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Taxation of Income in France 2019

Delay in the introduction of PAYE in France means that most 2018 income will escape income tax and social charges in 2019.

The system of 'Pay-As-You-Earn' may well have been in existence in the UK for a long while now but it is new and being imposed only now in France .

For many households and certainly expats living in France , 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 in the year, based on the tax they paid in the previous year.

However, the double imposition of income tax in 2019 has meant that the government have been obliged to forgo tax revenues due on 2018 income - in most cases!

Here is how it could affect you and your taxation this year

From January 2019 the tax office will deduct a sum each month (15th day) as a withholding tax on 2019 income. The sum payable would have been advised on your income tax notice for 2018 (on 2017 income).

In May 2019, everyone will be obliged make a tax return on their 2018 income, and although a full tax assessment will be carried out, no tax will be taken, provided the earnings are in line with the income declared in the previous three years - 2015, 2016 and 2017.

The provisional payments that would normally be required to be paid in 2019 on income earned in 2018 will simply not be levied.

To cancel out the tax imposition each household will be granted a tax credit, which has been named crédit d’impôt modernisation du recouvrement (CIMR).

The greatest significance to Ex pats in France is that the CIMR will also apply to the social charges, which will also be cancelled for 2018 for income affected by the reform.

"Il en sera de même des prélèvements sociaux afférents aux revenus concernés par la réforme",

says the government website.

Tax credits that might normally be granted in 2018 will simply be carried forward to 2019 and credited in that year, but with an advance payment of 60% payable in January 2019.

Exceptions

There are four exceptions to the exemption from taxes on 2018 income.

i. Exceptional Income – This includes any income that exceeds the income earned in any of the previous three years which could be taxed and payable in September 2019. Pension capital sums and similar exceptional payments will also be taxed. Income arising from a new business created in 2018 will not be regarded as exceptional.

The taxation of exceptional income will be used to ensure that individuals do not artificially inflate their income earned in 2018, either by bringing forward income that might normally be taxable in 2019 or delaying income that might ordinarily be received in 2017!

ii. Capital Gains - Remaining outside of the tax credit relief in 2018 will be capital gains. Those on the sale of real estate will be taxed in the normal manner at source by the notaire at the time of sale.

iii. Investment Income - Dividends, interest and stock gains will also continue to be taxed at source, as currently occurs, with no tax credit.

iv. Micro-Entrepreneurs - The position for micro-entrepreneurs will depend on the basis on which you have elected to pay your income tax. Those who elected to pay income tax each month/quarter with their social security contributions in 2018 (called the prélèvement libératoire) will see no major change. In effect, they are already on PAYE for their business income. Accordingly, in such cases the tax-free year will not apply, an injustice that has been noted by some commentators and politicians, although the government appears to have rejected any change to the arrangements. Only if you have not opted for the prélèvement libératoire will you obtain a tax credit.

Implications for Expatriates

For retired expatriates in France, or for those who run a micro business, there will be very little change once this new taxation at source is in full swing, although they will benefit from the tax relief on 2018 income like everyone else, other than in the case of those exceptions listed above.

Clearly, in future, where pension or salaried income is generated from outside of France there can be no deduction at source.

Only if you have not previously elected to pay on account each month, and pay in three instalments each year, will it change to a monthly (or quarterly) deduction from your bank account.


The final assessment of your liability will be carried out following submission of your tax return, when you will either receive a tax refund or be required to pay any additional tax due over a four-month period.

If you do not actually pay any income tax you will not be required to pay provisional monthly payments.

Similarly, in the event of any significant change of earnings during the course of the year you can ask the tax authority to change your tax code. However, if you do so, and your income is 10% greater than advised, you will face a tax penalty of at least 10%.

As far as non-residents are concerned, in future rental income will be subject to 'on account' deduction, as occurs for residents.

Preparation for the French income tax return 2019

 

 

   
     
   
 
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