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France - Income Tax

France - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

By law, the due date is no later than the second working day following 1 April following the end of the tax year. The deadline may be extended by the French tax administration, but no later than 1 July.

Due to the introduction of tax withholding in France, certain individuals are no longer required to file a tax return. Those who are exempt from the obligation are notified by the tax administration.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in France?

Annual income tax return

The annual income tax return is generally a family return with spouse and dependent children reporting their income jointly. Married couples are required to file jointly - exceptions are allowed in very limited circumstances. Adult children may be claimed as dependents if they are under 21 years of age or if they are students under the age of 25.

Taxpayers are generally required to file a joint return even if their tax status is different (for instance, one member of the household is a resident taxpayer and the other a non-resident). No payment of tax is due with the tax return. The payment of taxes due or the refund of tax overpaid occurs upon the issuance of an assessment.

Non-residents

Non-residents must submit a non-resident tax return if:

  • the 20 percent non-resident withholding tax bracket is reached on their employment or pension income;
  • If certain other types of French source income are received.

Tax Rates

What are the current income tax rates for residents and non-residents in France?

In France, the tax rate schedule is voted at the end of the year for the year gone by.

Thus, the schedule applying for 2019 income was as follows:

Income tax table for 2019 income

Taxable income bracket

Tax rate on income in bracket

From (EUR)

To (EUR)

Percent

0

10,064

0

10,064

27,794

14

27,794

74,517

30

74,517

157,806

41

157,806

No limit

45


However, for 2020 income, revised tax brackets were introduced from 1 January 2020 and were further adjusted for the period 1 September 2020 and 31 August 2021 as follows:

Taxable income bracket

Percent

Up to 10,064

0

Above 10,064 up to 25,659

11

Above 25,659 up to 73,369

30

103Above 73,369 up to 157,806

41

Above 157,806

45

Salaries and pensions paid to non-residents are subject to withholding at 0, 12 and 20 percent. 

Non-resident withholding rates (2020 income)

Annual taxable income bracket

Tax rate on income in bracket

From (EUR)

To (EUR)

Percent

0

14,988

0

14,988

43,477

12

43,477

no limit

20


* Depending on the earnings period, monthly, weekly or daily tables may need to be applied instead of the annual taxable income brackets.

If compensation reaches the 20 percent bracket, income tax is recalculated using the same progressive tax rates as for residents. The portion of income within the 0 percent and 12 percent non-residents brackets is excluded from the tax recalculation and the withholding taxes on this portion are final.

The tax due cannot be less than 20 percent on income up to EUR27,794 and 30 percent beyond that limit.

A reform of the French tax non-resident system is expected.

RESIDENCE RULES

For the purposes of taxation, how is an individual defined as a resident of France?

The criteria for determining residence are very broad. Individuals will be considered resident in France in any one of the following circumstances, subject to tax treaty provisions:

  • They have their permanent home in France. A home is defined as being where taxpayers and their family ordinarily reside. Taxpayers may be considered to have their home in France, even if they are not physically present in France for most or all of the year.
  • They have their main place of abode in France, for instance, if they spend more time in France than in another country/jurisdiction, regardless of whether they reside in a permanent home, hotel, or other dwelling. If they spend more than 183 days in a year in France, residence is resumed.
  • They perform their main professional activities in France (whether salaried or not) unless their activity in France is of an auxiliary or secondary nature. The main activity is that on which individuals spend most of their time or which generates the largest part of their income. Holders of a corporate office in a company headquartered in France and whose turnover in France exceeds EUR250 million are considered to perform their main professional activity in France, unless proven otherwise.
  • They have their center of economic interests in France. This occurs when most of their assets are situated in France, are effectively managed in France, or the majority of their investment income arises from France.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

No, taxpayers become residents from the moment they meet the criteria for tax residence.

What if the assignee enters the country/jurisdiction before their assignment begins?

Same as above.

Termination of residence

Are there any tax compliance requirements when leaving France?

Taxpayers must inform the French tax administration when they leave France.

Taxpayers may be subject to an Exit Tax if they were considered French tax residents for at least 6 years when they leave and if they own shares whose value is over EUR800,000 or represent at least 50 percent of a company's corporate profits. The taxable basis is the unrealized capital gain on the day preceding the date of departure. Taxation is deferred if taxpayers move to another EU Member State or to a country/jurisdiction which has signed a mutual administrative assistance agreement to fight tax evasion and tax avoidance.

What if the assignee comes back for a trip after residency has terminated?

Assignees are treated as non-residents if they do not meet the criteria for tax residence.

Communication between immigration and taxation authorities

Do the immigration authorities in France provide information to the local taxation authorities regarding when a person enters or leaves France?

Immigration officials do occasionally ask for information from the tax authorities, especially when renewing visas.

Filing requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?

The tax return for the transfer year is filed by the normal filing deadline in the following year. It includes worldwide income earned during the period of residence in France, as well as French-sourced income received after departure subject to treaty provisions.

Compensation received after departure (such as bonuses or equity compensation) related to the assignment in France should be taxed in France.

Economic employer approach

Do the taxation authorities in France adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in France considering the adoption of this interpretation of economic employer in the future?

The French tax administration has stated that it relies on a "legal” employer approach rather than an economic employer approach when determining if there is an employer in France for the purposes of interpreting Article 15 of the OECD model treaty.

However, the term "legal employer" is not defined in French tax legislation. From a labor law perspective, the employer is the "real" employer even in the absence of a contract. The employer is the one that has rights on the work produced, bears the responsibility in return for the payment of a salary.

A recharge of the employment costs to the French host entity may lead the French tax administration to conclude that there is an employer in France.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Not applicable.

TYPES OF TAXABLE COMPENSATION

What categories are subject to income tax in general situations?

Employment income includes wages, salaries, allowances and emoluments received in consideration of an employment. It includes the compensation of senior executives of public limited companies (chairman of the board, managing directors, deputy managing directors and members of the management board) and executives of private limited companies.

Benefits in kind such as the provision of a car, meals, housing by the employer, are taxable as employment income, generally at their actual cost or value. Special valuation methods exist for certain benefits such as housing and the private use of company cars.

Gains arising from equity compensation are also considered employment income but may be subject to a different tax treatment depending on the type of plan.

Intra-group statutory directors

Will a non-resident of France who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in France) trigger a personal tax liability in France, even though no separate director's fee/compensation is paid for their duties as a board member?

If no separate director's fee/compensation is paid to the individual, the non-remunerated directorship will not trigger a personal tax liability. A careful analysis of the arrangements is required if the director is acting in a different capacity.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in France?

This depends on the tax qualification of the board member’s compensation and the applicable tax treaty. Physical attendance to the board meeting is not generally a relevant criterion.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in France (i.e. as a general management fee where the duties rendered as a board member is included)?

The arrangements require careful analysis to determine whether the costs that are being recharged are not in fact part of the overall compensation of the board member.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

There is no prescribed method.

Tax-exempt income

Are there any areas of income that are exempt from taxation in France? If so, please provide a general definition of these areas.

The following categories of income are exempt from income tax:

  • Compensation for overtime work capped at EUR5,358;
  • Certain termination payments;
  • Certain social security benefits.

Expatriate concessions

Are there any concessions made for expatriates in France?

Are there any concessions made for expatriates in France?

The impatriate regime applies not only to employees working in an international group of companies, but also to those who are directly recruited by a company established in France.

To qualify, employees must not have been French tax residents at any time during the 5 calendar years before they start working in France and must transfer their tax residence to France (in particular they must set up their home in France and work primarily in France);

The exemption period expires at the end of the eighth year following the year of arrival.

The exemption covers:

  • The so called impatriate premium i.e. the “additional” compensation directly linked to the impatriation (this may notionally be valued at 30 percent of taxable compensation) provided that the taxable amount of compensation is not less than that of an employee in an equivalent position in the same company or in similar companies established in France; and
  • the fraction of compensation related to duties performed outside of France for the benefit of the French host company.

The total exempt amount is capped at either:

  • 50 percent of the total taxable net compensation, or
  • the total amount of the impatriate premium plus the fraction of compensation relating to days worked outside of France (but not exceeding 20 percent of the taxpayer’s taxable income).

In addition to the above exemptions, taxpayers may also benefit from an exemption on 50 percent of certain types of foreign-source investment income such as interest and dividends, copyright and industrial property rights, and capital gains on the sale of securities.

If the impatriate regime does not apply, employees of certain headquarter entities may exclude from their French taxable income certain additional costs, such as tax equalization amounts, but the excluded amounts are subject to corporate French tax at a negotiated rate.

In most cases, certain allowances and costs can be treated as non-taxable professional expenses as follows:

  • pre-assignment trips (travel costs for taxpayer and spouse)
  • agency costs in finding accommodation
  • storage costs in home country/jurisdiction
  • travel and subsistence for the employee and their family during the moving period
  • removal costs and travel costs at the beginning and end of assignment
  • temporary car hire during a maximum of 2 months at the beginning and end of assignment
  • temporary accommodation at the beginning and end of assignment (maximum 3 months)
  • language lessons for employee and family and for dependent children at school
  • home leave trips once a year for employee and their family
  • cost of one trip to the host country/jurisdiction for dependent children at school abroad
  • school fees for dependent children in fee-paying education and in home country/jurisdiction language
  • emergency trip to home country/jurisdiction for the employee and their family
  • garden maintenance costs in home country/jurisdiction
  • other costs such as customs, driving license, conversion of vehicles, etc.

Salary earned from working abroad

Is salary earned from working abroad taxed in France? If so, how?

Is salary earned from working abroad taxed in France? If so, how?

Subject to treaty provisions, the taxable salary of resident employees cannot be reduced by allocating income to foreign business trips.

However, employees sent abroad by their employer located in France or in another Member State of the European Union may benefit from full or partial exemptions. Note that frontier workers are excluded from these rules.

A full exemption of compensation earned in consideration for their activities out of France applies:

  • if it is subject to a tax at least equal to two thirds of the tax that would have been paid in France; or
  • the compensation relates to an activity carried out abroad for a period exceeding 183 days during a period of 12 consecutive months if the activity relates to construction work or installation and starting up industrial units, exploration and extraction of natural resources; the period is reduced to 120 days only for employees engaged in business prospection.

A partial exemption may apply if the preceding conditions are not met. In this case, employees are not taxed on supplementary allowances (not exceeding 40 percent of total compensation) provided the time worked outside of France is for the sole and direct interest of the employer; and the supplementary allowance is determined before departure and proportional to the length of stay.

While exempt from income tax, such allowances are taken into account for exemption with progression and subject to French social charges, if applicable.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in France? If so, how?

Dividends, interest, and capital gains from the sale of securities are taxed at a flat rate of 12.8 percent. Alternatively, taxpayers may opt to have them taxed at normal progressive rates of income tax. In both cases, social taxes at 17.2 percent apply.

Rental income is taxed at normal progressive rates, though different rules apply depending on whether the property is let furnished or unfurnished. Unfurnished rentals are taxed after deducting 30 percent of gross receipts if the gross annual rental income is less than EUR15,000 or by deducting actual expenses such as small repairs, mortgage interest and local property taxes. Income from furnished rentals is taxed as business income.

Gains from stock option exercises

Specific rules apply to French qualified free shares (qualified RSU) and stock options. Initially, the two followed a similar treatment but nowadays free shares are now unquestionably favored to the extent that the amount at stake does not exceed EUR300,000. In both cases the gain is exempt from social taxes but subject to specific employer contributions.

Stock option income is subject to income tax in the same way as salary.

From 2018, gains from shares acquired under these arrangements benefit from the system of a single flat-rate levy on investment income, making it possible to benefit from a reduced rate of income tax.

For non-qualified plans, the taxable event is the exercise of the options or the acquisition of the shares and the acquisition gain is treated as salary for income tax and social security purposes.

Principal residence gains and losses

The sale of the seller’s main residence is, in principle, exempt. The law does not state how long the taxpayer needs to have occupied the property for it to be considered as the main residence, but the property must be the taxpayer’s main residence at the time of sale. Former residents of France may in some cases obtain exemption from capital gains tax on the sale of their former principal home.

 Capital gains on the sale of real estate or real estate rights, are subject to income tax at a rate of 19 percent plus 17.2 percent social taxes. Under most international tax treaties concluded by France, such gains are taxable in the country/jurisdiction where the real estate is situated.

Capital losses

Capital losses on the sale of securities can be deducted from capital gains of the same nature in the same year or carried forward and set off against future gains for up to 10 years. 

Gifts

Gifts are not subject to capital gains tax but gift tax could be applicable.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in France? If so, please discuss?

None in particular.

Are there capital gains tax exceptions in France? If so, please discuss?

Special rules apply to the sale (or transfer outside of the EU) of gold and precious metals. 

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in France?

The following items of expenditure may be deducted from taxable income.

  • Employee social security contributions (including those paid in the home country/jurisdiction under EU regulations 883/2004 or a bilateral agreement) are deductible from gross employment income.
  • A standard 10 percent deduction to account for professional expenses (limited to EUR12,627 on 2019 income) is applied to the employment income of each member of the household. Actual professional expenses may be claimed instead, without limitation, as long as they can be justified.

The following are deductible

  • alimony paid pursuant to a court order;
  • child support for minor children that are not part of the taxpayer’s fiscal household;
  • child support for children over 18 in need provided the children are not part of the taxpayer’s fiscal household (limited to EUR5,947 per child for tax year 2019);
  • Support for parents in need if the payments are not disproportionate to the taxpayer’s earnings.

Such payments would generally constitute taxable income in the hands of the recipients.

  • Cost of supporting a person over 75 years of age in the taxpayer's home.
  • Rental losses from unfurnished properties up to EUR10,700.
  • Losses from the exercise of a business or independent professional activity.
  • Contributions to qualified supplementary retirement plans are deductible from income within certain limits.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in France?

A current year gross-up calculation should generally be performed if the tax reimbursement is not exempt under the expatriate regime.

Calculation of estimates/ prepayments/withholding

How are estimates/prepayments/withholding of tax handled in France? For example, pay-as- you-earn (PAYE), pay-as-you-go (PAYG), etc.

Resident taxpayers pay their taxes throughout the year during which the income is earned.

The tax is withheld directly from wages, pensions and replacement income (sick pay or unemployment benefits).

The tax administration collects instalments by directly debiting the bank account of taxpayers with self-employed income, rental income.

Final payments or refunds of taxes are made after the assessment has been issued, normally in October. The withholding or instalments are then adjusted to reflect more accurately taxpayers’ evolving situations.

Non-resident taxpayers are subject to, a different withholding system on their employment income, pensions and replacement income. Taxes are withheld at the rates of 0 percent, 12 percent, and 20 percent. The tax may, in some cases, be final. The French tax government has announced a reform of the French tax non-resident system.

When are estimates/prepayments/withholding of tax due in France? For example, monthly, annually, both, etc.

See above.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in France? For example, a foreign tax credit (FTC) system, double taxation treaties, etc.?

France has a broad network of income tax treaties. Double taxation may be relieved in three ways:

  • The exemption with progression method, or
  • The deemed tax credit method, or
  • The imputation of the actual foreign tax credit.

The method depends on the relevant tax treaty and the type of income. In all cases, the foreign income must be reported on the French tax return.

The first two methods generally apply to salaries relating to activities performed outside of France, rental income from a property situated abroad and income from a foreign business.

Actual foreign tax credits may apply in the case of foreign dividends, interest, and royalties.

General tax credits

What are the general tax credits that may be claimed in your country/jurisdiction? Please list below.

A number of credits exist. They are capped and available, in most cases, only to tax resident taxpayers, for example:

  • School credits: a tax credit may be claimed for each dependent member of the household at the level of college, lycée, or university;
  • Charitable donations;
  • Expenses linked to a household employee;
  • Home insulation or installation of energy efficient equipment:
  • Child care expenses for children under 6 years of age cared for outside of the home.

Sample tax calculation

This calculation assumes a married taxpayer resident in France with two children who is on assignment that begins 1 January 2018 and ends 31 December 2020. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.

 

2018

USD

2019

USD

2020

USD

Salary

100,000

100,000

100,000

Bonus

20,000

20,000

20,000

Cost-of-living allowance

10,000

10,000

10,000

Housing allowance

12,000

12,000

12,000

Company car

6,000

6,000

6,000

Moving expense reimbursement

20,000

0

20,000

Home leave

0

5,000

0

Education allowance

3,000

3,000

3,000

Interest income from non-local sources

6,000

6,000

6,000


Exchange rate used for calculation: USD1.00 = EUR0.82

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year and accrue evenly throughout the year.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
  • The impact of the impatriate regime with regards to passive income has been ignored.
  • No foreign workdays.

Calculation of taxable income

Year-end

2018

EUR

2019

EUR

2020

EUR

Days in France during year

365

365

365

Earned income subject to income tax

 

 

 

Salary

82,000

82,000

82,000

Bonus

16,400

16,400

16,400

Salary

 

 

 

Net housing allowance

 

 

 

Company car

4,920

4,920

4,920

Moving expense reimbursement

 

 

 

Home leave

 

 

 

Education allowance

 

 

 

Total earned income

 

 

 

Other income

4,920

4,920

4,920

Total income

108,240

108,240

108,240


Calculations of tax liability

 

2018

EUR

2019

EUR

2020

EUR

Compensation income*

103,320

103,320

103,320

Less standard deductions:

 

 

 

10 percent deduction

10,332

10,332

10,332

Net taxable compensation income

92,988

92,988

92,988

Taxable investment income**

4,920

4,920

4,920

Net taxable income

97,908

97,908

97,908

Total income tax

13,828

13,680

13,428

CSG/CRDS and solidarity levy

847

846

846

Total French tax

14,675

14,526

14,274


* The beneficial rules for impatriates apply; therefore, the assignment-related allowances are not considered taxable and are not included in this calculation. (note that for arrivals after 15 November 2018 may opt for a 30 percent deduction instead of the assignment related compensation).

** Subject to flat tax at a rate of 30 percent (which includes social taxes at a rate of 17.2 percent).

Footnotes

1. Certain tax authorities adopt an economic employer approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/jurisdiction for a period of less than 183 days in the fiscal year (or a calendar year of a 12-month period), the employee remains employed by the home country/jurisdiction employer but the employee's salary and costs are recharged to the host entity, then the host country/jurisdiction tax authority will treat the host entity as being the economic employer and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied, and the employee would be subject to tax in the host country/jurisdiction.

Disclaimer:

All information contained in this publication is summarized by KPMG Avocats, the French member firm affiliated with KPMG International Limited, a Private English company limited by guarantee. The information contained in this publication is based on the French General Tax Code (Code General des Impôts-CGI), the French tax administration’s official doctrine (as published on Bofip), the French tax administration’s website, The French social security websites (urssaf.fr), the French international social security body (cleiss.fr) and supporting information published by the Ministry of Economy, Finance and Industry

© 2021 KPMG Avocats, société d’avocats de droit français, membre de l’organisation mondiale KPMG constituée de cabinets indépendants affiliés à KPMG International Limited, une société de droit anglais(« private company limited by guarantee »). Tous droits réservés. Le nom et le logo KPMG ainsi que le nom KPMG Avocats sont des marques utilisées sous licence par les cabinets indépendants membres de l’organisation mondiale KPMG.

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