French Tax System
French tax overview for those wanting to live in France
What are the taxes levied in France, and what are my responsibilities in this area? It’s a taxing question, but one which must be asked, and answered, by anyone who lives, or hopes to live in France. (Life in France.) How does the French taxation system work? How must I make my declarations, pay my French taxes and when? Who is actually tax liable in France, and who is liable for the dreaded French wealth tax? What, when it’s at home, is TVA?
Take professional tax advice before you go to live in France
The information supplied below is intended to give a brief and hopefully reasonably accurate guide to the sorts of French taxes which you will come into contact with in France, but it is important to point out that it is essentially a layman’s guide, not a legal document and that you should always take professional expert advice in French tax matters. Also, be aware that the situation is in a state of flux, especially at the time of writing in 2007 (although updates have been added in October 2010). Nicholas Sarkozy is beginning his new presidency and important changes are expected in this area.
Who is liable for French tax?
This is the first question to address, as many people find the French tax issue confusing. In a nutshell, if you are resident in France you are deemed liable for taxation in France. A French resident is someone who has their main home in France and spends most of their time in France, or who spends at least 183 days in France every year, or who has their professional and financial interests mainly centred in France. And if you are resident in France and therefore subject to paying French tax, you are liable to pay tax in France on all your assets, wherever in the world they are.
Tax treaty between France and the UK
If you are one of the many British people who have financial interests (and frequently homes) in France as well as in the UK, it is important to know that there is a tax treaty between France and Britain which avoids the paying of double taxes. If you pay tax in Britain on your British interests, the French tax office will issue a tax credit for that amount so that you do not have to pay twice.
Taxes payable by French residents
Taxes that will affect most people include TVA (tax on goods bought), taxe foncière (property owner’s tax), taxe d’habitation (property occupier’s tax), income tax, social taxes (social security and health care funding) and TV licence tax. Car tax is no longer paid annually in France, but there is a charge which you will have to pay when you first register a new car, and this works in lieu of the annual tax. There is also, for those running certain businesses, tax professionelle. Additional taxes you may have to face include wealth tax, inheritance tax and capital gains tax. All the above need to be carefully considered along with the decision to move to France or to purchase property in France.
TVA
This is similar to the British system of VAT (the letters stand for “Taxe à la Value Ajouté”), and is French tax applied to most goods that you will purchase, to a greater or lesser degree. There is a standard rate of 19.6%, although there are quite a few situations where this amount differs. There is, for example, TVA on food, but the standard rate is considerably reduced for this. This is automatically added to foodstuffs and some goods but remember to ask if it is included when making large purchases as it can make a big difference to the overall price!
Tax discount for professionals
Those wanting to renovate a French property take note… it may be cheaper to employ a builder to install materials than to purchase the materials and do your DIY. (Building or extending property in France.) This is because if you work on the property yourself, and are not a registered artisan working in a “réel” system of taxation, you will have to pay the higher rate of TVA (19.6%) on all purchases of materials. The same applies if you are employing an artisan who is only registered under the new auto entrepreneur scheme. The two-tiered TVA system means that traditionally registered artisans (who pay TVA) can charge for materials at the lower rate of 7% TVA (used to be 5.5%), and pass on the savings to the client in the form of a lower bill. This means that it can actually be cheaper in the long run to employ an artisan to do the work than to do it yourself. Yet another reason to avoid the cowboys and employ registered professionals!
You should also be aware of the different rates of TVA that come into play for old and new properties. Any property which is over two years old is eligible for the 7% rate of TVA on any work done, while works carried out on newer properties must be charged at 19.6%.
Taxe foncière
This is the French tax which is levied on property. It is payable by anyone who owns a property in France, so if you are renting your home from someone it does not apply to you as it must be paid by the landlord. This tax is due in around mid October to mid November, and the amount varies from property to property and place to place, as it is basically a French local council tax. ( Taxe Foncière and Taxe d’Habitation – property tax in France.)
Taxe d’habitation
This is another French council tax, but this time it applies to residents of a property rather than owners. So if you rent a property in France, you will have to pay this tax on the property. If you both own and live in your property you will, of course, be liable for both taxes. The tax is levied on residents of French property from January each year, so if you do not occupy your property until, for example, March, you will not be liable for that year.
TV licence added to taxe d’habitation
Remember too, that the TV licence will be added to this bill, and you must pay this even if you only use your TV for a monitor for your computer, or to view videos. If you do not have a TV at all, you must inform the French authorities and request to have this tax removed from your bill.
Income tax in France
The important thing to remember about French income tax (apart from the fact that you must pay it!) is that if you are a tax resident in France this must be paid on your world wide income, not just that which is earned in France. This declaration is due in May, but it refers to a tax year which runs concurrently with the calendar year, unlike in the British system when the tax year runs from April to April. It is also possible to complete your tax return on-line.
All income must be declared
The French income tax form asks you to declare all your income including your business or employment income, your property income if any, any capital gains and any pensions or other payments you may receive. It is also important to understand that if you own a property in France which you let out, even if you do not live in the property yourself, you must declare the income in France. The tax treaty between France and the UK will ensure that you do not pay twice. (Buy-to-let Property in the South of France.)
French income tax depends on family size
A final and very interesting point regarding French income tax is that in France, you are taxed as a family, not as individuals. The calculation takes a husband as one unit, a wife as another, the first two children as half a unit per child and subsequent children as a unit each. The size of the family thus determines the amount of tax as the net income is divided by the number of units in the household.
Taxe professionelle – for those who own businesses in France
Those who have a business in France will also have a taxe professionelle form to send in January, which simply details the amount of business earnings separately from all other income. This tax is payable by all those whose business income is above a certain amount. This amount is impossible to state as it is dependant on individual factors, as is the amount payable. Some businesses are even exempt from this tax. The best thing to do is to ask at your local Mairie. The tax, like others, is applicable to those in business from January 1st of any given year. (Owning Gîtes and Chambres D’Hotes (B&Bs) in France.)
Social taxes
There is a very high standard of health and social care in France, and this needs to be funded through taxation. The standard charge is called CSG (Contribution Sociale Generalisée). There is another charge which was introduced in 1996, to counteract the debt in which the French social system found itself. This is known as the CDRS (Contribution pour le Remboursement de la Dette Sociale) and is levied at a rate of 0.5%. Finally, those with an income from rental property will pay a further charge of around 2%.
Wealth tax in France
The dreaded French wealth tax affects anyone (“anyone” in this instance refers to any household rather than individuals, so a couple are charged on the sum of their joint assets) whose assets (anywhere in the world) exceed 790,000 Euros (subject to change, but correct as of October 2010), if they are French residents. Although another law passed recently (October 2010) allows new arrivals in France to not have to count their non-France based assets towards wealth tax for the first five years. If they are not French residents this tax only applies to their French assets. There are some exceptions and allowances to this tax, but if you feel you may fall into this bracket it is important to seek expert advice to minimise your liability legally.
Inheritance and gift taxes in France
The final category of taxes generally payable in France includes inheritance tax and gift tax. Inheritance tax is a very complex issue in France, and it is vital to seek expert advice and make sure that you understand all the implications before settling in France, as it is very different from UK law. The threshold is lower, the rates are higher and there are restrictions on the people to whom an estate can be bequeathed. On top of this, if you are a French resident, all your worldwide assets are liable to French inheritance tax. There are legal measures that you can take to lessen the impact of these taxes and laws. French financial specialists and notaires can usually advise.
Should you wish to learn more about the French tax system and get a more definite picture as to what your tax bill might be, why not contact a legal advisor?