France is changing from declaring and paying income tax a year after the fact to a ‘prélèvement à la source’ system which aims to collect the tax due in the same year as the revenue is received by deducting it at source. We look at who is affected and how below.
Why?
The idea is to allow France to catch up with most other large developed countries and get rid of the time lag between receiving your income and paying tax, as well as spreading the payment out more evenly across the year.
- Adapts more quickly to the tax payer’s situation: in the current system life changes can cause payment problems if income drops sharply from one year to the next. This will be avoided as you pay a percentage of the actual income received when you receive it.
- Is spread out better across the year: instead of the current system of 10 installments based on last year’s amount, or 2 payments on account and a final balance, tax is taken as a percentage of actual income received.
Who?
The system will apply to everyone, whether you are employed, self-employed, a pensioner or a landlord. If you are currently under the income tax threshold you will be given a 0% rate.
When & How?
Employees & (French) Pensioners
The system kicks off in January 2019 with tax deducted at source using a percentage based on your income tax in 2018 (i.e. what you made in 2017). You will be informed of this percentage when you get your tax notification (avis d’imposition) in summer 2018 and your employer/pension payer will be told the rate to apply in the autumn and may start putting this on your pay slip from September 2018 just for information.
From April – June 2019 you will have to fill in your income tax return for 2018 in the same way as for the current system. You will then be given the new rate which applies from January 2020, and the tax authorities will send it to your employers between August and September.
Couples can either have a joint rate or separate ones depending on their preference.
If you don’t want your employer knowing your circumstances, you can ask for a non-personalised rate. In this case your employer will simply deduct tax at the rate set for your salary band from a table supplied by the government and you will be responsible for paying the difference directly to the government. The non-personalised rate will also be used where the government cannot give a rate to an employer, for example when starting work for the first time, or a child still on the parents’ tax return.
If your circumstances change greatly during the year, you can ask for your new situation to be taken into account and the rate changed.
The reforms do not mean a change to the regulations or calculations on the amount of tax you must pay or any reductions, and you will still have to fill in a tax return each year.
Pensioners with overseas pension
For people receiving their pension from abroad, it seems that you will be treated in a similar way to the self-employed and people receiving regular rental income, that is from January 2019 you will have payments on account taken from your bank account based on the pension income that you declare for 2017 divided by 12 to give a monthly amount. (But please note that this information is based on 3rd party websites rather than the government’s own).
As in all other cases you have access to a simulator on the tax authority’s website and if you think that your circumstances have changed significantly you can ask for your rate to be re-evaluated.
Self-Employed and Landlords
You will fill in your tax return for 2017 in Spring 2018 and receive your tax rate and the amount of your payments on account. You can choose to pay once every 3 months rather than monthly if you prefer. This is confirmed in the summer when you receive your tax notification (avis d’imposition). You can choose how you want the payments split right up to the beginning of December 2018.
From 15th January 2019 you will have your payments on account taken from your bank account by direct debit if you have opted for the monthly schedule or 15th February if you chose quarterly.
You will fill in a tax return in Spring 2019 and find out your new rate and the amounts to pay on account in September.
If you have a dramatic change in turnover, you can go on to the tax office site at any time during the year to do a simulation and ask for a change to your rate and payments if you meet certain conditions.
What’s happening about the tax for income received in 2018?
Tax on income received in 2017 is payable in 2018. 2019 will be paid in 2019, so what is happening about tax on income received in 2018?
Reductions and rebates
These will still apply and will be taken into account in the rate set for 2019. Any reductions or rebates due will be added to calculations of the income tax balance in summer 2019. For home help (services à domicile) and child care (garde d’enfant) tax credits equal to 30% of the credit from the previous year will be paid on account from the first quarter of 2019. The balance will be paid once the income tax notification (avis d’imposition) is issued in summer 2019.
No double taxation on 2019 salaries
There will be no double payments in 2019 on income from employment, pensions, self-employment or rentals. The tax which would have been due on the income from 2018 will be cancelled by a tax credit calculated by the authorities based on the income declaration in 2019. (Yes, miracles do happen!)
Tax will be due on income for directors and the self-employed which exceeds the average of the 3 previous years, unless income in 2019 is higher than that of 2018.
Tax on exceptional income
Tax will be due on any exceptional income such as dividends, capital gains, income from shares etc. in the same way as it has been until present.
The law will be framed in such a way as to prevent people who are in a position to do so from artificially boosting their 2018 revenues to benefit from the tax holiday.
For a full list of what counts as exceptional income (in French) see the French government website.
Note
This information is taken from the French tax authority’s own website, so it should be right, but no responsibility is taken for the accuracy. If in doubt talk to your accountant or tax inspector!
