The tax system in France can be a bit overwhelming, but it is worth exploring to get the most out of your time abroad, or work with a specialist of taxes in France such as Elitax. The French government imposes a variety of taxes on its citizens, and expatriates are no exception. The good news is that most expats can take advantage of favorable tax treaties to reduce their tax liability.
Residents in France will be required to complete a French tax return. This is primarily to cover taxes on income, property sales, or significant personal wealth. As in other countries, you may also be liable for capital gains tax on assets that are sold.
Who is an Expat?
Expatriates are people who have left their home country to work or live in a foreign country. They may be citizens of the country they are living in, or they may be from another country. Expats often enjoy a number of tax benefits, as discussed above.
Double tax treaty
A double tax treaty is an agreement between two countries to avoid double taxation of income. This means that residents of each country will only be taxed on income earned in that country. The treaty also usually includes a provision for tax relief in case of cross-border payments, such as interest or dividends.
France has got double tax treaties with many countries. Click here to check whether your home country is on the list or not. If your home country comes under a double tax treaty with France, then you will have to pay tax only in the country where you generate your income.
Temporary or Permanent Residence
Taxation in France is done on the basis of residence. For the purpose of taxation in France, you are considered a resident if you spend 183 days or more in France. You will also be considered a resident if France is your “main residence”.
Main residence depends on factors such as where your personal and professional interest is located. For instance if your home country is US and your business is located in France, then under French tax laws France will be considered as your main residence.
Once your permanent residence is established, you will be required to pay tax on your income.
The tax year in France is the same as the calendar year. It starts in January and ends in December. This means that tax returns are due on or before the end of June of the following year, for those submitting online returns by the end of May for those submitting the returns offline.
Once the tax liability is determined, the payment is to be made in four monthly installments starting from September and ending in December. Individuals or families wishing to benefit from the PAYE scheme have to pay advance tax.
Those who file their tax returns late, have to face 10% late payment penalty.
Who is required to file a tax return?
Any individual who is considered a tax resident in France is required to file a tax return. This includes
- Citizens of France receiving income
- Receiving French sourced income
- Expatriates who have established residence in France
Unmarried individuals are required to submit individual returns whereas those in a marriage or civil partnership can choose to submit joint tax returns.
If you are married or in a legally recognised civil partnership you can choose to submit individual or joint tax returns. If you are unmarried, you are required to submit individual tax returns.
In France, tax is levied on “household units” instead of individuals. For the purpose of taxation
- Adults in a marriage or civil partnership are counted as one each.
- First two children are counted as half each.
Therefore a household with two parents and two children, will be said to have 3 individual parts. A household with two parents and three children will be said to have four individual parts.
The total household income is divided by the individual parts, to arrive at the taxable income.
Apart from income tax, expats and other resident individuals are also subject to other optional and compulsory taxes including
- TV license tax or redevance audiovisuelle
- Council tax or taxe d`habitation
- Capital gains tax
- Property tax or tax fonciere
- Inheritance tax
TV license tax or redevance audiovisuelle
The TV license tax is a compulsory annual tax that all households in France are required to pay. The amount payable depends on the number of televisions in the household. A household having a single tv has to pay €133. Households willing to opt out of this tax have to declare in their tax return that they do not own a tv set.
Council Tax or Taxe d`habitation
Council Tax or Taxe d`habitation is a local tax that is levied by the communes in France. It is based on the rental value of the house. Taxe d`habitation is levied on every property in France regardless of its status
Capital Gains Tax
Capital gains tax is levied on the profits made from the sale of assets such as shares, real estate or businesses.
Property tax or tax fonciere
Property tax is levied on property owners, regardless of their occupation of the property, similar to taxe d`habitation. It is also based on the rental value of the property.
Inheritance tax is levied on the estate of the deceased. The tax is payable by the beneficiaries of the estate. The tax rate depends on the relationship of the beneficiary to the deceased.
Inheritance tax also depends on the resident status of the tax payer. If the deceased was a resident, then all of their worldwide property will be subject to inheritance tax in France. If the deceased was a non-resident for tax purpose, then only their property in France will be subject to tax.
Apart from the tax laws discussed above, the French government has designed an “Expatriate regime” that is aimed at employees and professionals who were not residents in France for tax purposes for five years prior to their current employment in France.
This regime only applies to expats working in France, whose main residence (as discussed above) is also in France.
Under this regime, the expats enjoy exemptions for eight years on
- parts of business income
- selected foreign source income
- French wealth tax
Tax rules are subject to change upon the discretion of the French government. As an expat in France, you are subject to French income tax, you may also be subject to other taxes in your home country. For this reason, it is important to consult a tax specialist to determine the exact applicability of the rules to your specific case.