Disclaimer
Tax law is complex and every effort has been made to offer information
that is current, correct and clearly expressed. The information in
this summary is intended to be no more than a general overview of
the position and certain details have been deliberately omitted. The
contents of this page should not be taken as an authoritative statement
of French tax law and practice. Neither the author nor the publisher
are responsible for the results of actions taken on the basis of information
contained in this summary, nor for any errors or omissions. This text
is not intended to render legal, accounting or tax advice. Readers
are encouraged to seek professional advice concerning specific matters
before making any decision.
Who is liable
to pay French income tax?
This depends on whether for tax purposes you are "resident" or "non-resident".
Who is resident?
As a general starting point, if you spend more than 183 days a year
in France it is in most cases safe to assume that you are resident
for French tax purposes. But if you spent less than 183 days you
could still be considered "resident" if either:
You have your permanent home in France
You conduct your main professional activity in France
Your centre of economic interest is in France
If so, you may be liable to pay French income tax. This is a complex
issue that may also be affected by the terms of relevant tax treaties.
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Who is non-resident?
Very simply, everyone who is not "resident" is "non-resident".
A non-resident may be liable to French income tax on all income
from a French source. For example:
Rental income from a French property
Income paid by a French employer
If you are a professional sportsman, prize money.
However, the income can be subject to reliefs under the provisions
of various tax treaties.
So, having established who may be taxed, what may be taxed as income?
In tax terms it is an individual's annual disposable income, hard
to describe but you know it when you see it.
For tax purposes this includes income from:
The performance of professional activity, investment income, salary
etc.
Capital gains received from the disposal of real property for example,
apartments or houses and from investments such as shareholdings.
(See French Taxes)
Various allowances, deductions and treaty provisions are applied
to the annual disposable income to arrive at the net taxable income.
Tax is then calculated at progressive rates to a top rate of 54%
for taxable income in excess of €45,000, remember this is after
allowances and deductions - it is not quite as bad as it seems!
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Are
there any other payments made from your income?
Yes there are.
Social charges, known as the "CSG" and "CRDS", are deducted at source
from employment income by the employer.
Residents who receive rental income or investment income are also
liable to pay social charges at a flat rate of 10%.
What deductions
can be made from income?
The French tax authorities generally allow taxpayers to deduct certain
expenses that they have incurred, to enable them to earn or realise
that income. Various credits may also be allowed. For example:
Business expenses that have not been reimbursed;
Travel to and from work or, in this case, you can elect to have
an allowance equal to 10% of gross income;
Business rent;
Finance charges in respect of the business; and
Self-employed persons social security contributions.
What are the personal
allowances?
The French tax regime uses a system, known as the family coefficient
rules, under which an individual's taxable income is divided by
the number of allowances to which he is entitled. The number of
allowances reflects the composition of the family, so a single person
receives one allowance but a married couple with two children three
allowances.
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When must the tax be paid?
A tax return must be completed and returned to the tax authority
by late March, for example the tax return due in March 2003 covers
the period 1 January to 31 December 2002.
In the form you must provide:
- Details of your income
- Claimed expenses
- Deductions in the previous year
- The tax authority then calculates the tax liability and sends
the tax bill
"Residents" must make a partial payment, equal to one third of
the previous years tax liability, in February and May with the balance
generally due between September and December. If a taxpayer wishes,
he can elect to pay a proportion of the previous years tax by monthly
instalments, with the balance due at the end of the year.
For first time French taxpayers, the tax due on the previous year's
income is payable in its entirety in September to December of the
following year.
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What is the
position of non-residents?
"Non-residents" must file the non-resident's tax return between
late April and late June; the due date depends on the country of
residence. Generally, all French source income must be declared,
though there are certain exemptions when income is subject to tax
and that tax has been deducted at source.
A non-resident is allowed few deductions when calculating the taxable
income, although the family coefficient rules will apply, as will
the progressive rates of tax from a minimum of 25% up to a maximum
of 54% on the top slice of income.
If the non-resident taxpayer is resident in a country with a tax
treaty with France then it is likely that he will receive a credit
against the tax due in his home country for tax paid in France.
What
penalties are there for non-compliance?
If the tax return is filed late or tax is not paid by the due date,
a penalty of 10% of the outstanding tax plus interest is likely
to be imposed. Generally interest is calculated at 0.75% per month.
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