Thinking beyond borders
Extended business travelers may be subject to French tax on their salary earned for French workdays.
Individuals’ liability for French income tax will depend on their tax residence status. French tax residents are subject to tax on their worldwide income, whereas French tax non-residents are subject to tax on their French-sourced income only. A person is deemed a resident of France by fulfilling any of the following criteria.
— The individual maintains a permanent household in France.
— The individual’s main place of abode is in France.
— Most of the individual’s business activities are performed in France.
— The center of the individual’s economic interests is in France.
Most extended business travelers will be considered non-residents for French tax purposes and subject to tax on their French-sourced income, only if they remain residents in their home country. The salary earned in relation to workdays spent physically in France will usually be considered French-sourced and therefore be subject to French income tax, unless it is exempt under the provisions of a double tax agreement.
Some business travelers may become French tax residents if their family moves to France with them, and they do not maintain a home outside France. Such employees will be subject to French tax on their worldwide income. Employees who arrive in France and become French tax residents for the first time (or have been non-resident for at least 5 years) may have access to tax concessions designed to decrease the tax burden on temporary resident workers.
Income tax is generally payable in the year after the income is earned, with payments potentially due in February, May, and September. However, where an individual is a French tax non-resident, income tax must be withheld at the source on their French-sourced income and remitted to the authorities.
There is no minimum threshold/number of days worked in France before taxation may be applied. However, the provisions of an international tax treaty may provide for an exemption from tax in France on salary income, provided the employee respects the threshold number of days spent outside of France during the relevant period, as required by the particular treaty. Currently, the French tax authorities do not actively enforce an economic employer approach to the reading of treaties. Thus, if there is no recharge of salary costs to the French entity, it may currently be possible to apply the treaty exemption. This position should be closely monitored, as commentary on the subject is expected in the future.
As non-residents, extended business travelers will usually be subject to French tax on salary and benefits-in-kind earned in relation to their French workdays, as well as income from any French-sourced investments or capital gains.
The net taxable salary income of non-residents is taxed initially via withholding at the source at progressive rates of 0, 12, and 20 percent. Ordinary progressive tax rates up to 45 percent may also apply where taxable income reaches certain thresholds. Any additional liability would be assessed via an annual income tax return. Where the beneficiary is a non-resident, a specific withholding on the French-sourced portion of gains of stock options and restricted stock units has been introduced as of 1 April 2011.
An additional tax on high level revenues up to 4% depending on specific thresholds may apply. Furthermore a separate additional flat tax at 17,2% may also be levied on some investment income.
The French social security system is a complex architecture of various statutory and non-statutory schemes, which may differ for each employer and industry type. The rate of employee contributions can be as much as 23 percent and 45 percent for employers. Some contributions are capped while others are not.
Extended business travelers employed by an entity located in a European Economic Area (EEA) member state or Switzerland, in most cases, can be exempt from French contributions and remain subject to their home countries’ social security scheme.
Business travelers arriving from a country outside the EEA or Switzerland that do not have an agreement with France on social security will generally be subject to French social security contributions.
French tax returns for resident taxpayers must be filed by the legal deadline provided by the French tax authorities. In the past few years, this deadline is around Mid-May following the year of income, thus for all taxpayers (resident or non-resident taxpayer) that will be mandatory for those who are nonresident and/ or filled for the first time a tax return in France. The tax authorities may revise this deadline on an annual basis (presumably at the beginning of June) for electronic filing (for resident taxpayers who have filed a French return the previous year).
Where remuneration is paid to a non-resident taxpayer for services rendered in France, the employer is required to file quarterly returns and withhold non-resident tax. Additional tax may be due via the tax return.
Where no exemption is applicable, employers are required to withhold employee social security contributions on a monthly basis and remit them, along with employer contributions, to the relevant authority for each scheme.
Foreign employers who do not have a fixed place of business in France are required to register with the authorities and will be subject to the same rules and regulations as for French-based employers.
A visa must generally be applied for before the individual enters France. The type of visa required will depend on the purpose of the individual’s entry into France.
France has entered into a number of double taxation treaties with other countries to prevent double taxation and allow cooperation between France and overseas tax authorities in enforcing their respective tax laws. As a general principle, the provisions of double tax treaties will override domestic rules.
There is the potential that a permanent establishment (PE) could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
France has value-added tax (VAT).
France has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed.
Local data privacy requirements
France does not restrict the flow of currency into and out of France. There is, however, a requirement for French tax residents to report their foreign bank accounts.
Non-deductible costs for assignees include contributions to non-mandatory social security regimes and to foreign pension plans.