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The Impact of Les Impôts: Paying Income Tax in France
At a Glance:
- Most expats in France will be counted as residents for tax purposes and need to pay income tax in France.
- Some expatriates will benefit from special tax policies for foreign assignees and recruitees.
- The so-called “family coefficient” is supposed to lighten the burden for couples and families.
- Income tax returns usually have to be filed online — and on time. Latecomers may get fined.
Groaning under the Fiscal Burden? Taxes and Social Security Contributions in France
The residents of France are often said to suffer from a huge tax burden. Do expats moving to France need to be afraid of the tax system? The answer is slightly more complicated: it depends.
If you compare French tax rates and social security contributions with those in other OECD countries, the results are not too bad for a single employee with average earnings and no children: for the so-called prélèvements obligatoires (obligatory deductions), the combined rate of 29.10% of the gross income is only somewhat higher than the OECD average of 25.52%.
However, things might look somewhat differently for employers, who pay their fair share in social security contributions (cotisations sociales). If we look again at the French tax resident mentioned above, their employer needs to contribute another 36.55% of the employee’s gross income to social security. That was the highest quota across all OECD member states in 2016.
Matters also look quite different for high-income earners and tax residents with a considerable fortune. French taxes on income and wealth can amount to up to 75% of yearly revenues. This staggering figure will, however, not apply to most expats planning a new life in France.
This article should provide you with a handy overview of the French tax system, which focuses mainly on income tax.
If you have any questions on corporate taxes in France, gift and inheritance tax, and other forms of taxation, or if you need detailed input on income tax, you should ask a professional tax consultant (conseiller fiscal). They can also help you with your income tax return for the previous fiscal year.
Some Important Distinctions: Direct vs. Indirect, Central vs. Local Taxes
One of the most important distinctions in taxation is that between direct and indirect taxes. Indirect taxes include general consumption taxes (e.g. value-added tax) and excise duties on specific goods.
In France, VAT is simply called TVA — short for taxe sur la valeur ajoutée and easy to remember. At 20% of the value, the French VAT rate is somewhat above the OECD average, but still below other states like the Scandinavian countries. For example, it’s 25% in Sweden. Moreover, quite a few products are sold at reduced VAT rates (e.g. 10% on passenger transport, 5.5% on many groceries and most utilities, and 2.1% on prescription medication covered by public healthcare).
The one excise duty you might encounter most often in France hides behind the abbreviation TICPE: taxe intérieure de consummation sur les produits énergétiques. It mainly applies to products based on mineral oil. This attempt to curb the consumption of fossil fuels, as well as energy consumption in general, may affect the price of gas for your car, for instance.
Income tax and wealth tax are direct taxes, though, which you need to pay to the central government. Some other form of direct taxation or duties in France — for example, property tax or waste management fees — are, however, raised at the local level of your municipality, département, or region.
Do You Count as a Fiscal Resident of France?
Once it comes to paying taxes on your income in France, you will probably ask yourself various questions: Which income sources do I need to take into account? What kind of tax allowances, deductions, and credits can I claim? How do I calculate an estimate of my tax burden? When is my tax return due?
This section tries to answer the most important questions concerning income tax (impôt sur le revenu) in France. Let’s start with the most obvious one: do you even count as a French resident for tax purposes?
Your way of doing your tax return in France depends on whether the French authorities even consider you a fiscal resident. The concept of fiscal residence (domicile fiscal) is a complicated matter, and it’s not necessarily connected to your residence in terms of immigration law (e.g. your residence permit).
Generally speaking, you count as a resident of France for tax purposes if at least one of the conditions listed below applies to you.
Conditions for Fiscal Residency in France
- You have a permanent home in France, where you and your family normally reside.
- You spend most of your time — over 183 days per year — in France.
- Your main source of income from employment or self-employment is located in France.
- You spend most of your time at work / on business activities in France.
- Your so-called center of economic interests lies in France (e.g. most of your income comes from investments made in France).
Fiscal residents will normally be taxed on their worldwide income; non-residents only need to pay taxes on their income from French sources. There are also other differences between fiscal residents and non-residents when it comes to taxation in France, but further regulations for non-residents are not specified in this article.
If your home country has entered into an international tax treaty (convention fiscale internationale) with France, there may be special provisions — for example, to modify the above definition of fiscal residence or to avoid double taxation (e.g. by offering foreign tax credits).
What Kinds of Income Do You Need to Declare?
For the sake of simplicity, we will be assuming that you are a tax resident and need to file the same tax return as most French nationals. To prepare for doing your taxes, make a list of all your income sources and see if they fit into any of the following categories:
- Income from employment (including wages, salaries, benefits in kind such as a company car, overtime payments, bonuses, etc.)
- Income from agricultural activities, a trade or business, or professional services (i.e. from crops, livestock, forestry, fishing, etc.; from regular activity in commerce, industry, skilled trade and crafts, etc.; for members of the liberal professions, such as doctors, lawyers, etc.)
- Income from pensions (including retirement benefits, survivors’ pensions for widows and widowers, disability benefits, annuities, alimony payments from parents or former spouses, etc.)
- Income from investment (e.g. from current accounts, savings accounts, fixed deposits, building society contracts, government bonds, employee stock, dividends in general, etc.)
- Income from property (including rents for leases or furnished or unfurnished accommodation, real estate, and landed property)
- Income from capital gains (e.g. from private sales of stocks, bonds, and securities; from sales of property, etc.)
Gifts from the Taxman: Exemptions, Deductions, Credits
Each of the six categories listed above includes a variety of income sources that are subject to tax exemptions. This means that income from selected sources will not be added to your taxable income, which reduces your general tax burden.
For example, when it comes to income from employment, most kinds of replacement income count as taxable while certain others don’t. The income from paid sick leave is usually added to your taxable income, but paid sick leave in case of serious illnesses with prolonged treatment isn’t. While paid maternity leave, for instance is subject to taxation, family allowances (prestations familiales) from the French government are excluded, and so on.
Such exemptions apply to the other categories as well. When it comes to investment income, interest on several popular bank accounts in France — like the livret A for the general public or the livret d’épargne populaire (LEP) for low-income earners — are automatically exempt from income tax. Capital gains from selling your main residence in France won’t be taxed as income from property, either.
In addition to tax exemptions, there is also a wide range of tax deductions available, mainly linked to expenses paid. They lower the amount of your taxable income.
In the case of employment income, deductions obviously refer to work-related expenses borne by the tax-payer (e.g. expenses for business trips, transportation costs for commuters, expenses for meals, costs of work uniforms, etc.). The easiest option for your déduction des frais professionnels would be to go for the automatic deduction, which amounts to 10% of your salary. However, if you think you have spent more than this, you can list all expenses individually.
Lastly, you can also claim tax credits (crédits d’impôt) for certain expenses. They will be subtracted directly from your tax burden (not your taxable income).
Credits for individual taxpayers can be claimed for donations to charitable organizations worldwide, to French organizations that serve the public interest (e.g. a medical research institute, a school or university, the Fondation du patrimoine — the French equivalent to the UK’s National Trust, etc.), as well as to political parties or candidates and trade unions in France.
Expat families will be happy to hear that they get tax credits for children in secondary or tertiary education and for childcare outside the home. Further credits apply to expenses for domestic staff, costs for elderly or disabled dependents in special care, mortgages for homeowners, and more.
A Special Tax Policy for Selected Expatriates
Under certain conditions, expats living in France can benefit from additional advantages. To make France more attractive for highly qualified employees and managers from abroad, the French authorities came up with a so-called régime fiscal des impatriés (a special tax policy for expats in France) for the first time in 2004. It has since been altered several times, offering more and more incentives: perhaps, the French media speculates, the government was hoping for a “windfall” of executives and top-tier employees crossing the Channel after Brexit.
This tax policy applies only to a small group of expatriates moving to France, though. They must be sent on an assignment to France by a foreign company, or a French company must recruit them directly from abroad. Moreover, they can only profit from this policy if they haven’t been fiscal residents of France for at least five years prior to arrival. They also need to become residents for tax purposes once they arrive.
If they fulfill all these conditions, expatriates will benefit from the privileges listed below.
Extra Tax Exemptions for Expats
- In case they receive a compensation for the transfer to France as part of their new salary (an “impatriation premium” or prime d’impatriation), the premium will be exempt from French income tax for up to eight years.
- Moreover, if they need to work abroad temporarily on behalf of their new employer, this portion of their worldwide employment income is not taxable in France, either.
- However, there are certain limits to these tax exemptions. For example, the combined exemptions from the impatriation premium and the salary earned abroad can’t amount to more than 50% of the total remuneration.
Lastly, don’t forget to check if there is a taxation treaty between France and your home country — it may help to lower your tax burden in France.
How Do You Calculate Your Tax Burden?
Once you know your taxable income (i.e. total gross income minus deductions and exemptions), you can calculate an estimate of your gross fiscal burden.
For the fiscal year of 2016, income in France is generally taxed at the rates given below.
- A net income of up to 9,710 EUR is tax-free — this is your personal tax allowance.
- The tax rate is 14% for 9,710–26,818 EUR.
- For an income of 26,818–71,898 EUR, it’s 30%.
- It rises to 41% for all net incomes from 71,898 EUR to 152,260 EUR.
- In the last tax bracket (over 152,260 EUR), the maximum tax rate of 45% applies.
- Additionally, there are further rates for high-income taxpayers with more than 250,000 EUR per year.
What’s a “Family Coefficient” Anyway?
However, before you whip out your calculator, you need to consider a French particularity — the family coefficient (quotient familial). Since spouses and partners in a contractual civil union (PACS: pacte civile de solidarité) usually file a joint tax return, the coefficient takes the taxpayer’s marital status and number of dependents in their household (children, elderly relatives, etc.) into consideration.
The taxable income of all household members is added up and divided by the respective family coefficient. The resulting income is then subject to the tax rates listed above; the amount of taxes due is multiplied by the coefficient again.
Example: A married expat couple without children sets up fiscal residence in France. After applying all potential deductions, their joint taxable income is 58,000 EUR a year. Their family coefficient is 2. The tax rates need to be applied to a partial income of 58,000 EUR divided by two — 29,000 EUR.
Thus, their gross amount of taxes due is calculated as follows: 0.0 x 9,710 EUR + 0.14 x (26,818 EUR – 9.710 EUR) + 0.30 x (29,000 EUR – 26,818 EUR) = 0 EUR + 2395.12 EUR + 654.6 EUR = 3,049.12 EUR.
This result needs to be multiplied by the family coefficient. The couple thus needs to pay 6,098.24 EUR in joint taxes. A single taxpayer with the same net income, but a family coefficient of 1 would have a higher tax burden, but a married couple with two dependent children (family coefficient: 3) would pay less.
File Your Tax Return on Time — Avoid Some Hefty Fines!
If you are about to relocate and employment will be your main income source, it’s probably helpful to know that France doesn’t have withholding tax for employees — yet. For the time being, employees list their salary and their professional expenses in their annual tax return, and they pay their taxes like every other kind of taxpayer.
The Fiscal Year in France
The tax year in France is identical with the calendar year. For instance, the tax year 2016 runs from 1 January until 31 December. The taxes for 2016 are due in the following year (i.e. 2017). They can be paid in three installments (due in mid-February, mid-May, and mid-September) or, if you have a French bank account, in ten monthly rates from January to October.
The amount of taxes paid is normally based on your taxable income from the previous tax year (in our example, 2015). After you have filed your tax return (déclaration d’impôts / déclaration de revenus) and then received your tax assessment (avis d’imposition), you will know if you owe them any more money or if you will get a refund by the end of the year.
When and How to File the Tax Return
The tax return is generally due in late May. Attention: The date changes on a yearly basis. If you do your taxes online, there may also be different due dates, according to the département where you live. If your tax return is not on time, you may have to pay a (sometimes rather hefty) fine, so don’t be late!
In case you have a taxable income of more than 28,000 EUR a year and an internet connection at home, you are obliged to file an online tax return. However, for first-time taxpayers that have taken up residence in France, the online declaration might not work: they may have to file their first tax return on paper. They can find the relevant forms (co. 2042 for employees and co. 2042-PRO for those self-employed, among others) online. If you need any help, you can either ask your tax consultant or look for the nearest local tax office (centre des impôts).
Introducing Withholding Tax for Employees
In 2018, however, the transition to withholding tax or taxation at the source (prélèvement à la source) will start for employees in France. They still need to do their taxes as usual in spring 2018, but in autumn, they will receive a tax assessment with the estimated deductions from their 2019 salary from employment.
From 1 January 2019 onwards, the deductions will proceed automatically and will be listed on their pay slip. However, all employees still need to file their income tax return for 2018 by May 2019, and so on. According to the tax assessment in autumn, the amount of withholding tax will then be adapted every year.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.