to property & financial investment income & gains.
You normally receive a request for payment in November based on prior year income declared in April/May, although for certain types of investment (eg bank interest) the amounts are deducted at source.
French social taxes on investment income & gains are currently 15.5%.
Holding an Assurance Vie has been a method to cumulate interest, dividends and capital gains without any annual taxes. The guaranteed funds within the Assurance Vie (known as “Fonds en Euros”) are also subject to French social taxes each year - whether you make any withdrawals or not - so it might be preferable to consider holding other types of assets inside the assurance vie instead.
FOREIGN BANK ACCOUNTS
Remember to list all your financial accounts held outside France. This includes current, savings, and investment accounts - as well as foreign life policies.
There’s a box to tick at the end of the annual French income tax return and you must then provide the bank details and account numbers. This information should be given each year for each account used or closed during that year - and you should also make sure you reported at some point in the past any other accounts still open. Remember that this information will soon be automatically exchanged between most countries and starting later this year between France, UK, Spain, Italy, & Germany (back dating to 31.12.2015).
The fines for non-declaration are now substantial:1500€ for each year that the account should have been declared - increasing to 10000€ if the account is held in an offshore country (without a dual tax treaty) such as the Channel Islands or Isle of Man. In some circumstances these fines can even be increased to 5% of the account balance if the latter is over 50000€.
OPTIMISATION : HOW TO REDUCE FRENCH INCOME TAX
1. Know your rights.
For example, there are many allowable costs concerning your principal residence, such as domestic help (nanny, cleaner, gardener, etc), assisting sustainable development (thermal insulation, solar heating, etc),or making improvements designed for senior citizens. Check the rules and limits carefully first and make sure you keep the invoices.
Make sure you declare the full number of household members. For example, children up to 25 (even if they are not living with you) and dependant relatives can be included under certain conditions.
Payments made to support adult children or aging parents (or invoices for basic living costs paid on their behalf) can also be deductible if they clearly have insufficient income.
Study carefully the documentation you receive with the tax forms and discuss any questions at an early stage with your local tax office.
2. Use schemes with tax incentives
The follow lists some examples of the more interesting schemes available.
Obviously you must never invest in a scheme simply because it saves you taxes!
Ensure that the financial return is appropriate.
Watch out for high commissions and charges ...
The overall limit for tax deductions is 10k€.
European Venture Capital Funds - these qualify if invested in small companies described as Innovative (FCPI) or Regional (FIP).
Given the potential risks, it is important to find experienced fund managers.
These funds may be appropriate if you are looking for longer-term investment and diversification of your financial portfolio..
The eventual gains are exempt from French capital gains taxes.
Film Industry - most people support the French film industry for personal satisfaction rather than financial gains.
Unfortunately you're unlikely to see your name in the credits!
French property - many types of property investment schemes have provided substantial tax reductions - often to the surprise of newcomers to France. If you are interested in rental property - it is worth taking a further look. “Malraux” and “Monument Historique” continue and remain the best methods for reducing tax on high incomes. For further information on reducing taxes via French property investments, and our currently preferred schemes, please contact us.
If you decide to go ahead with a tax-reducing property investment, it's wise to consider a bank loan since the interest is tax deductible and rates are currently low. Please contact us for full details of the different types of loan available in France.
3. Invest in your own French business
Setting up business in France is not as difficult as you may think - several million have been created in France - mostly as small personal companies.
Many types of business will however be subject to specific regulations. For example, setting up a Gîte or Chambre d'Hôte involves taking account of:
- Competition rules (to protect restaurants and hotels)
- Insurance rules (eg special insurance being required for swimming pools)
- Housing rules (eg safety, hygiene, insulation, ...).
Small companies have a choice between the "auto-entrepreneur", "micro-entreprise" or the "real" system, and professional advice should be taken to determine which is the most advantageous.
4. Special rules for those coming to work in France
Those seconded to France can usually claim exemption from French tax on salary uplifts (eg for accommodation) and work carried out abroad.
Special rules also apply those recruited directly to work for a French company
and self-employed individuals who satisfy certain conditions (eg specific skills in shortage)
The total exemption can be up to 50%.
We strongly recommend obtaining advice from qualified professionals in France
- and we would be glad to assist.
Copyright © 2017 Cabinet Gregory Latest modification: 26 February 2017 Email: email@example.com