FRENCH TAXATION OF INCOME FOR NON-RESIDENTS
Category: > | 04th May, 2021
This article is one of a series that has been provided to France Property Angels by SAREG. SAREG provides bi-lingual services in accountancy, international businesses and investments and has team of English-speaking staff to assist with your needs. Please visit sareg.com to find out more.
FRENCH TAXATION OF INCOME FOR NON-RESIDENTS
In 2019, the French Finance Law brought about various changes for non-residents, with an aim to bringing taxation of residents and non-residents closer, to some extent. This is particularly the case for non-residents who receive a French salary, pension or sitting tenancy rent (more often than not French citizens living abroad). Instead of a fixed rate of taxation at source, the rates applied to residents are now applied to non-residents, although with a minimum taxation applied.
The resident sliding scale of income tax changed in 2020 (second tax band reduced to 11% from 14%) and the threshold of the second band was reduced slightly. As this second band threshold is what governs the higher rate of taxation for non-residents, this therefore has an effect on the calculation of the non-resident taxation.
MAIN CHANGES for our NON-RESIDENTS since 2019, with the update on 2021 thresholds!
1) INCOME TAX – change in the calculation of the minimum rate of taxation :
For non-residents, since 2019 there is now a progressive rate of minimum income tax according to the amount of net taxable income (before the residents’ progressive rate is applied) and in 2021 the tax band thresholds decreased slightly :
- for income earned up to the limit of the second band of the residents’ progressive scale (currently set at 25,710 Euros per household share), the minimum rate of income tax is 20% of "profit";
- where income exceeds the upper limit of this second band (in excess of 25,710 Euros):
* the minimum rate of income tax is 20% for the first amount up to this figure,
* and taxable income in excess of 25,710 Euros is taxed at 30% of “profit” and thereafter the general progressive scale applies, if relevant.
- >> Taxable income up to and including 25,710 Euros = min 20% income tax
- >> Taxable income in excess of 25,710 Euros = min 30% income tax
NB : Non-residents do not need to include capital income from their French bank accounts in their annual income tax return; these interests are already taxed at source.
TO DISPUTE THE 20% or 30% RATE :
There is an option to declare ALL WORLDLY REVENUE even as a non-resident, in order to prove to the French tax authorities that the rates of 20% or 30% are too high with regards to your overall situation and are unfairly applied. However, in order to use this process of declaration, it becomes a full income tax return, with all the relevant annexes and calculations that would normally be completed for residents and all worldly income exposed to the French tax authorities#.
# It should be noted that SAREG would not currently be able to complete this level of non-resident tax return for 2020 income (the work involved in resident-style tax returns is far greater and more complex than a non-resident return and our resident tax return list is at full capacity!) and the fees for such an extended service to the current non-resident service would be much higher accordingly.
2) SOCIALTAXES–decrease in social taxes for EU and EEA residents:
The 2019 French Finance Law also brought in new rules in answer to the numerous claims the French government has had to answer in relation to unlawful social charges applied to French income, where those taxpayers already contribute into the social security system in their country of residence (ref De Ruyter, ECJ and more recently the administrative court in Nancy).
This involved a REDUCTION in social taxes applied to French property rental income for people who reside within an EU or EEA country, or Switzerland! It is therefore important to note that, as the UK left the EU and is not an EEA country either, this new reduction will no longer apply to UK residents (see below).
Currently, the total amount of social taxes applied to asset income is 17.2%. Since the 2019 Finance Law, 7.5% of this is classed as a solidarity tax affected entirely to the French state (and therefore not to the healthcare system); the remaining 9.7% is broken down into 9.2% general social contribution and 0.5% contribution to the French national debt. These are the main points to remember:
Where non-residents reside in the EU, EEA (Iceland, Norway, Liechtenstein), or Switzerland, they will only have to pay the 7.5% solidarity tax on their asset income.
Where non-residents reside in any other country outside of the EU, EEA or Switzerland (including the UK since January 2021), the full 17.2% will apply to all asset income.
See the table below highlighting the different possible scenarios related to minimum income tax and social charges that would be applied according to type of income, net profit and country of residence.
In 2019, France implemented a “taxation at source” system and, although this is not possible in practice for non-residents earning property rental income in France, instead of a true taxation “at source”, monthly stage payments are calculated and debited automatically from non-residents’ bank accounts (French or SEPA) based on the previous year’s taxation of the same type of income.
The information provided here is correct at the time of being drawn up, based on both the 2019 French Finance Law and the changes in the most recent 2021 French Finance Law, voted and validated on 31/12/2020. If there are any changes to the above, we will update our information leaflets accordingly. Please contact SAREG.