Taxes for Expats in France

    Your complete guide to expat tax in France:

    Tax rates

    2017 income tax rates for 2016 income

    Taxable Income Band EUR National Income Tax Rates
    1 - 9,710 0%
    9,710 - 26,818 14%
    26,818 - 71,898 30%
    71,898 - 152,260 41%
    152,260 + 45%


    If you are resident in France, you are liable to French income tax
     (impôt sur le revenuon the basis of your worldwide income.

    Second home owners who earn rental income in France are liable to French income tax, and thereby obliged to complete a French income tax return.

    While the higher income you earn the more income tax you pay, the amount of tax you pay is not based on your earnings as an individual, but on your earnings as a household.

    You have to add up the earnings from everyone in the household and then divide by the number of ‘parts’ or people in the family (parts familiales).

    Working adults count as one whole part; the first two children count as half parts and successive children count as one part.  That sum is assessed against France's tax bands and then multiplied by the number of ‘parts’ in the family.

    A tax advantage for each child is limited to €1,512.

    This method of calculating French income tax means that couples who are married or in a civil partnership, and families with children usually pay less income tax than individuals.

    Income tax in France is not currently deducted at source from an employee’s wage (although social security contributions are).  This means that all resident taxpayers have to complete an annual tax return and have the money available to pay their tax bill. **

    As an expat living in France, even though you may be taxed on some of your income elsewhere, if you are resident in France you need to declare all of your worldwide income on your French tax return so the authorities can establish the rate you will pay on any income earned in France.

    In 2017 paper based return need to be submitted by 17th May, for both residents and non-residents.

    If you are required to submit online (if your net taxable income (revenu fiscal de référence) in 2015 was greater than €28,000) you are given extra time; the precise date depends on where you live:

    • Departments 01 to 19 (zone 1) - 23rd May
    • Departments 20 to 49 (zone 2) - 30th May
    • Departments 50 onwards (zone 3) - 6th June
    • Non-Residents - 23rd May

    If you are liable for wealth tax, then most households also need to submit their wealth tax declaration with their income tax declaration.

    Whilst the process may be a little bureaucratic and complicated, over 50% of residents pay little or no income tax in France because of the comparatively low rates of French income tax, and the tax allowances that are available.

    However, you will be liable for payment of the social charges (charges sociales/cotisations sociales).

    Tax in France for non-residents:

    Non-residents usually pay tax on their France-sourced income at a minimum French tax rate of 20 percent. Property tax in France for non-residents on the taxable gain of the sale of a French property is 19 percent for EU citizens and 33.33 percent for all others. 

    Tax credits, deductions and allowances in France:

    You may be able to reduce your tax bill with French tax refunds, allowances and concessions.

    French tax refunds are granted for a range of expenses, including:

    • la prime pour l’emploi or PPE if you are working in a professional capacity and you earn under a certain level;
    • employee social security contributions;
    • any professional/employment-related expenses (up to EUR 12,183 in 2016);
    • if you support a person in your home over the age of 75;
    • rental losses from unfurnished properties (up to EUR 10,700);
    • losses from business or professional activity;
    • child support payments for minors not part of your fiscal household; 
    • energy conservation works on your home;
    • if you invest money in or contribute to an assurance vie investment policy;
    • if you are on a low income you might be able to get relief from local French property taxes.

    Visit your local Caisse d’Allocations Familiales (known as ‘La Caf’) to find out what French tax refunds are available and how to apply.

    ** 2019 PAYE tax changes in France

    France is set to introduce PAYE in 2019, therefore the following changes are expected in 2018: -

    Most 2018 income will escape income tax and social charges.  This is because, to allay fears of a double imposition of tax in 2019, the government have been obliged to forgo tax revenues due on 2018 income.

    Whilst this transition to PAYE has been labelled a tax revolution, the reality is for many households there will be very little practical difference.

    This is because several million households already elect to pay 'on account' over 10 months' provisional payments of income tax to which they may be liable the following year, based on the tax they paid in the previous year. 

    In addition, if you paid at least €347 of income tax in the year, then in February and in May of the following year you are required to make two payments on account, being two-thirds of the tax paid in the previous year.  The final payment is made after your income tax notice is received, assuming there has been no major reduction in your earnings.

    So the French are already used to paying at least part of their income tax bill in advance; what is new about PAYE is that employers and pension administrators will deduct it at source.

    However, for 2017, everything is remaining the same!

    Who pays

    Who pays tax in France?

    You’re liable to pay taxes in France if:

    • France is your main place of residence or home – if your spouse and children live in France and you work abroad, you may still be considered a French tax resident...
    • You are resident in France for more than 183 days in a calendar year – not necessarily consecutively.
    • Your main occupation is in France.
    • Your most substantial assets are in France.
    How it works

    How is income taxed in France?

    Taxable income consists of annual disposable income from all sources. Income is identified based on its nature, and then allowances, deductions and treaty provisions are applied in calculating net taxable income subject to progressive tax rates.

    The general principle is that losses from one category of income may offset profit from other categories and may be carried forward for 6 years. However, this principle is subject to limitations. Certain losses may be offset only against income from the same category of income. These include capital losses on quoted stocks and bonds.

    Taxable salary income - The total of all compensation paid by an employer is considered taxable salary income and includes such items as the private-use element of a company car, employer-paid meals and employer-paid education expenses for employees and their dependent children. Taxable compensation does not include the following items paid by employers: certain pension contributions, certain medical insurance premiums and, for resident foreigners and non-residents, home-leave expenses, moving expenses and temporary housing expenses.

    Self-employment and business income - Self-employment income is divided into the following three categories, depending on the nature of the activities: commercial (includes trades), professional and agricultural.

    Taxable income realised from each category is subject to the progressive tax rates that apply to resident individuals. In addition, a self-employed individual is subject to a flat social tax.

    Directors' fees - Under French internal law, directors' fees are treated as dividend income.

    Directors' fees paid to non-residents are generally subject to a flat 30% withholding tax, unless a tax treaty provision reduces or eliminates the tax.

    Investment income - Interest and dividends are taxed at ordinary income rates. Qualifying dividends can benefit from the demi-base régime (that was a 40% deduction in 2014).

    Net income derived from the rental of real estate and from royalty income (other than for industrial property) is taxed as ordinary income. Royalties from industrial property are taxed at a rate of 33.33%, subject to a possible reduced rate provided in a tax treaty. Income from real estate is subject to income tax plus 15.5% CSG/CRDS and social tax. CSG/CDRS and social tax were previously due only from French tax-resident individuals. French-source rental income and French-source real estate capital gains realised by non-resident taxpayers may no longer be subject to social taxes. This court decision needs to be confirmed by a French court or French law.

    Exempt income includes the following:

    • Certain profits from the sale of securities
    • Family allowances and health care reimbursements
    • Payments received pursuant to life insurance contracts (under certain conditions).
    DTAs

    Taxes for expats in France: Double tax relief and tax treaties

    If a double tax treaty does not apply, expatriate residents are generally allowed to deduct foreign taxes paid as an expense.

    France has signed numerous double tax treaties.  Double taxation is generally eliminated by a tax credit (for employment income, the credit is generally equal to the French income tax on such income) or by exemption with progression (income is exempt from French income tax but is taken into consideration in determining the effective rate of tax applied to the taxpayer's other French taxable income).

    France has entered into double tax treaties with 120 countries.

    Residency

    Expat tax advice on residency

    Persons of French or foreign nationality are considered residents for tax purposes if their home, principal place of abode, professional activity or centre of economic interest is located in France. As a resident, an individual is taxed on worldwide income, subject to applicable treaty exemptions.

    Persons not considered resident as defined above are taxed on French-source income only.

    A favourable expatriate tax law applies to employees seconded to France after 1 January 2004. This favourable tax regime (Article 81 B of the French tax code) provides that under certain conditions, expatriates seconded to France after 1 January 2004 may not be taxed on compensation items relating to the assignment in France, such as a cost-of-living allowance, housing cost reimbursement and tax equalisation payments. The main condition is that the taxpayer must not have been considered a tax resident of France in any of the 5 tax years preceding his or her year of arrival in France.

    Effective from 1 January 2008, the favourable expatriate tax regime described above (now Article 155 B) was extended to local hires (including French nationals) who relocate to France and meet the above residency criteria.

    A foreign expatriate assigned to the French headquarters (HQ) of a multinational company may be eligible under a HQ ruling for tax relief for up to 6 years from the assignment date. The principal advantage of a HQ ruling is the elimination of tax-on-tax if the employer reimburses an expatriate for his or her excess foreign tax liability.

    IHT

    Do I have to pay inheritance and gift tax in France?

    Gift tax in France:

    A gift in France is called a donation, and French gift tax is called droits de donation.

    The definition of a gift for the purposes of this tax excludes those gifts which may ordinarily be made in the course of daily life - like wedding and birthday gifts for example, provided the gift is 'reasonable' for the living standards of the gift-giver!

    A gift can be simple cash, or it could be as complex as the transfer of real estate, e.g. transfer of all or part of the family home to children.

    There is no inheritance tax between married couples or those in a civil partnership, and with reasonable inheritance tax allowances for children, the use of gifts as a tax planning strategy is probably only of importance to those with substantial wealth, or who do not benefit from family allowances.

    However, the reasonably generous allowances under French inheritance tax contrasts with the entrenched rights of children under French inheritance laws, so the use of gifts remains important for those who wish to obtain greater freedom in the disposal of their estate.

    This is because children are protected heirs, with entrenched inheritance rights.

    So, for example, if you are married, then the maximum amount that you can gift to your spouse will depend on the number of your children, as follows:

    • One child – half your estate
    • Two children – a third of your estate
    • Three or more children – a quarter of your estate

    Also, even though you can make a gift free of tax every 15 years, if you die before the expiry of the 15 year period, then that gift is added to the total value of your estate for the calculation of inheritance tax.

    The older you are the more you need to consider whether it would make sense to make a gift in one single payment, rather than a series of payments annually.

    The longer the period over which the gift is granted the greater the risk that it will be caught by the inheritance rules.

    Provided 15 years has expired, the allowances are cumulative with inheritance tax allowances.

    The child allowances for inheritance tax are the same as those for gift tax.

    Accordingly, each child benefits from an inheritance tax allowance of €100,000 on the death of one of their parents, in addition to any expired sums which may have been granted by way of gift.

    So a gift to a child of €100,000 can be added to an inheritance tax allowance of the same amount.

    If the decedent or donor is resident in France, tax is payable on gifts and inheritances of worldwide net assets, unless otherwise provided by an applicable tax treaty.  For non-resident decedents or donors, only gifts and inheritances of French assets are taxable, provided the beneficiary is also a non-resident of France.

    Various exemptions and reliefs apply.

    To provide relief from double inheritance taxes for expats, France has entered into estate tax treaties with 39 countries.

    
Inheritance tax in France:

    French IHT is complicated!

    For deceased residents of France all worldwide assets are subject to French inheritance tax, while all French-based estates are subject to tax even if the beneficiary isn’t a resident in France.

    In general, after any applicable deductions and exemptions, plus after adding back any gifts given from the deceased within the prior 15 years, the inheritance rates in 2016 for parents and children were:

    • Up to EUR 8,072: 5 percent
    • EUR 8,072 to EUR 12,109: 10 percent
    • EUR 12,109 to EUR 15,932: 15 percent
    • EUR 15,932 to EUR 552,324: 20 percent
    • EUR 552,324 to EUR 902,838: 30 percent
    • EUR 902,838 to EUR 1,805,667: 40 percent
    • EUR 1,805,667+: 45 percent

    Siblings of the deceased are taxed at 35 percent for amounts up to EUR 24,430 and 45 percent for more, after a French tax refund of EUR 15,932.  Others will be taxed at 55 or 60 percent depending on their relationship. 

    Finally on this point, do not assume that just because you've expatriated to live in France that your estate will not be liable to inheritance tax (IHT) in your old home nation, or any nation where you hold assets.  For example, those domiciled in Britain remain liable for IHT on their worldwide estate.

    If you are concerned about mitigating your IHT liability, we'd like to offer you a free initial consultation to determine whether we can help you.

    CGT

    Do I have to pay capital gains tax?

    Capital gains derived from the disposal of shareholdings, land and real estate are subject to capital gains tax in France (impôt sur les plus values).

    Prior to 2015, non-residents of France had to pay much higher French capital gains tax than residents, however, the rate has been made the same for both groups now because of EU fair tax rules: a 19 percent capital gains tax plus a 15.5 percent social charge, totalling 34.5 percent.

    In addition, since 2013, there has been a supplementary tax on large gains, divided into five different French tax rates, depending on the amount of profit:

    • EUR 50,000 to EUR 100,000: 2 percent
    • EUR 100,000 to EUR 150,000: 3 percent
    • EUR 150,000 to EUR 200,000: 4 percent
    • EUR 200,000 to EUR 250,000: 5 percent
    • EUR 250,000+ : 6 percent.

    The rate applies to each individual owner, so if an asset is split between two people at EUR 95,000 each, neither will have to pay a supplementary tax.

    Resident expats may benefit from a total exemption for gains derived from the sale of a principal private residence.

    Capital losses from the disposal of real estate are final losses and may not be carried forward to offset future capital gains from real estate.

    Principal residence gains and losses:

    Capital gains on the sale of real property located in France are generally taxable whether or not the owner is domiciled in France.

    The disposal of a principal private residence by a resident taxpayer (and in some circumstances by non-residents) is not taxable provided that it was the taxpayer’s principal residence at the time of sale.

    A gain resulting from the sale of real estate for gross proceeds of up to EUR15,000 is exempt from French tax - and if the property was held for 23 years or more. 

    State pension

    Do expats get a state pension?

    Social security taxes in France:

    Social security contributions (charges sociales or cotisations sociales) are collected by the state to fund France’s excellent welfare system which includes healthcare and sickness cover, family benefits, pension, unemployment benefit and workplace accident cover.

    The charges are split between the employer and the employee, with employers paying around 40–45 percent and most employees paying around 20–25 percent of gross earnings.

    An employer deducts the money from the salary every month.  The self-employed pay around 40 percent of their earnings in social charges once their businesses are up and running.

    French social security tax contributions are due on compensation, including bonuses and benefits in kind, earned from performing an activity in France even if paid from a foreign country.

    However, this rule may be modified by a social security totalisation agreement.

    Some countries have reciprocal social security agreements with France.

    French social security surcharges:

    If you are resident and paying tax in France you also have to pay two social security surcharges called the Contribution Sociale Généralisée or CSG, and the Contribution pour le Remboursement de la Dette Social (CRDS). These are paid on total income.

    CSG is 7.5 percent on earned income and 6.2 percent on replacement income; CRDS is 0.5 percent of earnings.

    If you are not paying tax in France you don’t have to pay contributions to either, but you must make contributions to employee’s health insurance at a rate of 5.5 percent on total earnings.

    French state pension facts:

    The legal minimum retirement age in France is 62 for those born after 1 January 1955, but the normal retirement age is between 65 and 67.

    Employees pay 6.85 percent of monthly income and employers pay 8.5 percent up on earnings up to a ceiling of EUR 3,170 per month.

    Without an upper limit, employees pay 0.3 percent on total monthly salary and employers pay 1.8 percent.

    How much pension you get depends on the 25 best earning years on which contributions have been made, the payment rate and total period of insurance.

    Depending on the job, it may be possible to take early retirement without a loss of pension.

    There are supplementary pension schemes as well, which are administered by ARRCO (Association for Employees' Supplementary Schemes) and AGIRC (General Association of Retirement Institutions for Executives) covering only managerial and executive staff.

    How much pension you get is points-based; the yearly contributions are converted into points, added up for the total period of insurance, and then multiplied by the value of the point at the time the pension is calculated.

    For more information, see the AGRIC and ARRCO website

    Wealth tax

    Wealth tax in France (Impôt de solidarité sur la fortune)

    French wealth tax is payable on total worldwide assets over EUR 1.3 million after five years of residence in France.

    As of 2017, the French wealth tax rates are as follows:

    Taxable Income Band EUR National Income Tax Rates
    0 - 800,000 0%
    800,001 - 1,300,000 0.5%
    1,300,001 - 2,570,000 0.7%
    2,570,001 - 5,000,000 1%
    5,000,001 - 10,000,000 1.25%
    10,000,001 + 1.5%

     

    There is a small reduction on net wealth between 1.3 million and 1.4 million, calculated as: EUR 17,500–1.25 percent x net wealth.

    Non-residents are only taxed on French assets - residents are taxed on all assets worldwide.  


    Finally...

    We believe the above information is accurate, however tax rates and rules can change, and we are NOT tax experts.  Therefore, please do not rely exclusively on the information to determine your liability for tax.

    Speak to a local tax expert for personalised advice, or consult an international taxation consultancy.

    If you'd like our help to source someone to assist you, please get in touch and we will do all we can to help.

    Relax, and join the 10,000 other international investors who have made the smart decision to let us help.

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