Understanding your duties when it comes to taxes is essential. If you get it wrong, and file a tax return too late, or pay the wrong amount, you could end up being fined, or even have a criminal case to answer to. It’s not worth the hassle. However, if you’re an expatriate, a cross-border commuter, or a non-resident foreigner living in a different country for a short while, figuring out your responsibilities regarding tax can be a challenge.
It’s hard in part because what tax you’ll pay depends on your personal circumstances. It’s not just about what you earn. Where you live, and for how long, can make a difference - as well as your income sources, and family set-up. As you may have already discovered, tax is a complex legal area, and it’s important that you understand your own - possibly unique - situation.
This overview of the French income tax system is a great starting point. If you think you might need to pay tax on some or all of your income in France, getting professional advice to make sure you pay the right amount, might be a good idea.
For tax purposes in France, you’ll need to report income from your salary, along with any benefits in kind or other payments your employer might give you. You also have to report income from other sources such as rental income and capital gains - however, how this is taxed depends on where it comes from, and how much you receive. For example, income from renting an unfurnished property is treated differently depending on whether it amounts to more or less than €15,000 a year.
It’s relatively complicated, so if you’re unfamiliar with the French income tax system, taking professional advice is essential.
(Source, 8 December 2017)
What income tax you’ll be required to pay in France depends on your personal circumstances. To figure it out, you need to know your tax status. In basic terms, you’ll be classified as either:
- A resident taxpayer
- A non-resident taxpayer
In France, the tax year is the same as the calendar year - 1 January through to 31 December. If you live in France for more than half of the calendar year - so 183 days or more - you’re classed as a resident taxpayer for that tax year. As a resident taxpayer, you have to pay tax on any income you make anywhere in the world, to French authorities.
(Source, 8 December 2017)
If you live in France for under 6 months of the year, you might be deemed to have non-resident tax status. This means you pay tax in France only on the relevant income you’ve earned in France. This could be the case if you’re relocating for work, and arrive in France part way through the calendar year, for example. However, the country you lived in for the rest of the tax year might also want some tax from you, too.
(Source, 8 December 2017)
The short answer is - it depends. If you’re in France for more than half the year, then you’re likely to be judged to be a tax resident there, even if you’re away for some time. In this case, you’ll have to pay tax on your worldwide income to France. If the country you’re working in wants you to pay taxes there too, then you’ll need to rely on double taxation treaties to make sure you don’t end up paying too much. More on this later.
If you’re out of France for more than 6 months of the calendar year, then you’re likely to be classed as a non-resident taxpayer, which means that you’ll only pay tax in France on income that you earn there.
France has a progressive tax system. There’s a lower limit of earnings under which no tax is charged - and then a progressively higher tax rate is applied based on how much you earn above that level.
In almost all circumstances, income tax returns are completed on a household, or family basis, That means that couples report their earnings together, and can include any dependants. This is because of the way that exemptions and allowances are worked out. If you’re doing your return in France for the first time, it can be helpful to get professional advice to ensure you’re capturing all that’s needed. For example, under some circumstances, children can be reported on their parent’s tax return to the age of 21 or even 25 if they’re still studying. The way you file your return can make a difference to the way you’re charged, so it’s worth checking.
At the moment, all French residents must submit a tax return and pay their tax directly to the authorities. However, there's a plan to move to a pay as you earn (PAYE) system in 2019, under which tax will be withheld at source. That means that if you’re employed, your employer will take some money from your pay each month for tax, and make the payments directly. There are transitional rules coming into force to help the changeover, so it’s worth checking up to find the latest news from the French tax authorities.
The most up to date rates available for resident taxpayers in France are as follows:
|Income range||France income tax rate (%) 2017|
|up to €9,710||0%|
|€9,710 - €26,818||14%|
|€26, 818 - €71,898||30%|
|€71,898 - €152,260||41%|
If you’re a high earner - receiving over €250,000 for a single taxpayer - you’ll also be subject to an additional tax of 3-4%, depending on the situation.
The tax rate and process for a non-resident taxpayer is slightly different and can change depending on your circumstances. If you’re a non-resident taxpayer you might have your tax deducted at source by your employer, but you’ll still have to submit a tax return if you earn over a certain limit. The details vary depending on the situation, so take professional advice.
Tax is applied on taxable income only. This sounds simple enough. However, if you’re uninitiated in the French system, it can be a bit of a mystery.
You start with your entire income, based on your family unit who’ll all file a joint return together. Then you have to work out how many ‘shares’ you get, based on the number of people in your family, and their situation. This is called the family quotient. In a simple case, a husband and wife might file a joint return. They add their income together and divide by 2. Then each of them can apply the income tax rates outlined above, to their share. However, where this gets complicated is if you are in an unusual family situation, if you or others in your family have disabilities, if you’re a widow or widower, and so on. In these cases, it’s not a simple calculation at all - and professional advice would probably be a good idea.
After doing that, you might also be eligible for other tax breaks, exemptions, deductions and credits depending on your personal situation. To be eligible for any of these allowances you have to include them on your tax declaration.
Here are some of the exemptions, deductions and credits that you might need to know about.
The family quotient is applied based on your family situation, and will be different in different circumstances. Different calculations are made depending on whether you are:
And depending on whether your family unit includes:
- Minor children
- Adult children
- Disabled children
- Disabled adults
You can simulate your taxes on the French tax authorities website, which can help you figure out how the process will work in your case.
You can deduct payments made for certain things, such as social security contributions, pension payments and professional expenses from your taxable income. There are limits and rules about how you do this, set out in the guidelines to the tax return.
You can deduct the costs of things like, caring for an elderly relative if they live with you, losses from a business or rental property, payments made for a divorced spouse, and some voluntary pension contributions. There are caps and limits in place for these items, too. Make sure you understand the detail when you complete your tax return.
If you don’t pay your taxes properly in France you could be fined, or have interest and penalty charges added to your bill. The dates for submitting your tax return are released annually, and at the time of research (December 2017), the dates for the 2017/18 return weren’t available yet.
(Source, 8 December 2017)
It’s possible for someone to be liable to pay tax in 2 countries, if you’re a cross-border commuter for example, or if you live and work in different places across the course of a year.
If this is your situation, you don’t have to panic. Many countries have what’s known as double taxation agreements, to make sure that people don’t actually need to pay double the amount of tax due. These help to ensure that you only pay tax once on your earnings.
Not all agreements cover all types of income, so if you’re concerned about paying tax twice, take some professional advice.
France has double taxation agreements with the following countries:
|France double taxation agreements|
|Bosnia and Herzegovina||Mali|
|Central African Republic||Poland|
|Greece||St Pierre and Miquelon|
|Ivory Coast||Sri Lanka|
|Ireland||Trinidad and Tobago|
(Source, 8 December 2017)
The system is changing regarding who must file a return, and how exactly it should be done. At present, all French residents have to file a tax return every year. However, as there's a plan to move to a PAYE system in 2019, this requirement might change. At this stage, though, the details haven't been fully released. You can get the latest from the French tax authorities, here.
Reporting your tax electronically is encouraged in France - and it's compulsory under certain circumstances. If your home has an internet connection, and you earned more than EUR 28,000 in the 2015 tax year, for instance, then you have to submit your taxes online. If not, then you can still use paper forms - but the deadline for snail mail submission is earlier than if you’re using the online system.
(Source, 8 December)
Using the online system to submit your tax return and then pay your bill, is usually quicker and easier than if you were using the paper forms. This is the route the French tax authorities recommend for dealing with your taxes, and for most people it’s compulsory.
You can pay your tax return online, either in three payments over the course of the year or on a monthly basis. You can either make a direct online payment, or bank transfer, or pay in a variety of ways including sending a cheque to your local tax office.
If you’re an expatriate, paying taxes electronically in France, you might need to do so using a bank account held in a different country or currency. When you’re doing your sums, make sure you take into consideration any charges that will be added to the transfer you make to pay your taxes.
You need to think about not just the upfront charges, but also the exchange rate used when converting your money from a different currency to euros. That’s because banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. Instead, they mark up the rate by 4-5%. They keep the difference, and you pay more than you need to.
A great alternative is to use TransferWise. TransferWise works differently to banks. That means you can get your money transferred quickly and safely, using the real exchange rate, and just a small, upfront fee.
There’s no magic and no suspicious trickery. It’s actually pretty simple. Because TransferWise doesn’t use the pricey SWIFT system for making bank transfers, this brings down the costs of making international transfers. The service is then cheaper than traditional options because the savings are passed on to the customer.
You might be able to pay your taxes directly using a TransferWise transfer. Otherwise, if you don’t already have a bank account in France, you could transfer the payment to a friend or family member who does, to bring down the costs.
Another great choice if you often have to move your money between different currencies, is a new TransferWise borderless multi-currency account. You can hold your money in any one of dozens of different currencies - including euros - all in the same account. You can check your balance easily, and then convert between different currencies whenever you need to. You get the real exchange rate every time, and there’s only a small transparent fee for changing your money.
Taxes are often hard work. They’re especially complicated if you’re an expatriate working abroad, a cross-border commuter, or if you juggle life between different countries. But they’re still your responsibility. Get some professional advice, or invest some time in research, to make sure you’re clear on your options and duties when it comes to tax. Getting it wrong can be an expensive mistake.
Wherever you’re paying your taxes, you don’t want to be out of pocket because of unfair fees added when you change your currency. The good news is that TransferWisemight be able to help you save money on cross-border transactions. See if you can get a better deal from TransferWise if you find yourself needing to pay your taxes abroad.
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