This is one of the major points of confusion for people when they invest in property or move to France.
There are many types of taxes in France that have to be declared and paid and these are not to be confused with social charges which are separate.
The French system of taxation is known for its complexity, high marginal rates and high administrative costs however with good tax planning the French system offers a lot of opportunities to optimize your tax burden and in many cases, the French tax liability is even inferior to your actual tax liabilities.
There are so many different basis of assessment, and such a large number of taxes that it is no wonder people find it all confusing and then there exists so many exceptions to the general rules that you really need to know your way around the system to avoid making costly mistakes.
We strongly advise you to ask our professional advice on all matters concerning taxation.
Please contact us for more information on the payment of these taxes and social charges as well as questions concerning wealth tax, inheritance tax, and capital gains tax.
Not all taxes are covered here but these are the most common.
Personal income tax (Impôt sur le revenu)
If you are a resident in France you are obliged to submit a tax return and declare your worldwide income, even if it has already been taxed abroad.
If you are a resident in France with a state pension, private sector pension, or annuity from the UK, it is taxable in France. Any income from interests or dividends are taxable in France.
Initially, for those from the UK, when you relocate to France you will be taxed at source by HM Revenue and Customs. You will later need to make an application to be taxed in France and to receive a rebate of tax paid in the UK.
If you own a holiday home that you rent out but do not live in France you may be liable for French income tax although non-residents will only be assessed on the basis of income actually earned in France.
You must submit a return if you are non-resident but have earnings from France. This rule applies even though you may be below the income threshold for liability to French income tax.
The extent of your liability will depend on the type of income you earn in France and the terms of any double taxation treaty between your home country and France.
These tax treaties have been developed in order to avoid a situation where the same income is taxed twice, and to determine the rights of taxation between two countries.
You are liable to French income tax if:
- You are fiscally resident in France
- On the income of the whole household
- and on the basis of your worldwide income.
Today French income tax is assessed in arrears, so your tax declaration for 2018 will cover your earnings for the calendar year ending 2017.
There is no PAYE (pay as you earn) system although plans are made to introduce it from 2019.
The precise closing date for declarations each year varies depending on where you live and if it is a paper or on line declaration but is always at the end of May or early June.
The amount due will be communicated to you (avis d’impôt) sometime during August or September or earlier if your declaration was done on line.
The payments for the first year are due in one lump sum; after that you can opt for paying by monthly direct debit, or in three instalments either by an on-line single payment, or by direct debit
Local property taxes
If you own a property in France then you will pay two local property taxes each year called taxe d’habitation and taxe foncière.
Taxe d’habitation (Residence tax) is an annual residence tax paid by the occupier of a property in which they were resident on 1st January of each year. (if you rent out your property on a long or short term period the renter pays this tax – this does not apply to holiday rentals)
If the property is your second home and even if you are not in residence on January 1st the tax is still payable. (unless the house is under renovation and inhabitable)
The determination of the amount payable is made by the local council (commune), but the calculation and collection of the tax is carried out by the central government tax authority.
The tax demand is sent out during the third quarter of the year with a deadline for payment in November or December unless you opt to pay on a monthly or annual basis by direct debit.
Taxe Foncière (Property Ownership Tax) is an annual property tax paid by the owner, whether or not the property is occupied by them or rented out.
The tax is levied for the year in which it is imposed and payable by the person(s) owning the property on January 1st of that year.
The tax goes towards the funding of local services by the commune, inter-communal and departmental councils.
The tax demand is sent out during the third quarter of the year with a deadline for payment in October unless you opt to pay on a monthly or annual basis by direct debit.
Professional taxes and social charges
The French social security system e.g. family benefits, pensions, health is financed through social security contributions and not through general taxation.
Social contributions are different payments from income tax.
The social security system for both employed and the self-employed is complex, and the contribution rate is high in comparison with most other countries.
The basis on which you will be assessed will depend on your type of business activity, your legal/tax structure and either your turnover or profit.
Social charges are paid from your wage if salaried or when you declare your turnover or profits if self-employed.
If you have micro-entreprise business tax status you will pay social security contributions as a percentage of your turnover, whose rates will vary by type of business – around 13% to 25%.
CFE (professional property tax)
The Cotisation Foncière des Entreprises (CFE) is based on the rateable value of the property occupied by the business. Small businesses and those who don’t use a professional premises still need to pay this tax on a minimum rate (people often declare a corner of their kitchen table as their working space! ). Even if you do not actually work from home you still need to declare and pay this tax as well as your personal taxes foncière.
The tax is payable at the end of each year in December and can also be paid monthly.