French Income Tax
|
Updated April 2009
French residents must
send back the 2008 Income Tax Forms by May 29 (paper) As a one-off measure, residents with 2008 income below 12k€ per part (eg 24k€ for a couple) will benefit from a 2/3 tax reduction. |
This page outlines
- Taxable income
- French income tax rates
- French Social Taxes
- French Income Tax Optimisation
Each household's circumstances are
different,
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.
Various deductions are allowed
including:
- 10% off salary (within certain limits) (see below
for additional deductions for those coming to
work in France)
- 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
French income 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
French income tax bands
for 2008 (updated in the Loi de Finances 2009) are:
- to 5,852€
0%
- 5,852 to 11,673€ 5.5%
- 11,673 to 25,926€ 14%
- 25,926 to 69,505€ 30%
- above 69,505€ 40%
Since 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 or RSI.
French
social taxes also apply
to property & financial investment income & gains.
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.
As from January 2009, there is an additional social tax of 1.1% to finance the "Revenu de solidarité active" (RSA) announced in September 2008.
This brings total French social taxes to 12.1%.
Those who are non-resident, retired or pay social contributions in another country are usually exempt.
Those who are subject to social taxes should consider the many available deductions - and also the Bouclier Fiscal.
OPTIMISATION : HOW TO REDUCE FRENCH 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. Please note that the Loi de Finances 2009 proposes an upper limit for most schemes.
If you decide to go ahead
with a property tax-reducing investment,
it's
wise to take out a bank loan 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.
4. Special rules for those coming to work in France
Those seconded to France can usually claim exemption from French tax on salary uplifts
(eg for accomodation) and work carried out abroad.These rules have recently been extended to include those recruited directly to work for a French company and self-employed individuals who satisfy certain conditions (eg specific skills in shortage)
The total exemption can be up to 50%.Please contact me for full details since the rules are particularly complex and we expect clarification from the tax authorities.
We strongly recommend obtaining advice from
qualified professionals in France
- and we would be glad to
assist.