French Income Tax
This page outlines
- Taxable income
- Income tax rates
- Social Taxes
- Income Tax Optimisation
Each household's circumstances are differe
|
Updated for the final Loi de Finances 2008 of 24th December 2007 |
nt, and the legislation is complex. We strongly recommend obtaining
advice from qualified professionals in France - and we would be glad to
assist.
French Income Tax captures a wide spectrum
of revenues, including
- Salaried employment
- Professional & personal company income (BNC / BIC)
- Pensions
- Financial investment income (dividends, interest, etc)
- Property rental income
- Capital gains (property and financial gains)
French residents must declare all such income on a worldwide basis, although property income is usually taxed in the country where it arises. Non-residents must declare income and gains from French property.
If the taxman considers you've declared insufficient income for the lifestyle you lead (based on signs of wealth including houses, cars, horses, etc.) - he can tax you on estimated income, calculated according to standard rules.
For 2008 declarations on
2007 income, various deductions are allowed
including:
- 10% off salary (within certain limits)
- 40% off dividends (dependent on certain rules)
- A further fixed allowance of 1525€ off dividends (3050€ for a couple)
Many other deductions can be applied, ranging from employing baby-sitters to home insulation - see below.
To calculate the tax, add up income for the household, divide by the number of parts (based on household members), apply the rates below, then multiply back by the number of parts. When calculating the number of parts, note that the first & second child count only as a half-part, whereas the third child counts as a whole part. Live-in grannies usually count for the same as a child. Please note that there is a limit on the benefit obtained through multiple parts.
The
current tax bands
for 2007 income according to the Loi de Finances 2008 are:
- to 5,687€
0%
- 5,687 to 11,344€ 5.5%
- 11,344 to 25,195€ 14%
- 25,195 to 67,546€ 30%
- above 67,546€ 40%
As from 1st January, 2008, a fixed rate of 18% (previously 16%), known as "prélèvement libératoire" applies to capital gains and can also be chosen for certain types of income such bank interest and dividends.
In addition to Income Tax, French residents must also pay CSG, CRDS and Prelevement Social. These are social taxes and do not give right to any benefits. Please do not confuse with French Social Security contributions. A better term would be "additional income taxes".
For salaries and pensions this is usually deducted at source. For professionals & personal companies (BNC and BIC) it is collected by the URSSAF.
French social security also applies to property & financial investment income & gains, currently at the rate of 11%. You generally receive an automatic request for payment in November, although for certain types of investment (eg bank interest) the amounts are deducted at source.
OPTIMISATION : HOW TO REDUCE INCOME TAX
1. Know your rights.
For example, there are many allowable costs concerning your principal residence, such as domestic help (nanny, cleaner, gardener, etc), assisting sustainable development (thermal insulation, solar heating, etc) , or making improvements designed for senior citizens. Make sure you keep the invoices.
In August 2007, the French parliament approved the deduction of 20% of mortgage interest on your main home (recently uplifted for the first 12 months to 40%). The allowable interest is limited to 7500€ (for a couple) for each of the first five years after purchasing a property (increased by 500€ for each child). Cabinet Gregory can provide full details of this new rule.
Make sure you declare the full number of household members. For example, children up to 25 (even if they are not living with you) and dependant relatives can be included under certain conditions.
Study carefully the documentation you receive with the tax forms and, especially if you are not at ease in French, make sure you get advice from appropriate professionals in France.
2. Use schemes with tax incentives
European Equity Funds - these qualify if invested in small companies described as Innovative (FCPI) or Regional (FIP). Given the potential risks, it is important to find experienced fund managers. These funds may be appropriate if you are looking for longer-term investment and diversification of your financial portfolio. The maximum tax deduction is 12000€ for a couple (6000€ FCPI and 6000€ FIP). The eventual gains are exempt from French capital gains taxes. Cabinet Gregory regularly evaluates fund performances and meets selected fund managers.
Film Industry - most people support the French film industry for personal satisfaction rather than financial gains. Unfortunately you're unlikely to get your name in the credits. The maximum tax deduction is 7200€. Cabinet Gregory can organise access to such funds if required.
French property - several types of scheme are available. The most popular schemes are "de Robien" and "Borloo". However, annual deductions are limited to 10700€ and rents are sometimes controlled by the government. For those in the upper tax bracket, we recommend more efficient schemes with unlimited tax deduction and rents. It's often wise to take out a bank loan for these investments since the interest is tax deductible too. Please contact us for full details of all the different types of scheme. We also review available projects on a regular basis and can assist in finding suitable property and arranging finances.
3. Invest in your own French business
Setting up business is not as difficult as you may think - several million have been created in France - mostly as small personal companies.
Many types of business will however be
subject to specific regulations. For example, setting up a Gite or Chambre
d'Hote involves taking account of:
- Competition rules (to protect restaurants and hotels)
- Insurance (eg special insurance being required for swimming pools)
- Public Housing (eg safety, hygiene, insulation, ...).
Small companies have a choice between the "micro-entreprise" or the "real" system, and professional advice should be taken to determine which is the most advantageous.
We strongly recommend obtaining advice from qualified professionals in France - and we would be glad to assist.