The French tax system
It's well known that France has one of the highest tax rates in the European Union, although not as high as those in Scandinavia. If you're considering moving to France, understand its various tax policies beforehand, as they may differ significantly from those in your home country.
For example, it is compulsory to declare your bank accounts held abroad when you file your tax return in France, failing which you may be subject to a substantial fine. If your budget allows, hire a tax specialist to help you understand and comply with the French system.
Types of tax in France
In general, taxpayers in France must pay:
- income tax, taken at source (directly from salary) since 2019;
- social security contributions, deducted at source;
- value-added tax (VAT), an indirect tax applied to the introductory price of all products and services available in the country;
- taxe habitation (paid by both landlord and tenant);
- property tax (paid by land and property owners);
- capital tax.
Conditions for taxation in France
If you reside permanently in France, you are liable for French taxes. It can become intricate if you arrive or depart from France during the tax year. In such situations, you might pay taxes in both countries during the transitional period.
However, as a general rule, you will pay taxes in France if you:
- have a permanent and habitual family residence in France;
- work in France (but this should not be an ancillary professional activity);
- have economic interests based in France.
Important:
Ensure that your home country has a double taxation agreement with France to avoid paying taxes twice.
If you worked abroad for part of the year and paid taxes on your income there, you still need to declare this income. It will be considered when calculating your total tax liability.
All residents of France are required to pay income tax, regardless of the source of their income (unless they are exempt). However, the French tax system differentiates between household income, families with or without children, and single taxpayers. In general, families tend to pay less tax than single taxpayers.
Income generally refers to the following items:
- salaries;
- investments;
- dividends;
- bank interest;
- all pensions;
- property income;
- turnover.
Please note that your employer will report your income to the tax authorities for subsequent tax years after your initial return. Banks will also automatically report any dividends or profits earned from your accounts. Nevertheless, you are responsible for verifying that these reported values are accurate and encompass all your income.
Tax legislation changes relatively quickly, and we strongly advise you to consult the tax authorities' websites before filing your tax returns (see links below). For example, tax laws have recently been amended, and it is now mandatory to declare any income you earn from renting out your property on Airbnb!
Tax rates in France
Tax rates in France are as follows (last updated in 2024):
- up to 11,214 euros per year, tax rate to be applied: 0%;
- from 11,215 to 28,797 euros, applicable tax rate: 11%;
- from 28,798 to 82,341 euros, applicable tax rate: 30%;
- from 82,342 to 177,106 euros, applicable tax rate: 41%;
- over €177,106 per year, the applicable tax rate is 45%.
French income tax returns
Since the January 1, 2019 reform, income tax is deducted at source in France, i.e., directly from taxable income (wages, salaries, pensions, self-employed income, etc.).
The reform streamlines the tax collection process by aligning the timing of income collection with tax payments. Taxpayers now pay taxes based on their income from the current year rather than waiting until the following year. Practically, tax authorities apply a monthly withholding rate based on the taxpayer's previous tax return. If circumstances change (such as job loss or starting a business), taxpayers can request a review of this rate during the year. The withholding rate is indicated on pay slips and tax notices.
Depending on the nature of the income, different institutions will make a deduction:
- the company deducts from wages;
- France Travail (public employment agency) deducts from back-to-work allowances (ARE);
- retirement funds are deducted from pensions;
- self-employed workers: The tax authorities calculate income by installment each month or quarter. Tax is then deducted from this installment. A change in the advance payment can be requested in the event of a change in circumstances.
However, the reform does not alter the method of tax calculation or eliminate the tax return. In contrast, the French government has significantly expanded access to online tax filing.
Taxes for entrepreneurs in France
Entrepreneurs in France are subject to different types of tax, depending on their business's legal structure and financial situation. Here are some of the central taxes to which entrepreneurs may be subject:
- corporate income tax: depending on their legal form (SARL, SAS, etc.), companies are generally subject to corporate income tax. This means that they must pay a percentage of their net profits to the State;
- social security contributions: sole traders, microentrepreneurs, and directors of certain companies (such as SASU) are required to pay social security contributions to finance social protection (health, retirement, etc.);
- VAT: companies carrying out economic operations subject to VAT must collect this tax on their sales and pay it to the State;
- cotisation foncière des entreprises (CFE): this is a local tax payable by all businesses, regardless of their legal form;
- income tax: if the entrepreneur is self-employed (e.g., microentrepreneur), he or she may be taxed on personal income;
- other specific taxes: depending on the company's activity and situation, there may be other particular taxes or contributions to consider. To find out more, contact your local tax office.
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