At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and permanent residents living in France for over 15 years. Our clients hail from all parts of France - Paris and Marseilles, Lyon, Toulouse and Nice.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country. The expatriate Foreign Earned Income Exclusion ($92,900 for 2011 and $95,100 for 2012) can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in France and know how to integrate your U.S. taxes into the local income taxes you pay. Any French income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in France for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Unfortunately, unlike most countries in the world, you must also file your taxes on worldwide income so long as you are a U.S. citizen or green card holder. You always have the option to give up your U.S. citizenship - by following proper IRS and State Department procedures you can surrender your U.S. Citizenship and therefore cut off your obligation to file U.S. taxes in the future. You must surrender the Citizenship for non-tax avoidance reasons and then can usually only return to the U.S. for no more than 30 days per year for the subsequent ten years. This is another service that we have provided many clients in the past.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax and legal concerns; we look forward to working with you.
Below we include information on the French Tax System for American expatriates.
France taxes
France has much the same taxes (e.g. income tax, capital gains tax, property tax) as other countries. However, there are three main differences between France and many other countries:
- In most English-speaking countries (e.g. UK, USA, Canada) income tax and social taxes are calculated on an individual basis. In France, they are calculated on a family basis. This is explained in more detail below, but in simple terms the income for all family members is added up and then divided by the number of people in the family.
- Tax rates in France are different and generally higher than most other countries.
- There are a number of tax loopholes and exemptions specific to France.
- TVA (VAT or sales tax)
- Taxe Foncières, Taxe d'habitation (Property tax and habitation tax; equivalent to UK council tax)
- Income tax
- Capital gains tax
- Social taxes (CSG, CDRS)
- Inheritance tax
- Gift tax
- Wealth tax
- Corporate and Business taxes
- Assorted other taxes
If you are resident in France, you must pay French taxes on your worldwide income. However, if you are not resident in France, you pay French taxes only on income earned in France.
If you are resident in France from a tax perspective, you are referred to as 'tax resident in France'. In general, French tax law considers you to be 'tax resident' if you meet any of the following criteria:
- your principal residence is in France, or
- you carry out a professional activity in France (unless you can prove that this activity is carried out therein incidentally), or
- your centre of economic interest lies in France.
When determining taxes, it is tax residency which is important rather than citizenship (with a few special exceptions, such as diplomats). Consequently, if you live and work in France you will pay the same taxes as any Frenchman (or woman), regardless of your citizenship.
Double Taxation
If you earn money in multiple countries, you will need to pay tax in multiple countries. To avoid the situation where you are taxed twice, many countries (including US and France) have a 'double taxation treaty'. According to this treaty, the tax you pay in France can be counted against your US tax obligation.
Types of Tax
In France there are many different taxes. These can be grouped into two categories:
- Taxes that can be ignored. There are many taxes associated with the sale of specific products; these taxes include: alcohol tax, cigarette tax, petrol tax, stamp duty, and many more. Unless you own a business, you can safely ignore these taxes because:
- 1) You have no responsibility in terms of these taxes. It is the complete responsibility of the business selling the products to calculate, collect and pay them.
- 2) Opportunities to avoid or reduce these taxes are very limited or non-existent, short of illegal tax evasion or simply not purchasing the products.
- Taxes that need action. There are a number of taxes which one should understand and take appropriate actions in regard to. There are three basic reasons for this:
- 1) A number of taxes are the individuals responsibility to pay (e.g. the TV license fee) and if the individual does not pay them by the due date they are subject to fines and other penalties.
- 2) For some taxes the individual is not only responsible for paying them, but also for providing the information and documentation to the tax office so that the tax office can calculate the amount due. An example of this is income tax.
- 3) For most taxes (at least, most taxes in France) there are legal means to reduce the amount of tax due and thus the amount that must be paid.
TVA (VAT or Sales) Tax
In France VAT (Value Added Tax, or sales tax) is known as TVA (Taxe à la Value Ajouté) and it works much the same way as in the UK. The standard rate for TVA is 19.6%, but as in the UK certain items are taxed at a lower rate (for example, some food items are taxed at only 5.5%).
Most items that you purchase for your home will be taxed at 19.6%. However, if you purchase professional services at the same time, you will generally be taxed at only 5.5%. You save 14.1% simply by ordering the labour at the same time as the materials.
Taxe Foncières, Taxe d'Habitation
Council tax in the UK is based on the value of the property and the number of people living in it. In France, this is broken down into two separate taxes: a property tax (taxe foncières) and a residence tax (taxe d'habitation). The owner of the property is liable for the taxe foncières, while the occupier is liable for the taxe d'habitation; if you are an owner-occupier then you are liable for both taxes.
As in the UK, property tax varies from region to region, so identical properties can have very different levels of property tax depending on where they are located. Likewise, a city property will be taxed more than the equivalent property in a village or the countryside.
Residence tax depends on the number of people living in the house or apartment. Like property tax, it varies from one area to another. People over 60 are eligible for exemptions.
In the case of a house being sold, the person owning the house as of 1st January is liable for the full year's taxe d'habitation. However, if a house is purchased partway through the year, the taxe foncières is often split between the buyer and the seller. If you do not confirm this (in writing) at the time of the initial contract (Compromis de Vente), you may be required at the time of the final contract (Acte de Vente) to refund to the vendor's the taxe foncières they've already paid for the balance of the year.
Income Tax
If you are tax resident in France, your income tax is calculated on the basis of your worldwide income. If you are not tax resident In France, your income tax is based only on income earned in France.
Income tax is subject to a number of deductions, where the deductions available depends on the source of income and the amount of income. For example, when calculating rental income, one has the choice of deducting the actual expenses or of deducting a flat rate of 40% of the income. However, this choice is only available if the level of rental income is under €15,000.
There are seven different categories of income, each with different rules in terms of how tax is calculated and what tax allowances are available:
- business profits,
- professional profits,
- agricultural profits,
- real property income,
- wages, salaries, pensions and annuities,
- income from transferable securities, and
- capital gains.
When calculating profit, you will often have the choice of deducting your actual expenses from your income, or deducting a standard percentage. For example, if you earn less than €15,000 from property rental, you can either deduct your actual expenses from your income or simply deduct 40% of your income. Likewise, for wages and salaries, you can either deduct expenses associated with earning the salary (e.g. the cost of driving your car to and from employment) or you can deduct a flat rate of 10% from your income. Consequently, you can minimise your taxes by choosing the higher of either real expenses or the flat rate allowances.
France also has a number of other substantial allowances which are not available in the UK tax system. For example, a resident of France can deduct 50% of the cost of domestic help (a nurse, cook, driver, etc.) up to €12,000. This gives a potential deduction of €6,000 (50% of €12,000). Note that this deduction is against tax due rather than income, so it is a potential direct tax saving of €6,000 rather than merely a reduction of taxable income by this amount. For each person in the household over 65 there is a further increase of €1,500, for up to two people, taking the maximum tax saving to €7,500 (50% of €15,000).
The tax year in France runs from 1st January to 31st December (unlike the UK, where the tax year is April to April of the following year). Unlike the UK, income tax is not paid as income is earned (the UK PAYE scheme), but is paid the following year. For example, one would pay in March 2005 for the income earned during 2004 (it is also possible to pay tax in instalments rather than all at once).
It is the responsibility of the individual to declare his/her income and make the corresponding payments (i.e. tax is based on self-declaration). A tax declaration form can be obtained from the local tax office and employees receive from their employer a form stating their taxable income. If you are earning income in France (e.g. from letting property) you must make an income tax declaration in France for this income, even if you are not resident in France.
Calculation of Income Tax
In France, income tax is based on family income rather than individual income. In other words, if the husband and wife both work, rather then each submitting a tax return and paying tax individually, tax is calculated on their joint income, with tax relief then being applied depending on the number of people in the family.
The procedure for calculating income tax is as follows:
- Add up all your sources of income to determine your total income
- Deduct social taxes (CSG, CDRS) which have been paid and deduct applicable allowances, to determine your net income.
- Divide the net income by the number of family units (husband and wife each count as one unit, the first two children count as half a unit each, the third and subsequent children count as one unit each) to determine net income per family unit.
- Use the following table to calculate the income tax per family unit.
Income after deductions, divided by family units Tax rate Up to €4,262 0% €4,262 to €8,382 6.83% €8,382 to €14,753 19.14% €14,753 to €23,888 28.26% €23,888 to €38,868 37.38% €38,868 to €47,932 42.62% over €47,932 48.09% - Multiply the unit income tax by the number of family units to determine the gross tax.
- Subtract any tax reductions and tax credits to which you are entitled, to determine your net tax (what you actually have to pay).
Capital Gains Tax
Profits on the sale of assets (e.g. property or equities) are subject to capital gains tax. However, certain items are exempt from this tax. For example, if you sell your home in France (assuming it is your principal residence) you do not need to pay any tax on the profit. Furthermore, even for taxable items, you do not need to pay tax if your profit is less than a given amount.
For items which are taxed, the profit is not merely the difference between the selling price and the purchase price, as there are a number of allowances, such as:
- costs and expenses associated with the purchase,
- costs and expenses associated with the sale,
- certain expenses during the period of ownership,
- additional discounts associated with property. For example, after five years of property ownership, there is a 10% allowance for each subsequent year of ownership (e.g. after 10 years ownership tax is reduced by 50%; after 15 years ownership any profit on sale is tax free).
- France residents, capital gains on property. This is taxed as income. In other words, it is added to your other types of income and then income tax is calculated on it. As discussed above, some items (e.g. sale of your principal residence) are exempt from this tax.
- Non-residents, capital gains on property. If you resident in another EU country (e.g. the UK), the profit is taxed at a flat rate of 16%, plus social taxes (see CSG and CDRS below). If you are not a resident of a EU country, the tax is one third of the profit (i.e. taxed at a flat rate of 33%).
- France residents, capital gains on securities. Profits are taxed at a flat rate of 16%, plus the social taxes (see CSG and CDRS below).
- Non-residents, capital gains on securities. In general this is tax free in France (there are some exceptions, such as in the case of a shareholding of 25% or more in a private limited company). However, the county in which you are resident may tax you on this profit.
Social Taxes (CSG, CDRS)
CSG (contribution sociale généralisée) is a tax which is specifically used to fund certain social security and health care costs. For most income and capital gains, it is set at 7.5%.
As the French social security system is in debt, another social tax was created to repay this dept. This tax is set at 0.5% and is known as CDRS (Contribution pour le Remboursement de la Dette Sociale).
A third tax social tax, set at 2%, is applicable to property income.
Inheritance Tax
Inheritance tax is one of the major considerations when moving to France and needs careful attention prior to the purchase of a property. Factors to consider include:
- Unlike the UK, the threshold for inheritance tax is very low. Therefore, even a small inheritance is subject to inheritance tax.
- Inheritance tax rates are very high (up to 60%) so it is quite possible for half of an inheritance to be taken in taxes.
- Inheritance law in France limits your choice in terms of who you can leave your estate to.
- Not only your French property, but all of your assets worldwide can be subject to French inheritance law and French inheritance tax.
- French inheritance law is moderately complicated. For example, the level of tax is affected by:
- Who is inheriting. Money left to close relations is taxed at a different rate than money left to distant relations. Disabled beneficiaries unable to earn a living receive an additional allowance against the tax.
- What is being inherited. Property can be taxed at a different rate than money. Life insurance policies may also be exempt.
- How it is being inherited. If you try to avoid inheritance tax by giving away your assets before you die, the beneficiaries can be taxed. This is called Gift Tax and is treated in much the same way as inheritance tax, although it can be reduced based on the age of the donor.
Inheritance tax in France is due if:
- Donor (the deceased) is resident in France. In this case French inheritance taxes are due on all assets, both inside and outside France.
- Donor is not resident in France. Only the assets within France are subject to inheritance tax.
- The heir is resident in France. All inherited assets are subject to French inheritance taxes, even if the donor is not resident in France. However, this is applicable only when the heir has been tax resident in France for six out of the ten years prior to receiving the inheritance.
| Taxable part (i.e. after allowances) | Tax rate |
| Up to €7,600 | 5% |
| €7,601 to €15,000 | 10% |
| €15,001 to €30,000 | 15% |
| €30,001 to €520,000 | 20% |
| €520,001 to €850,000 | 30% |
| €850,001 to €1,700,000 | 35% |
| over €1,700,000 | 40% |
| Taxable part (i.e. after allowances) | Tax rate |
| Up to €7,600 | 5% |
| €7,601 to €11,400 | 10% |
| €11,401 to €15,000 | 15% |
| €15,001 to €520,000 | 20% |
| €520,001 to €850,000 | 30% |
| €850,001 to €1,700,000 | 35% |
| over €1,700,000 | 40% |
Certain items (e.g. company securities, sole proprietorships) can have a tax exemption up to 50% of their value. Some items, such as life insurance (up to€152,000) that meet certain criteria, are 100% exempt.
Gift Tax
Gift tax is a tax levied on gifts. It was introduced to prevent people from avoiding inheritance tax by giving away their property prior to death. As such, it is not intended for small routine gifts but rather for large gifts (e.g. a house or other substantial property or assets). As the intention is to prevent avoidance of inheritance tax, the tax rates and treatment of gift tax is essentially the same as that for inheritance tax.
However, if the donor is under the age of 65%, gift tax is reduced by 50%. Between the ages of 65 and 75 there is a 30% reduction. A recent law has improved this situation by allowing a 50% reduction regardless of the age of the donor, but this law may expire in 2005.
Wealth Tax
If your net assets exceed a certain level (currently €720,000), you are liable to pay an annual wealth tax. If you have less than this amount of net assets, you do not need to pay this tax. Note that this is net assets rather than total assets (e.g. if you had a house worth €250,000 with a mortgage of €200,000 then the net assets are only €50,000).
For residents of France the tax is based on worldwide assets (i.e. all your assets and liabilities, both within France and in other countries). For non-residents of France, the tax considers only assets in France. Note that the tax is based on the household rather than an individual, so if a husband and wife individually ownassets worth €400,000 each, then they are liable to this tax.
Some assets are exempt (e.g. antiques) and others have substantial allowances (e.g. household goods). One is liable for this tax only if net assets after all exemptions and allowances exceeds the €720,000 level. If one exceeds this level, then only the excess is taxed (at between 0.55% and 1.8%, depending on the amount of the excess). The tax scale is as follows:
| Wealth (after allowances and deductions) | Tax rate |
| Up to €720,000 | 0% |
| From €720,001 to €1,160,000 | 0.55% |
| €1,160,001 to €2,300,000 | 0.75% |
| €2,300,001 to €3,600,000 | 1.0% |
| €3,600,001 to €6,900,000 | 1.3% |
| €6,900,001 to €15,000,000 | 1.65% |
| over €15,000,000 | 1.8% |
Other Taxes
There is a small tax for collecting and emptying dust bins (for our USA visitors, dust bins are garbage cans). This tax is known as Redevance Ordures Ménagères. It is a relatively small tax (around 100 euros), with the exact level depending on how many people there are in the house, in which part of France the house is located and whether the house is a permanent residence or a secondary residence. You should receive a tax bill in the mail once a year for this tax; this bill will specify the amount due.
Like the UK, in France TV owners must have a TV license. If you buy a television in France, you will be asked by the shop to provide your name and address, which will then be sent off to the tax office. In due course you will receive a letter through the mail asking you to purchase a TV license (Redevance Audio-Visuel).
If you already are paying a TV license and purchase a TV, this will result in you receiving a letter asking you to purchase a TV license (the tax officials automatically send the request whenever someone buys a TV, apparently without checking if they are already paying). The easiest way to respond is to send a letter back saying you already have a TV license; you may want to enclose a photocopy of your existing TV license.
France no longer has an annual car tax. However, when you buy a vehicle you will need to pay a one-off tax, which is done when you register the car in your name. The car registration papers are know at the carte grise.
Special Considerations
The above is a general discussion only and does not take into account all individual circumstances. For example, families with disabled children are eligible for special tax allowances (in addition to social payments) and the disabled themselves have additional tax allowances (including inheritance tax allowances).
Every tax system (UK and France included) has a number of tax loopholes. In addition, there can be tax loopholes between countries. In other words, if you have income in one country and are tax resident in another, you may in certain circumstances be able to legally avoid paying tax on this income.
As an example, consider the case where you have investment property (such as, houses you have purchased to let out) and you sell these. If the property is in the UK and you are tax resident in the UK, you would have to pay capital gains tax on the profit. Likewise, if the property is in France and you are tax resident in France, you would have to pay capital gains on the profit. However, if the property is located in the UK and you sell it after you become resident in France, you are not liable UK tax on the capital gain as you are not UK resident and apparently you are not liable to French tax as it is not covered by the double-taxation treaty between the two countries. Consequently, you would be able to take your capital gain completely tax free.
The purpose of this example is to illustrate the existence of tax loopholes between UK and France. Discussion of the exact circumstances under which it is applicable (e.g. minimum time that one must be tax resident in France before returning to the UK) and discussion of how long the loophole is likely to remain open is the subject of specialist tax advice beyond the scope of this page. However, the point to note is that if you are in a position to realise substantial income in one country while living in another, you may wish to obtain specialist advice on not only the normal tax implications of this, but also tax advice on when and how this income should be realised in order to minimise or even completely avoid taxes.
French Property Taxes
There are two local taxes, called the taxe d'habitation and the tax foncière.
The rates of tax vary across the country, due to the varying rates of tax imposed by the regional and local governments.
Taxe d'Habitation
The taxe d'habitation is payable by the occupier of a French residential property, who was occupying the property on 1st January.
Even if the property was empty, if it was 'capable' of occupation, the tax is also payable.
There is an exemption if the property is incapable of occupation due to it needing extensive renovation.
Taxe Foncière
The taxe foncière is payable by the owner of a French home.
Unlike the taxe d'habitation, at the time of purchase apportionment can be made between the buyer and seller, although it needs to be stated in the contract for sale.
The tax is also payable on undeveloped land. There are exemptions for agricultural land and the owners of new property are granted limited exoneration.
French Income Tax and Being Tax Resident in France
Becoming a Tax Resident of France
Under French domestic rules, a person becomes French tax resident from the day they arrive in France if they intend their stay to be permanent or indefinite. Otherwise it will be from whatever other point they can be viewed as having commenced residence where at least one of the four following tests is fulfilled:
- France is where the main residence or home is (foyer). This embraces ideas of permanence and stability and ignores temporary absences, and is the rule the French authorities will most rely on. If a spouse and children live in France a person will also probably be considered French tax resident even if they work abroad.
- France is the principal place of abode (lieu de séjour principal). This usually means more than 183 days in France in a calendar year. It does not have to be a continuous period of 183 days; this is a cumulative rule assessed over a French tax year (1 January to 31 December) and includes part days.
- Even if a foreigner spends less than 183 days in France, they may be tax resident if they have spent more time in France than in any other country.
- A person's principal activity is in France, for example, their occupation is in France (whether salaried or not); or their main income arises in France (whether salaried or not), unless they can show that such activity is purely incidental (à titre accessoire).
- France is the country of a person's most substantial assets (centre of economic interests). This means if France is the place of principal investments, or where assets are administered, or from where a larger part of income is drawn.
If a person is also simultaneously tax resident under the domestic rules of another country, then in order to come to a decision it will be necessary to look at the "tie-breaker" rules in the double tax treaty between the two countries, if one exists. These normally follow a particular pattern.
The Income that is Taxed
A person who is tax resident in France is liable to pay tax on their worldwide income (impot sur le revenu).
Some income, such as earnings, pensions, rental income and some other forms of investment income is taxed at progressive scale rates that range from 0 percent to a top rate of 41 percent. There is also a fixed rate of income tax of 19 percent at source on bond or bank interest and on capital gains, and by election this can be applied to interest and dividends, say, from other EU countries (see below).
Income Tax Scale Rates for 2011 tax returns based on 2010 Income
| Net Income Subject to Tax | Band | Tax Rate | Tax on Band | Cumulative Tax |
| Up to €5,963 | €5,963 | Nil | ||
| €5,964 to €11,896 | €5,932 | 5.5% | €326 | €326 |
| €11,897 to €26,420 | €14,523 | 14% | €2,033 | €2,359 |
| €26,421 to €70,830 | €44,409 | 30% | €13,323 | €15,682 |
| Over €70,830 | 41% |
The total income is divided by the number of parts. The income tax scale rates are then applied to this lower figure, and having computed the income tax due, it is multiplied back up by the number of parts.
The income of a married or PACS couple (the French version of civil partnership, but open to both same and opposite sex couples) would be divided into two parts, with an additional half part for each of the first and second children, and a whole part for the third and each subsequent child. There is a maximum benefit that a household can receive from this system.
Employment Income
A person who is employed in France, unless they are not resident, will be paid net of social security contributions only. No income tax will be deducted at source from their income. It is therefore the individual's responsibility to ensure that they retain sufficient funds to pay their tax liability when this falls due.
Self-employment income
Self-employment income is taxed in France under one of two regimes (barring agricultural income):
- the BNC (Bénéfices Non Commerciaux) regime
- the BIC (Bénéfices Industriels et Commerciaux) regime
BNC (Bénéfices Non Commerciaux)
The BNC regime applies to all forms of non-commercial income. Accounts are prepared on a "revenue" or "cash" basis; that is income received or expenses paid for within the tax year are taken into account.
If the gross annual income is below €32,600 (from 1 January 2010), it will usually be assessed under the Micro-BNC regime which allows the taxpayer to deduct a flat 34 percent for expenses, so that only 66 percent of the gross income is taxable.
Where the annual income exceeds the above threshold, or the taxpayer opts out of the Micro regime, they will be taxed under a regime whereby the actual income net of expenses of the business is taxed.
BIC (Bénéfices Industriels et Commerciaux)
This regime applies to commercial and more traditional trading income as well as income from furnished lettings. Any income or expenditure relevant to the tax year is included.
Where gross annual income is below €32,600 (from 1st January 2010) the simplified Micro-BIC regime can apply, which will allow a flat 50 percent deduction, which means that only 50 percent of the income is taxable.
For the sale of goods, or the provision of furnished lettings, a more generous Micro-BIC applies, whereby if gross income is less than €81,500 a flat 71 percent of income is deducted leaving only 29 percent to be taxed.
If the turnover exceeds the above thresholds, a taxpayer will automatically fall within the income and expenditure method of calculation known as the Régime Réel Simplifie (RRS).
There is also the Régime Réel Normal, but this usually only applies to businesses whose annual turnover is more than €763,000.
Auto Entreprenuer
Those assessed under the simplified Micro deduction regimes (including for furnished rental income) may elect to pay their income tax, social charges and social security contributions at source. This would then be the final liability on this income.
The income tax at source (known as the Micro-Fiscal), calculated by reference to the turnover (with no deductions) is:
- 1% on trading activities and furnished lettings (although this may change if the proposed changes to furnished lettings go ahead - see above)
- 1.7% for all other services
- 2.2% for non-commercial profits
- 12% on purchase/resales
- 21.3% on services of a commercial nature
- 18.3% on professional services
Bank Interest
French bank interest is subject to a fixed withholding tax of 19 percent, plus 12.3 percent social charges. Bank interest received from an account in an EU country can also effectively receive the same treatment, but in order to achieve this, the taxpayer must complete Form 2778-SD each time interest is paid and pay over the tax (and social charges) to his tax office. Otherwise, where no election is made, the usual scale rates will apply via the normal tax return system.
Dividends
Tax on dividends can be aligned with that of bank interest and other investments that are taxed at a fixed rate.
Taxpayers have the option of electing for dividends to be subject to a final and fixed withholding tax rate of 19 percent applied to the gross dividend with no deductions or abatements, instead of the usual scale rates applying after complex deductions and abatements which can be quite generous.
Pensions are taxed in France at the progressive scale rates. The taxable base consists of income net of social security contributions (if any), less a 10 percent deduction of a minimum of €374 and a maximum of €3,660 per household per year (for 2010).
UK Pensions and QROPS: UK government service pensions remain taxable in the UK and are not taxed in France, although the income needs to be declared and is taken into account for the purposes of determining the rate of tax payable on your other French source income
Annuities and QROPS can receive more beneficial treatment; seek personal advice.
From January 2011 lump sums received from pension funds are taxable in France. At this stage it is not clear whether a lump sum from a UK scheme is taxable in France, and this is something the Ministry of Finance are currently looking into.
Rental income from a French property is always taxable in France, regardless of where the money is paid to the property owner or where they live.
For French residents, the income is added to other income and taxed at the progressive scale rates of income tax. Taxable rental income is calculated under two regimes in France: Revenus Fonciers, applicable to income from land and unfurnished lettings; and BIC (as above) to income from furnished lettings.
Where the gross rental income from furnished lettings is less than €81,500 (from 1 January 2010) the taxable income may be calculated under the Micro-BIC regime (as above).
From 1 January 2010, the limits and discounts are:
- €81,500 for sale of goods/food etc (for consumption on or off the premises) and for gîtes income - discount 71%
- €32,600 for furnished lettings - discount 50%
- €32,600 for other commercial services - discount 50%
The Micro-Foncier regime can similarly apply to unfurnished lettings. It is similar to the Micro-BIC regime, but the thresholds and percentages are different. Where total gross income from unfurnished lettings is below €15,000 per year, a flat 30 percent can be deducted as expenses. The remaining 70 percent of the gross rental income from the unfurnished lettings will be taxable in France.
If the turnover exceeds the above thresholds, the taxpayer will automatically fall within the income and expenditure method of calculation, the Régime Réel Simplifie (RRS). Under this method, actual expenditure related to the letting of the property is tax-deductible. Improvement costs related to rebuilding or expanding a property are tax deductible for capital gains tax purposes only.
A property owner can register as a professional furnished landlord (loueur en meublé professionnel, LMP) and be automatically registered with the various social security and health organisations and be in the mainstream system for self-employed. They will be taxed under the standard BIC regime. To register, a landlord must have a turnover in excess of €23,000 per year and the furnished rental activity must represent at least 50 percent of their total income to claim this treatment.
However, being registered as LMP will trigger a liability to the new CET tax (Contribution Economique Territoriale) which replaced the taxe professionnelle from 2010.
Other Payments to be Made from Income
Social Charges
Social charges are an additional tax levied on income and capital gains. They are effectively another form of income tax in France, payable on all forms of income (including capital gains) received by French residents, including pension income.
Social charges are calculated based on the income declared in your tax return. The French authorities will send notification (avis d'imposition) of the amount payable in the autumn following the submission of your tax return.
Social charges are made up of four elements:
- CSG (Contribution sociale généralisée)
- CRDS (Contribution au remboursement de la dette sociale)
- PS (Prélèvement Sociale Contribution additionelle)
- RSA (Revenu de solidarité active)
| Salaries and unemployment benefits (on 97% of gross) | Retirement or Disability Pensions (on 95% of gross) | Investments, annuities, rental income and capital gains | |
| CSG | 7.5% | 6.6% | 8.2% |
| CRDS | 0.5% | 0.5% | 0.5% |
| PS | 0% | 0% | 2.5% |
| RSA | 1.1% | ||
| Total | 8% | 7.1% | 12.3% |
Social security contributions
A person working in France, as an employee or self-employed, must be registered with the social security organisation (caisse) which covers their particular occupation and pay social security contributions (cotisations).
How much they pay depends on what they earn. There are various ceilings, but, as a guideline, a typical cotisation on salary of say €30,000 would be around 13 percent pension, health and family allowances before the other "social charges" (CSG and CRDS) which would add another 8 percent on top of income tax. It can be a lot higher.
The employer also makes substantial contributions that can reach 40 or 50 percent.
For a self-employed person, the basic procedure is the same but it is their responsibility to get themselves into the system. A typical cotisation might amount to 22 percent before the CSG and CRDS. There are usually more allowable expenses in reaching a taxable figure for the self-employed and the total percentage is a lot less than paid by an employer and employee combined.
Healthcare contributions
A person not covered by EU Form S1 and not working in France, may be able to access the French state healthcare system by paying 8 percent of their net taxable income to the system known as CMU (Couverture Maladie Universelle).
However, CMU contributions can now only be paid by French nationals or long-term residents of five years or more, or non-nationals who were already resident in France and affiliated to the CMU at 23 November 2007. All others now must insure privately for healthcare.
Deductions
Deducted from gross income before tax is calculated are:
- A 10 percent deduction in lieu of expenses related to the employment (minimum deduction €421; maximum €14,157 per individual)
- Social security contributions
- Interest on certain loans used to buy into a business
- Pension contributions up to about €38,000
- Luncheon vouchers and holiday vouchers - up to fairly low limits
- The income from profit-sharing schemes is generally exempt from income tax - but not from social contributions
Individuals over the age of 65 or who are registered disabled and of modest means are entitled to a tax-free allowance of €2,311 (for 2010) where their total household income is up to €14,220 and €1,156 for income of between €14,220 and €22,930. The allowances double for a married or PACS couple where both fulfil the conditions.
Tax rebates
If the tax due is less than €878 for 2010 income the tax office issues a credit known as the Décote.
The Décote is half the difference between €878 and the tax due. This amount is then deducted from the tax bill. If a taxpayer's eventual liability, after calculating the Décote, is less than €61, the tax is not collected - this is the Franchise.
Tax credits
Various tax credits are available. They are not deductible against the gross or net income, but deductible against the actual tax.
Certain of the tax credits are given on a cumulative basis, and the maximum credit that can be received from 2010 (that is, tax payable in 2011) is €20,000 plus eight percent of the global net taxable income of the household (before the scale rates are applied).
These restricted tax credits include:
- The tax credit on dividends
- The tax credit for energy-saving work carried out on the main residence
- The tax credit for purchase of an environmentally friendly car
- The tax credit for the employment of home help
- The tax credit for child minding expenses
- The tax credit for filing tax returns electronically and paying tax by direct debit or electronically
- The tax credit for mortgage interest
Procedure
When a person becomes a tax resident, it is their responsibility to make themselves known to the French tax authorities and to fully declare their income, capital gains and wealth. Married couples or couples allied under a PACS complete joint tax returns.
Income tax returns and payment dates
Income tax is paid in the year after the income is earned. So for 2010 income the tax is paid in 2011. The tax can be paid either in three equal instalments or by ten monthly instalments from January to October. Unless the taxpayer opts for monthly payments, they must make payments on 15 February and 15 May, each equal to one third of the amount of the previous year's total income tax. The final payment is due after the actual assessment is received (normally in the late summer/early autumn) for payment by 15 September.
The normal tax return filing deadline is 31 May following the end of the tax year but this can be extended in certain circumstances and for online payments.
Key Dates 2011
- 15 February: Payment of first instalment towards 2010 income tax
- 15 May: Payment of 2nd instalment towards 2010 income tax
- 30 May: Deadline for filing resident 2010 income tax returns (2010 income) for individuals and SCIs. May be extended by agreement with the local tax office or if the return is filed electronically
- 30 June: Deadline for filing non-resident 2010 income tax returns for residents of Europe, Littoral Mediterranean, North America, Africa
- 15 July: As above for residents of all other countries
- 15 July: Filing of non-resident Wealth Tax returns for residents of Europe, Littoral Mediterranean, North America, Africa
- 31 August: As above for residents of all other countries
- 15 September: Income tax, CSG & CRDS demands - payment/repayment of balance of 2010 French income tax
- 30 September: Deadline for filing 2010 Wealth Tax returns for French residents
- October/November: Payment of local taxe foncières and taxe d'habitation for 2011