Since it’s the time of year when we need to submit our French income tax returns, our article this week reviews the basic elements of how income is taxed in France.
Residents need to submit their tax return by 17th May 2017 if making a paper return. The deadline for online submissions varies by region:
Departments 0-19- 23 May 2017
Departments 20-49- 30 May 2017
Departments 50, 974 & 976- 6 June 2017
Non-residents need to submit their income tax return by 23rd May, declaring any income earned in France. Taxes are declared and paid a year in arrears, so your 2017 return covers income earned in 2016. The tax rates are:
|Up to €9,710||Nil|
|€9,710 to €26,818||14%|
|€26,818 to €71,898||30%|
|€71,898 to €152,260||41%|
There is an additional 3% for a single person where income is between €250,000 and €500,000 per part (nothing is due from a family) and 4% for income exceeding €500,000 per part for an individual, 3% for a family (unless income exceeds €1 million per part). A quotient mechanism can reduce the effect of the high income tax if you exceptionally exceed the threshold, if certain conditions are met.
Spouses/civil partners are not taxed separately in France, instead the total income of a household is assessed. A family is divided into a number of parts familiales, including children (half part for the first two children). The total income is divided by the number of parts, income tax scale rates are applied to this lower figure and, having computed the income tax due, it is multiplied back up by the number of parts. This helps avoid the higher rates of tax, though there is a maximum benefit that a household can receive.
Income to Be Declared
Your income tax return covers a range of income: employment, pensions (including lump sums unless you can opt for the 7.5% fixed rate), investments (bank interest, dividends, capital gains etc), rental income etc.
Residents need to declare all their worldwide income and gains, including income that is normally taxed outside France. UK government service pensions remain taxable in the UK and are not taxed directly in France. However the income must be included as part of your taxable income and a credit equal to the French income tax and social charges that would have been payable is given. This applies even if no actual tax is paid in the UK.
Individuals with a taxable income of up to €18,500 (€37,000 for couples) benefit from a new 20% tax reduction. There is also scaled relief available for individuals earning up to €20,500, and €41,000 for couples.
Individuals over the age of 65 (or who hold an invalidity card or receive a military pension) are entitled to a tax-free allowance of €2,352 where their total household income is up to €14,750 and €1,176 for income of between €14,750 and €23,776.
If your taxable income is below €1,555 (€2,563 for a couple) a tax credit known as the Décote will reduce your tax liability.
Pension income benefits from a 10% deduction, with a minimum of €379 and maximum of €3,711 per household.
There are deductions that can be made from your gross income before tax is calculated, such as social security contributions, pension contributions, a 10% deduction in lieu of employment related expenses (with minimum and maximum deductions) etc. Various tax credits are also available.
Payment of Income Tax
Payment is due the year after the income was earned. You can choose whether to pay in 10 monthly installments from January to October, or in three installments by 15th February, May and September. In February and May you pay the equivalent of a third of your previous year’s tax bill, then pay the balance in September based on the assessment sent by your local tax office.
Social charges are paid on top of income tax, ranging from 8% to 15.5% depending on the type of income.
They are usually calculated based on the income declared in your income tax return and the authorities will send notification of the amount payable in the autumn. So you will receive your demand for 2016 social charges in autumn 2017, along with your income tax assessment.
For certain types of income/gain (assurance-vie under special rates, real estate capital gains, dividend/interest advance payment etc.), the charges are paid by the 15th of the month following the income/gain arising.
This article is just a brief summary covering the basic elements of income tax in France. It is important to seek personalised, professional advice, particularly if you are looking to lower the tax liabilities on your savings, investments and pensions. French tax may be high, but it does present opportunities for effective tax planning if you work ahead and take specialist advice.