Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for firms and on capital gains overseas.
Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.
If you are looking for portable expat tailored investment solutions, which is what we specialise in, you can contact me on this form.
Tax – ‘Tax’ is a type of mandatory fee imposed on an individual of a country by the respective country’s government. Taxes can be imposed on a local level, state level, or national level (most common).
The revenue collected by the government in the form of a tax is used to fund the financial activities of a government such as paying government employees, development activities, etc.
The process of imposing taxes is known as ‘Taxation’. There different types of taxes imposed in individuals, a few examples are ‘Income Tax’, ‘Corporate Tax’, ‘Property Tax’, ‘Wealth Tax’, ‘Inheritance Tax’, ‘Value Added Tax’, ‘Excise Tax’, ‘Goods and Services Tax’, etc.
However, the taxation in a country differs for different countries. Some countries might have a certain type of tax, whereas, some countries might not impose that certain tax.
Expat – an ‘Expat’, used as a short form for ‘Expatriate’, is a person who is living in a country other than their native country. The difference between Immigrants and an expat is that an immigrant moves to another country to live there on a permanent basis, whereas, an expat might choose to return to their native country.
Most commonly, expats are the people who are ‘Skilled Workers’, ‘Digital Nomads’, ‘Students seeking education in other countries’, or ‘People who retire in another country’.
Taxes are different for expats and residents. However, in some countries, certain taxes might be the same for both. The taxation of expats in some countries might even be applicable on their worldwide income unless that country has a tax treaty with the expat’s country to avoid double taxation.
France – ‘France’, which is officially known as ‘French Republic’, is a country in Europe that consists of Metropolitan France in Western Europe along several regions and territories.
France is the third-largest country in Europe after Russia & Ukraine and is located on the borders of the countries ‘Andorra’, ‘Spain’, ‘Monaco’, ‘Italy’, ‘Switzerland’, ‘Belgium’, ‘Luxembourg’ and ‘Germany’.
The official language, as well as the national language, of France is French. Other than that, most people speak English, German, Italian, Portuguese, Polish, etc.
France is the founding member of European Union and it is also a member of various international organizations such as ‘North Atlantic Treaty Organization (NATO)’, ‘World Trade Organization (WTO)’, ‘International Bank for Reconstruction and Development (World Bank)’, ‘Organization for Security and Cooperation in Europe (OSCE)’, etc.
93% of the French population are natives and the remaining 7% are foreign individuals (as per stats of 2019). The main religions in France are ‘Christianity’, ‘Catholicism’, ‘Islam’, etc.
As of May 2020, France has a population of 67. 07 million people. Only the population of Metropolitan France is estimated to be around 64. 9 crores.
Taxation in France – Taxation in France is usually determined by the French Parliament. With the help of the yearly budget vote by the French Parliament, it is decided that which taxes need to be imposed on the individuals and what would the rates for them.
The tax system in France is distinguished by the complex taxes having high marginal rates and high administration costs. However, it does not mean that France imposes heavy taxes on all individuals. For example, people who retire in France might have very low taxes.
People are required to pay taxes on things such as personal income, investment gains, corporate/business income, inheritance, property, wealth, purchased goods & services, etc.
It is wise to use the help of an accountant or a financial manager to deal with the taxes in France. People who don’t want to use the help of an accountant should thoroughly research the relevant information, or else, they would have to pay fines or penalties for missing the deadlines.
There are some local taxes as well, imposed on the individuals living in France. If a person is living somewhere in France in a rented property, they are subjected to a local residence tax, which is known as ‘taxe d’habitation’. People who earn up to a certain threshold can avoid certain types of taxes. Other than this, there are some other taxes at the local level such as TV License tax, taxes on goods and services in France (VAT), etc.
People who are not of native origin of France can be able to apply for a refund on the VAT. For this, the person would have to submit the receipts of the items that have been purchased by them. However, the overall cost of the items should be at least €175.01 and should have been bought on the same day at the same store.
The type of people who are subjected to taxes in France are:
- People who have France as the place of their primary residence. If a person’s spouse and children live in France and that person is working outside France, still the person is considered as a French Tax Resident.
- People who are residents of France for than a time period of 183 days. This time period need not be consecutive.
- People whose main occupation is based in France.
- People who have their important assets in France.
Non-residents who live in France are also subjected to tax on the income that has been earned from French sources. Even if a person does not live in France on a permanent basis, if they work for a French company, they are subjected to taxes.
France has tax treaties with many countries. These treaties allow individuals to not pay the taxes in France in order to avoid double taxation.
Income Tax – Coming to the general taxes imposed on the individuals in France, Income Tax is the main type of tax that needs to be taken into consideration. The income tax rates in France depend on certain conditions such as Marital Status, Family Details, Professional Background, etc.
Residents of France are generally subjected to taxes on their worldwide income. This includes various types of income such as earnings from employment, investment gains, dividends, bank interests, pensions and income earned from properties.
The income tax rates depending on the thresholds are given below:
- Up to €9,964, the income tax rate is 0%.
- From €9,964 to €25,405, the income tax rate is 11%.
- From €25,405 to €72,643, the income tax rate is 30%.
- From €72,643 to €156,244, the income tax rate is 41%.
- For an income of more than €156,244, the income tax rate is 45%.
People having higher incomes would have to pay additional taxes on their income. This differs depending on the family status of a person.
|Additional Tax rates||Single Individual||Couple|
|€250,001 to €500,000||3%||0%|
|€500,001 to €1,000,000||4%||3%|
|More than €1,000,000||4%||4%|
Process of calculating income tax in France – The global taxable income of an individual in France is divided within the household in an equal number of parts.
The taxpayer would be considered as one part if he is single. If the taxpayer is married, then two parts for both of them. If a couple has two children, then it would be 3 parts (where 2 parts for the couple and 0.5 part for each child). From a third child, it would be considered as one extra part.
For a better understanding, let us take a look at an example. For suppose, let there be a person named ‘A’. ‘A’ is a single person and earns an income of €80,000 per month. Then ‘A’ would be charged with 41% income tax.
After 3 years, ‘A’ gets married and has 2 children. Then the household income can be distributed among the 4 of them. This means the individual would come under the bracket of a person earning €26,666 while being subjected to a tax rate of 30%.
If a person is self-employed and is the only employee (like a Freelancer), then that person would be considered as a micro-entrepreneur and are able to enjoy the tax privileges offered to them due to their tax status.
However, a person having a larger business cannot be able to enjoy the benefits offered to the people under the micro-entrepreneur status. In such cases, taxes are to be filed through the normal regime reel, where the income is taxed on the basis of general tax rates along with deducting the business costs.
Social Security Tax – Social Security charges (different from social charges) are collected from the individuals in France, which are known as ‘Social Security Contributions’. These are collected at the state level and the collected revenue is used to fund France’s welfare system. This includes French Healthcare/Sickness Cover, Family Benefits, Pensions, Unemployment Benefits, etc.
These charges are usually split between the employer and the employee and no amount is fully paid by the employer or no amount would have to be fully paid by the employees. For a general understanding, please refer to the table given below.
|Family Benefits||5.25% or 3.45%||0%|
|Health cover/sickness cover||13% or 7%||0%|
|Accident at work||3%||0%|
Social Charges – Social charges are to be paid by the individuals on all sorts of income. The general rates for social charges in 2020 are:
- 9.7% in case of either employment or self-employment income.
- 17.2% in case of investment income. This can be reduced to 7.5% if the individual has an active health cover of another EU or EEA country.
- 9.1% in case of pension income, which can be reduced to 7.4% if the pension income is lesser than €2,000 per month.
Property Tax – There is a tax imposed on an individual’s property as well, which is known as ‘taxe foncière’. Both types of people, who are either owning property or renting a property, are subject to the French Property Tax.
The bill for the French property tax usually arrives in the last quarter of the year and the annual value is estimated as the assumed rental value of the property multiplied by a percentage, which will be set by the commune. This tax can be paid in installments or by a monthly direct debit.
The French Property Tax rate for a primary residence is 1% and for other types of residence, it is 3%. The taxe d’habitation is similar to the taxe foncière, which includes the additional tax rates for high income or secondary homes. However, there is no tax relief for children.
Individuals are also required to arrange insurance and pay the Waste Collection Tax along with the property tax. Some localities fund the waste collection services on their general budget, whereas, some localities impose these charges on the residents.
Capital Gains Tax – Capital Gains Tax is another major tax that is imposed on the residents. It is known by the name ‘impôt sur plus value’. Capital Gains tax is usually imposed on the sale of buildings, sale of lands and sale of shares.
Taxes on Investment Income – Beginning in the year 2018, a flat tax rate of 30% is imposed on the income and gains from investments as well as savings. This is composed of 12.8% as income tax and 17.2% as social charges.
People who earn relatively lower income can choose to apply for the progressive tax rates on their income for their investment income along with paying the social charges.
However, this tax is not imposed on the capital gains on the sale of a property, which is 36.2%.
Wealth Tax – Wealth tax is also imposed on the individuals living in France and the tax rates are as follows:
- From €800,000 to €1.3 million, the tax rate is 0.50%
- From €1.3 million to €2.57 million, the tax rate is 0.70%
- From €2.57 million to €10 million, the tax rate is 1%
- From €5 million to €10 million, the tax rate is 1.25%
- For an amount of more than €10 million, the tax rate is 1.5%
Inheritance Tax – Inheritance Tax in France is a very complex tax when compared to other taxes. French Inheritance Tax is imposed on all the worldwide assets of the individuals. Adding to that, all the assets based in France are subjected to taxation, even if the beneficiary is not a resident of France.
There are some exemptions for the non-residents depending on whether their country of origin has a tax treaty with France. However, this only applies to their worldwide assets and not the assets based in France.
The general Inheritance tax rates in France are as follows:
- Up to an amount of €8,072, the tax rate is 5%.
- From €8,072 to €12,108, the tax rate is 10%
- From €12,108 to €15,931, the tax rate is 15%
- From €15,931 to €552,323, the tax rate is 20%
- From €552,323 to €902,837, the tax rate is 30%
- From €902,837 to €1,805,667, the tax rate is 40%
- For an amount exceeding €1,805,667, the tax rate is 45%
The tax rates might also differ depending on the individual’s relationship with the deceased person. For example, in the case of siblings, the tax is 35% up to €24,430 and for an amount more than that, the tax rate is 45%. People having other types of relationships might be imposed with a 55% to 60% tax. There are some other types of taxes as well, which are imposed on the residents.
If you require additional details related to the taxation for the residents or need any help with filing taxes as a resident (either temporary or permanent), please contact us to get the tax-related information or avail the expert financial planning offered by us.
Taxes for Expats in France:
Individuals, who are expats in France, should need to understand all the rules and regulations related to Taxes in order to avoid fines or penalties. The taxes applicable to the residents are mentioned above. Now let us have a look at the taxes for expats living in France.
People who are not the tax residents of France are subjected to taxes only on their income that has been earned from the French sources.
From December 2009, France has a double taxation treaty with the UK, which lets the expats from France to legally avoid certain taxes that can be taxed in both countries.
Many countries have a tax treaty with France, out of which, some are ‘Australia’, ‘Austria’, ‘Belarus’, ‘Belgium’, ‘Brazil’, ‘Bulgaria’, ‘Canada’, ‘Chile’, ‘China’, ‘Congo’, ‘Croatia’, ‘India’, Singapore’, and many more.
Basically, any person who spends more than 183 days (not necessarily to be consecutive) in France is considered as a tax resident of France. People having France as their location of a primary residence are also considered to be tax residents, to whom the tax rates are applicable, that we have discussed earlier.
The tax year in France generally starts from 1 January to 31 December and the individuals are required to pay the taxes before the end of February of the following year.
Residents must file for the French tax returns before mid-May or at the beginning of June when the online filing services are made available to the individuals. Expats/non-residents should file their taxes before mid-May.
From January 2019, a new tax system is brought into action, which is known as the ‘Pay-as-you-earn’ tax system. Individuals are required to provide their bank details for a Single Euro Payments Area (SEPA) bank account while filing the annual tax returns. This has been made into a mandatory process and the income tax is withheld directly from the individuals’ payslips.
‘Income tax for expats’ – Coming to the taxes applicable for expats in France, income tax is one of the major taxes applicable to the individuals living in France as expats.
Expats in France are taxed on their income that has been obtained from French sources only (unless they fall into the category of tax residents). The categories, which are considered to be income obtained from French sources are:
- Income obtained from an immovable property located in France.
- Income obtained from businesses based in France.
- Income from personal activities, which have been carried out in France.
- Capital Gains, which can either be obtained from the transfer of property or transfer of rights.
- Capital Gains from the transfer of corporate rights for the companies, whose headquarters are located in France.
- Salaries or other amounts that have been obtained from performances (either artistic or athletic), which have been supplied or used in France.
- Pensions, Annuities, etc.
- Fees received by inventors as copyright income or patents, or similar rights.
Depending on the country of the non – resident/expat, the taxation can be legally avoided if the person’s native country has a tax treaty with France (as discussed earlier).
However, even if a person is domiciled outside France and is subjected to the application of tax treaties, that person will be liable for the taxes in France on their income from French sources.
Taxation of Real Estate Income – Revenue occurring from leasing an immovable property, which is located in France is primarily subjected to the French Internal Law.
In fact, many tax treaties that have been drafted under the OECD (Organization for Economic Cooperation and Development) model, acquire the right to impose taxes in the country in which the property is located.
It is necessary to distinguish whether the income is received from an unfurnished leased property, which comes under the category of ‘Revenue Fonciers’ (Land Revenue) or income received from a furnished leased building under a category of Industrial and Commercial Profits (BIC).
‘Television License’ – Assuming every household owns a Television, individuals are required to pay for a TV License, which is €133. If an individual does not own a television, they would have to declare that information on their tax return.
‘Taxe d’habitation’ – The Taxe d’habitation, which we have discussed earlier in this article is a form of council tax based on the average rental houses in a person’s locality by a percentage that has been set by the commune.
Therefore, even if a property is considered to be a primary residence of a person or not, they would have to pay this tax. This tax is imposed on the occupier who is in a house as of 1st January of that year.
‘Non – Compulsory Taxes’ – Along with the compulsory taxes such as the income tax, there are some additional taxes imposed on an expat living France. Some of them are Capital Gains Tax, Wealth Tax and a Property Tax (Taxe Foncière).
The difference between the taxe d’habitation and taxe foncière is that taxe d’habitation is paid by the person who is living in a property (which can be the owner or a tenant), whereas, the taxe foncière should be paid by the property owners (either if they live in it or not).
‘Late Filing Penalty’ – any individual in France is subjected to a fine of 10% if they fail to file their tax returns.
‘Deadlines’ – The tax filing deadlines change every year and the deadlines for that respective tax year would be announced in March or April of that same year. People who are not able to meet with the deadlines would be charged with 10% of their tax bill, like discussed earlier.
Taxation in France is a complex thing and needs to be done carefully under the supervision of a financial expert in order to avoid the penalties. All the taxes applicable for expat individuals are given in the article and the original rates might differ from the rates given above.
If you are an expat living in France, you can avail of the financial tax planning services offered by us in order to file the taxes accurately.
People, who can’t understand the terminology in the provided information, are welcome to contact us to get detailed information on this topic.