Global expansion is a great way to grow your business and France offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO-service we will take care of the complicated legwork so that you can focus on your business goals in France.
Dealing with tax, payroll, and employment regulations for your staff from overseas is a tricky process. France is no exception, with fines, sanctions and other penalties applying for not complying with the complex and many-layered aspects of taxation.
We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. To keep you informed and updated too, we created this guide which includes the basic facts regarding tax regulations in France.
Overview of Taxes in France
- Individual Income Tax - 11% - 45%, plus percentage surcharges for high incomes
- Value Added Tax - 20%
- Corporate Income Tax - 26.5%
- Withholding Tax - 30% on dividends paid by French companies to non-resident company or individuals
- Property Tax - 3%, paid by foreign and French companies on property owned directly or indirectly
- Wage Withholding Taxes - 50% (average) of gross pay for employers, 20% (average) for employees
Individual Tax France – Single, Married
French residents pay tax on their worldwide income, including employment earnings, pensions, property, interest, dividends, and other investments.
The following rates apply:
- 0 - €10,084 (US$11,896): 0%
- €10,085 - €25,710 (US$30,330): 11%
- €25,711 - €73,516 (US$86,730): 30%
- €73,517 €158,222 (US$186,662): 41%
- €158,223 and above: 45%
Taxable income above €250,000 (US$294,940) has a 3% surcharge, and above €500,000 (US$590,875) has a 4% surcharge.
Non-residents are taxed on French income at 20% up to €27,519 (US$32,465) and 30% above that. Tax due for the first year generally need not be paid before September 15 of the following year.
The tax year runs from January 1 until December 31 with returns filed by mid-May the following year, on dates advised annually by the tax authorities.
Couples file joint returns and are assessed on a ‘household’ basis and audited by the Tax Administration, who look for inconsistencies between declared income and the household’s lifestyle. If the authorities consider there is ‘hidden income’, the taxpayers will be asked to justify their returns.
Since 2019 a Pay-As-You-Earn (PAYE) system has applied, meaning individuals are taxed at source instead of having to declare the previous year’s income. Federally applied individual taxes must still be declared and include income from:
- Earned personal income
- Investments and capital gains
- Corporate and business income
- Inheritances, wealth attached to real estate
- Indirect taxes on purchases
France Individual Tax Rules
Liability to pay French income taxes generally depends on residency. Article 4B of the Code Général des Impôts (CGI) states that an individual living in France for 183 days in a calendar year is a tax resident. This will apply even if there are businesses in other countries where fewer days are spent. Tax residency in France depends on where most time is spent, not where most income is earned.
The tax year runs from January 1 until December 31 with returns due by mid-May on specific dates from the authorities, usually specified in March or April. French residents are taxed on worldwide income. Non-residents are taxed only on French income with tax due for the first year generally not paid until September 15 of the following year, at 20% up to €27,519 (US$32,465) and 30% above that.
Tax rules also apply to employers running payroll for individual employees. Employers must obtain the individual’s tax number by applying with Form 2043 to the Ministry of Economy and Finance and register with the Tax Administration and the social insurance authorities. They must also report regular and overtime working hours relating to salary, tax-exempt elements on the monthly pay slip as well as withholding tax and social security deductions.
France belongs to the Automatic Exchange of Information (AEOI), which combats tax evasion by requiring financial intermediaries to declare their clients’ tax residence in signatory countries.
Value Added Tax (VAT) and Excise Duty
The standard VAT rate in France is 20% with 2.1%, 5.55% or 10% applying to other categories. There is no minimum threshold for registering. Customs and excise duties are payable on all goods imported from outside the European Union.
Apart from earned income, individual taxes also apply to investments and capital gains from sale of property, corporate and business income, inheritances, owned or rental properties.
France Employers’ Social Insurance and Statutory Contributions
Employers’ statutory costs include percentages based on employees’ salaries to various social insurance funds. These are administered by The Ministry for Solidarity and Health and the Ministry of Economy and Finance. This covers benefits for all salaried workers in the private sector through a network of national, regional, and local institutions and consultation with employers and employees. Around 80% of revenue comes from contributions and taxes calculated on percentage rates from employer and employees.
These are calculated on total earnings, as follows:
- Health, maternity, disability, death: 13% or 7% (employer)
- Autonomy solidarity contribution: 0.3%
- Old-age insurance (with upper limit): 6.9% (employee), 8.55% (employer), capped at €3,428 (US$4,044)
- Old-age insurance: 0.4% (employee), 1.9% (employer)
- Workplace accidents: (variable)
- Family benefits: 5.25% or 3.45% (employer)
- Social security surcharge (CSG): 9.2% (employee)
- Social security debt (CRDS): 0.5% (employee)
- Unemployment: 4.05% (employer), capped at €13,712 (US$16,176)
- Unemployment wage guarantee (AGS): 0.15% (employee), capped at €13,712 (US$16,176)
- Supplementary pension (Bracket 1): 3.15% (employer), 4.72% (employee), capped at €3,428 (US$4,044)
- Supplementary pension (Bracket 2): 8.64% (employer), 12.95% (employee), which applies between €3,428 (US$4,044) and €27,424 (US$32,353)
For more information on this complex system, click here.
France Corporation Tax
Corporation Tax is set at 26.5% for 2021 and is due to be reduced to 25% for 2022. The Finance Bill of 2018 charted a steady decrease in Corporate Income Tax (CIT) from 33.33% (28% on the first €500,000 or US$590,000) in 2018 down to 31% in 2019 and 28% in 2020.
Additional to standard CIT, businesses must also make a social contribution, assessed at 3.3% of CIT due. Businesses with turnover below €7.63 million (US$9 million) are exempt. Companies must also make a solidarity contribution of 0.13% of net turnover.
Capital Gains Tax
French residents are subject to capital gains tax at 19% in addition to social charges of 17.2%. These are tied to levels of capital gains, which for profit over €250,000 (US$294,240) can create total deductions of 42.2%.
These are either taxed at a fixed rate of 12.8%, or in line with general tax rates after deducting 40% to compensate for company tax already paid on distributed profits. Capital income also attracts social contributions of 17.2%.
Dividends paid to non-resident individuals or companies attract 30% withholding tax, which can be increased to 75% for ‘non-cooperative’ territories in terms of their money laundering policies.
- Social insurance contributions, including any paid in-home country under EU jurisdiction
- 10% of professional expenses (capped)
- Alimony, child support for minors not part of the financial household and parental support
Avoid risks – and make the right move with Bradford Jacobs
France’s intensely complex tax regulations require expert advice and guidance for incoming foreign companies. Businesses cannot risk stumbling into mistakes over payroll and taxation. Interested in learning more about how we can help you with your payroll and tax issues? Contact us today.