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French Income Tax

Below is a list of Frequently Asked Questions [FAQs] and answers to queries about French Income Tax.  If you would like further information or advice on matters relating to French Income Tax, please contact Florence Richards, French Property/Tax Adviser or any member of the French Property team.

Who should pay income tax in France?

Income tax is due in France:

  • by French residents on their worldwide income from all sources;
  • by non-residents on their French income only.

As a non-French resident, what should I pay income tax on in France?

 Liability to income tax in France arises when you receive income from:

  • a profession carried out in France: e.g. wages, salaries, bonuses;
  • profits earned on a commercial, industrial, craftsman activity or any other self-employed or partnership activity carried out in France;
  • Pensions and annuities received in France;
  • Investments in France, such as dividends received from shares owned in a French company, interest from French bonds or current accounts and the capital gains from the disposal of such investments;
  • Rents received from the letting of a property situated in France (see below) and capital gains from the sale of French property.

The French authorities are entitled to tax any income arising in France, but there are some exceptions to this rule. The France-UK Double Tax Convention (the most recent once came into force in 2010)  can also apply to deny the right to the French authorities to tax, attributing this right solely to the UK, and vice versa  (e.g. The interest from an investment or a debt to a UK resident is only taxed in the UK unless the corresponding asset from which the interest is received is an asset from a business carried on in France).

I own a property in France which I use for my holidays and let it a few months every year to friends. Should I pay income tax in France?

The answer is yes. Whether the property is let occasionally or on a regular basis (perhaps let to friends or on an arms length basis), the rents received from the letting of a French property are taxable in France even if the landlord is not a French resident.

As a non-resident, how is my income taxed?

The rules to calculate your taxable income are usually the same as if you were a French resident.

However, non-residents are usually not allowed to deduct any charges from their income and their tax liability will be calculated according to different rules.

The general rule is that the taxable income of a non-resident taxpayer is subject to a minimum tax rate of 20%. However, if the taxpayer can justify that his effective rate of tax on his worldwide income would be below 20%, were he a French resident, this lower effective tax rate can apply instead of the 20% minimum rate. The French tax authorities will require evidence showing that the effective rate of tax should apply.

There are also some exceptions to the minimum tax rate rule. For example, salaries and wages earned by a non-resident are not subject to the income tax flat rate of 20%. They are subject to a withholding tax ranging from 0% to 20% depending on the taxable income. Again the effective tax rate can apply if the taxpayer can justify a lower rate of tax looking at his worldwide income.

Likewise, dividends are subject to a withholding tax of 18%. This rate can be reduced by the application of a Double Tax Convention (e.g. a maximum withholding tax of 15% in the France-UK Double Tax Convention).

When must I declare and pay income tax in France?

Income tax is usually paid on income received between 1st January and 31st December of a given year (this is the tax year in France).

Income received from a commercial activity carried on in France is usually calculated on an accruals basis. There are however some exceptions.

The income tax return must usually be filed on or before 30 June of the following tax year for a taxpayer who is a resident of the European Union. For example, the income tax return for income received in 2010 must be filed on or before 30 June 2011.

Between August and October following the tax year (i.e. August/September 2011 for income accruing in 2010), the French tax authorities issue a tax statement (avis d’imposition) with the corresponding amount of income tax to pay and the deadline by which payment should be made (which is usually 30 days after the statement is issued).

Unless the taxpayer has opted for the payment of his income tax by monthly instalments, two payments on account must be made on or before 15 February and 15 May following the tax year. Each payment on account is equal to one half of the tax liability of the previous tax year (i.e. each payment on account due on 15 February and 15 May 2011 will be one half of the tax liability of the tax year 2009).

I already pay income tax in the UK on my French income. Do I still need to declare my French income in France?

This will depend on the terms of the Double Tax Convention. If both France and the UK have the right to tax, the corresponding income should be declared both in France and in the UK. HMRC should however grant a tax credit to deduct from the UK income tax liability. This tax credit represents the amount of tax already paid on the income in France. The tax credit cannot be used to create a tax repayment in the UK.

When should I be looking to get advice on income tax?

If you have invested, or you intend to invest, in France, you may need to get advice as to whether your investment will give rise to a liability to French income tax. This can be, for example, when you are thinking of buying a property in France to let, or you acquire another type of investment such as shares in a French company. Advice should also be sought as part of an investment review. If you plan to move permanently to France, you should also seek advice on your tax obligations both in the UK and in France. Furley Page can provide advice on both areas. For further information contact Florence Richards, French Property/Tax Adviser.
 

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