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Income Tax



Source: SKOVAGAARD

French Income Tax Explained

Disclaimer: The French Tax Code (Code général des impôts, or just CGI) takes the space of 2 bricks and uses 2000 pages of small print to present nearly 4000 articles. In addition, a separate Book of Fiscal Procedures (Livre des procédures fiscales) outlines the rules for collecting the taxes. We cannot possibly present all that in a couple of chapters. This section aims to explain the very basics of the core of the French taxation of employed persons or married couples with or without minor children at their charge, all persons concerned living regularly in France the entire calendar year and those of them working being employed and paid only by a French employer. In these cases, the calculations below will give you a very precise idea of income tax due, but you accept that you use this information at your own responsibility and that we can under no circumstances be held liable for your use of this information. Calculating and paying French income tax is your personal responsibility. This page is not a tax guide and it cannot replace a tax advisor, tax guides or the Tax Code. Different types of income are treated differently, and it is your responsibility to find out how they are taxed. The information below is not exhaustive. The following, non-exhaustive list shows a few examples of cases where you cannot directly use the information below or maybe not use it at all: Divorce, separation, same-sex couples, unmarried couples, couples having signed a partnership agreement (PACS), death, birth, family member living or working outside France, foreign income, persons working for international entities having special status (EU, CERN, ...), diplomats and other consular staff, capital income, retirement, self-employment, running your own business, small or large traders, authors, artists, nationals who may remain taxable in their own country despite living away from it (Americans and Frenchmen for example).

The French tax year follows the calendar year.

If you are resident in France, then you are taxable on your worldwide income in France to the extent that double taxation agreements with other countries don't give the right to taxation to another country. However, even if such an agreement stipulates that an income is not taxable in France, it must still in the majority of cases be declared in France, because even though it is not taxed, it can affect the tax calculation of your other income in France. This also goes for for example a spouse's income earned and taxed abroad, except if the spouse having the foreign income is living abroad and not in France.

There is no PAYE or other system in France to collect income tax at source. While social security contributions are deducted from your gross salary at source (unless you pay such contributions in another country under EU Regulation 1408/71 or a bilateral social security convention), no tax is deducted. You are personally responsible for saving enough money to pay your tax later. Tax is paid in arrears the year after the income was earned.

Tax calculation - the brief version

The income tax depends on your personal situation. A number of parts is determined for the family. A single person gets one part. A married couple 2 parts. Add 0.5 part for each of the first two children; 1 part for each additional child. For example: Married couple with 2 children gets 3 parts. Single person with 3 children gets 3 parts. The resulting number of parts is known as the quotient familial.

All income of the persons concerned - the married couple and the children - is added together in one amount. If you pay your social security contributions in France, your employer should tell you which of them are deductable and which amount to declare. If you pay them abroad, you should deduct them from your gross income before applying the tax calculations below. Only declare the appropriate amount net of deductable contributions.

I will illustrate the following calculations with an example of a married couple with three children, one parent earning €3,000 and the other €82,000 net after social security contributions.

A standard allowance for professional expenses of 10% of your salary is automatically deducted (code général des impôts article 82 3º for the legally interested). The maximum allowance for income earned in 2007 was €13,501 per household ; minimum €401 ; minimum €880 if you have been a registered jobseeker for more than a year. The minimum amounts apply per person, not household.

Standard allowance of salary 1 = 10% of €300; increased to minimum amount €401.
Standard allowance of salary 2 = 10% of €82,000 = €8200.
Income after standard allowance: €3,000 + €82,000 - €401 - 8,200 € = €76,399.

You do not need to do anything to claim this allowance. Do not deduct it from the amount you declare yourself.

Instead of taking the default 10%, you are entitled to deduct your actual expenses. This may be more favourable if you drive to work and have a modest salary. For mileage, the tax office publishes an annual list of mileage allowance per vehicle class. You can deduct mileage for a distance of up to 2x40 km per day.

Divide the resulting amount by the quotient familial calculated above:
Husband: 1 part
Wife: 1 part
1st child: 0.5 part
2nd child: 0.5 part
3rd child: 1 part
Total parts: 4

€76,399 / 4 = €19,100.

The personal allowance and progressive tax bands (barème) are then applied to the resulting amount. This results in the income tax per part.

For income earned in 2008 (payable in 2009), the following barème is applied:

Income over
€		 Up to and including
€		 Percent tax
5,852 11,673 5.5%
11,673 25,926 14%
25,926 69,505 30%
69,505   40%

In the example, the tax per part is

0% of €5,852 = €0
5.5% of (€11,673 - €5,852) = €320 
14% of (19,100 € - 11,673 €) = €1,040 
or a total of €1,360 

For income earned in 2007 (payable in 2008), the following barème applied:

Income over
€		 Up to and including
€		 Percent tax
5,687 11,344 5.5%
11,344 25,195 14%
25,195 67,546 30%
67,546   40%

Back to 2008 income, payable in 2009: This amount is then multiplied by the quotient familial to get the total tax:
€1,360 x 4 = €5,440
which is the total income tax payable.

There is a limit to the tax advantage one can get for each half-part for children (2,227 € for 2007). In the example, this limit is not exceeded. To know if the limit has been exceeded, one makes two tax calculations: One that includes the parts and half-parts for the children and one that does not include these parts (that is, in our example one calculation using 2.5 parts and one calculation using 2 parts). If the difference between the two results exceeds 2,227 € multiplied by the number of children's half-parts (one half-part in our example), then the tax is increased with the amount that exceeds the limit. In other words, the maximum tax advantage for each of the first two children is 2,227 € and for each following child 4,454 €.

See below for income tax of interest.

If you employ personnel in your home (and declare it), you can get a tax credit of 50% of the salary and social charges paid, up to a €15,000 in 2009 or €20,000 in certain cases such as handicap. If the tax credit exceeds the tax otherwise due, the exceeding part is refunded.

Expenses for child minding (for children up to school age) away from your home entitles you to a tax credit of 50% of the expenses paid, less any contributions received from the CAF or others. If the tax credit exceeds the tax otherwise due, the exceeding part is refunded.

Child support expenses are in most cases deducted from income before tax is calculated.

This is a very generalised information. Refer to the French Inland Revenue for more information. You can calculate your tax at that site. At newsagents, you can buy an annual tax guide. In case of any doubt, do not hesitate to take professional advice, or ask your local tax office (centre d'impôt). Skovgaard Europe can help you with the most common cases.

This article in the Weekly Telegraph by Finn Skovgaard focuses on income tax for UK cross-border workers living in France.

Interest

In any given tax year, you can choose between the following two options:

Prélèvement libératoire: 15% income tax and 11% social security (12.1% from the 2009 tax year) is deducted at source by the bank. You don't pay any further tax. This options is currently only available for interest from French banks.

Imposition réelle: Nothing is deducted at source. You declare the interest as income on your tax return. Except that you don't get the 10% allowance on interest, tax is calculated as for salary. In addition, you get a bill for 11% (12.1% from the 2009 tax year) social security contributions (CSG and CRDS).

The choice is quite simple: If any part of your income will be taxed in the 30% tax band, then choose prélèvement libératoire; otherwise not. Your choice must be communicated to your bank before the end of the year.

Car Taxes

Car registration tax is paid when registering or re-registering a car, except if it's your own car you re-register after a removal within France. The tax varies with the département and is fixed as an amount per fiscal horse (chevaux fiscaux - CV). The number of fiscal horses is the result of an obscure formula taking many different factors into account. The prefecture will calculate it if you don't know it. The tax is typically €45 per fiscal horse. A petrol family saloon car could have for example 9 fiscal horses. For cars older than 10 years, a 50% reduction is applied. A management fee of €4 is due in addition.

CO2 tax: Due on registration or re-registration of cars (sedan/saloon, wagon/estate, 4x4, people carrier up to 9 seats etc. but not vans) first registered on or after 1 June 2004. For EU type approved cars, it is €2 per gramme CO2 per km in the range 200-250 and €4 per gramme thereover. For example, for a car emitting 275 grammes of CO2 per km, the tax is (250-200) x €2 + (275-250) x €4 = €200. For other cars, it is the number of fiscal horses (CV) that count: Up to 9 CV: No tax. 10-15 CV: €100. 16 or more CV: €300

Bonus-Malus: From January 2008, when registering a car (sedan/saloon, wagon/estate, 4x4, people carrier up to 9 seats etc. but not a van) the first time, either an additional tax is paid or a tax refund deducted, depending on the car's politically correct capabilities according to the global warming scam. The more CO2 emission, the more tax. 

CO2 emission, g/km Bonus (tax refund) Malus (extra tax)
0-100 *)   €1000 0
101-120 *)    €700 0
121-130 *)    €200 0
131-160 *)        0 0
161-165 0 €200
166-200 0 €750
201-250 0 €1600
251 and more 0 €2600

*) If you scrap a car that is older than 10 years and buy a new in one of these groups between the 4 December 2008 and the 31 December 2009, you get a scrapping premium of €1,000. In case of a car emitting 100 g CO2, the total tax advantage will be €1,000 + €1,000 = €2,000.

From 2009, families with a least three children will pay a reduced tax for one car per family with at least five seats. For the third and each following child, 20 grammes of CO2 is deducted from the car's CO2 value to obtain the taxable CO2 value. A refund of the difference between the tax paid and the tax due after deduction can then be obtained on demand.

For cars first registered after 1 January 2009, a tax of €160 per year is due if the car emits more than 250 g CO2 per km.

Annual road fund tax for privately owned cars, vignette, was abolished from 1 December 2000.

Taxe sur les voitures de société is an annual tax paid by companies for company cars in addition to the vignette. Self-employed operating as entreprises individuelles in their own name, as opposed to having a separate legal entity in the form of a company, are not concerned by this tax. If an employer pays mileage to an employee using his or her own car for business trips, this tax may be due on the employer to avoid that the employer tries to escape the tax by using employees' cars. This tax can be quite costly. Watch out!

There is no import duty on cars imported from the EU/EEA. Cars imported from other countries are exonerated under certain conditions.

VAT (sales tax - TVA in French) at 19.6% is due on new cars and cars assimilated with new cars, typically imported cars less than six months. With very few exceptions, businesses cannot deduct VAT on cars and petrol (gasolene). 80% of diesel VAT may be deductable. This is in reality yet another company car tax.

The tax on lettings known as droit de bail was abolished from January 2001 and should no longer be collected by the landlord.

Other Taxes in France

The current VAT (sales tax - TVA in French) rate is 19.6%. 5.5% for some items and services, notably food, passenger transport and home improvements.

The tax on lettings known as droit de bail was abolished from January 2001 and should no longer be collected by the landlord.