14 May 2019
By Thomas Marron
06 14 24 61 29
It’s that time of year again, when we need to complete and submit our French income tax returns. The introduction of the new pay-as-you-earn (PAYE) system changes the payment of tax this year, but you need to declare all your income as usual.
As always, take care to include all your worldwide income as required by French tax legislation. This is more important than ever with automatic exchange of information now taking place under the Common Reporting Standard.
Income tax return deadlines
Tax returns should now be submitted online, with dates varying according to where you live.
Departments 01 to 19 and non-residents – 21st May
Departments 20-49 – 28th May
Departments 50-976 – 4th June
Paper returns (for those without internet access) need to be received by 16 May.
Income tax rates
Income tax is payable on earnings, pensions and rental income, and you are taxed as a household rather than an individual – the parts familiales system.
The 2019 income tax rates (payable on 2018 income) are as follows:
Up to €9,964
€9,964 to €27,519
€27,519 to €73,779
€73,779 to €156,244
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, reduced to 3% for a family (up to a limit).
Various deductions are available, so make sure you are using all the ones you are entitled to.
New PAYE system
Under the previous system, French taxpayers would this year be paying their 2018 tax (in three or ten instalments). However, the implementation of PAYE, which started in January, means that in 2019 they are paying tax on 2019 income.
To prevent taxpayers from paying two years’ worth of tax in one year, 2018 income will be neutralised by the CIMR tax credit – “Crédit d’Impôt de Modernisation du Recouvrement”.
Exceptional income and excessive increases in current income, however, will not be neutralised by the CIMR and will be taxed. For example, pension benefits paid in the form of capital; sums withdrawn on a Salary Savings Plan; severance pay, and other income which is not collected annually.
Note that PAYE only applies to certain income, such as employment, retirement (pensions, lifetime annuities) and rental income; non-French income taxable in France and business profits.
Tax on investment income
Investment income – interest, dividends, capital gains and gains from life insurance policies/non-French assurance-vie – is excluded from PAYE, so tax will be payable this year for 2018 income.
Investment income earned from January 2018 onwards is taxed at a special fixed rate of 30%, (the Prélèvement Forfaitaire Unique/PFU) instead of the normal income tax rates.
Lower earners can however opt to apply the scale income tax rates, plus social charges
Income to be declared
Although the CIMR credit means you may escape tax on some 2018 income, you are still obliged to submit your tax return and a full tax assessment will be carried out as normal.
Many British expatriates with UK source income get confused over where they should declare and pay tax. Note that you need to declare all your UK source income in France, even if you pay tax in the UK.
Thanks to the Common Reporting Standard, French tax authorities now receive information on their taxpayers’ overseas assets and income. The first exchange was in 2017 and we are already seeing evidence of French tax offices calling British expatriates in for interviews to ask why they have not declared foreign income.
UK government service income – This remains taxable in the UK. But although it is not taxed directly in France, you must still include it as part of your taxable income and a credit equal to French income tax and social charges is given.
UK rental income – Again, this is taxed in the UK, not France, but must be included on your French declaration.
Capital gains on UK assets – As a French resident you need to declare and pay tax on gains made on the sale of UK property and moveable assets (shares etc). Real estate gains are liable to tax in both countries but you receive a credit in France for UK tax paid. Moveable assets, however, are generally taxed in the country where the seller is resident.
ISAs and Premium Bonds – ISAs are fully taxable in France in the hands of French residents. Premium Bond winnings also need to be declared and taxed in France.
Interest and dividends – Interest or dividends from the UK must be declared within 15 days of the month end and 30% tax paid. This is then offset against the tax due on your tax return.
You want to make sure you get all this right, as you will be penalised for failing to declare income.
Where the omission was in “good faith” (not deliberate), late payment interest at a rate of 0.38% per month is charged on the underpaid tax. For “bad faith” (deliberate) omissions, besides the interest, a penalty of 40% of the tax is added. This increases to 80% if the taxpayer is found to have acted fraudulently. There can be additional very high fines and prison sentences in some circumstances.
This article is a brief summary covering the basic elements of income tax in France. It is important to seek personalised, professional advice. For questions about completing your tax return, speak to a tax accountant. For advice on effective tax planning in France, to lower liabilities on savings, investments and pensions, speak to a cross-border tax and wealth management specialist.