Understanding the French tax system is crucial for expats planning to live in France. This article provides an overview of how French taxes work for expats, the types of taxes you may encounter, and essential tax advice to ensure compliance and optimise your tax situation.
Table of contents
How do French taxes work for expats?
Residency status
The first step in understanding how French taxes work for expats is determining your residency status. This status is crucial as it dictates the extent of your tax obligations in France. You are considered a tax resident in France if you meet any of the following criteria:
- Your main home is in France: If your primary residence is in France, you are deemed a resident for tax purposes.
- Your spend more than 183 days in France during the calendar year: If you physically reside in France for more than half of the year, you qualify as a tax resident.
- Your primary professional activity is in France: If your main employment or business activities are based in France, this establishes tax residency.
- Your main economic interest are in France: If most of your financial investments, bank accounts, or property holdings are in France, this also constitutes tax residency.
Taxation principle
Once residency status is determined, the principle of taxation comes into play. French tax residents are subject to French taxes on their worldwide income, meaning they must declare and pay taxes on income earned both within and outside France. This comprehensive approach can affect expats significantly, particularly those with substantial income streams from their home country or other international sources.
For non-residents, the tax liability is limited to income sourced from France. This typically includes French salaries, rental income from French properties, and any business activities conducted within France. Understanding this distinction is crucial for expats as it directly influences the scope of their taxable income and potential tax liability.
Additionally, France has double taxation treaties with many countries, including the US and the UK, to prevent the same income being taxed twice. These treaties often provide mechanism for tax credits or exemptions, ensuring that expats do not face double taxation on their international income. Determining your residency status is the first step in understanding your tax obligations in France.
> You might be interested in this article: What changes for your French taxes in 2024
Types of tax in France for expats
Income tax
Expats in France are subject to the French income tax system, which is progressive with rates ranging from 0% to 45%. This tax applies to various forms of income, including wages, rental income, pensions, and investment income. Expats must file an annual tax return (déclaration de revenus) to report their worldwide income if they are considered residents. Non-residents are only taxed on income sources from within France.
Social charges
In addition to income tax, French residents must pay social charges (contributions sociales). These charges fund the French social security system and can significantly impact an expat’s overall tax burden. Social charges on investment income can amount to 17.2%, while those on salaries can reach up to 9.7%. Understanding and budgeting for these additional charges is crucial for expats living and working in France.
Wealth tax
France imposes the Impôt sur la Fortune Immobilière (IFI) on residents with real estate assets exceeding 1.3 € million. This wealth tax is levied on the net value of the property owned by the individual. Expats owning high-value properties in France should be aware of this tax and plan their finances accordingly.
Property tax
Property owners in France are subject to two main types of property taxes: Taxe Foncière and Taxe d’Habitation. The Taxe Foncière is paid by the property owner, while the Taxe d’Habitation is typically paid by the occupant, whether they are the owner or a tenant. These taxes contribute to local government funding and vary depending on the location and size of the property.
Inheritance tax
Inheritance tax in France is levied on a sliding scale, depending on the value of the inheritance and the relationship between the deceased and the beneficiary. Rates can range from 5% to 45%. Expats with significant assets in France should consider estate planning to manage potential inheritance tax liabilities.
VAT (Value-Added Tax)
VAT is a consumption tax applied to most goods and services in France, with a standard rate of 20%. There are reduced rates of 10%, 5.5%, and 2.1% for specific items, such as certain foods, books, and medical supplies. Expats should be aware of VAT when making purchases, as it is included in the price of goods and services.
> You might be interested in this article: Navigating French income tax for expats
Tax advice for expats in France
Double taxation agreements
France has double taxation agreements with many countries to prevent expats from being taxed twice on the same income. These agreements allocate taxing rights and provide relief through credits or exemptions.
Professional advice
Given the complexity of the French tax system, expats should seek advice from a tax professional familiar with both French and international tax laws. A qualified advisor can help you navigate tax obligations, optimise your tax situations, optimise your tax situation, and ensure compliance.
Keep detailed records
Maintain comprehensive records of your income, expenses, and any tax payments made. Proper documentation is essential for filing accurate tax returns and defending against potential audits.
File on time
Ensure that you file your tax returns and pay any taxes owed by the deadlines. Late filings and payments can result in penalties and interest charges.
Stay informed
Tax laws and regulations can change, so staying informed about any updates or changes to the French tax system is important. Regularly consult reliable sources or your tax advisor to keep up to date.
Final notes
Understanding the French tax system is essential for expats living in France. By determining your residency status, familiarising yourself with the different types of taxes, and seeking professional advice, you can manage your tax obligations effectively and avoid potential pitfalls. With proper planning and compliance, expats can enjoy their life in France while meeting their tax responsibilities.
If you want to go further, listen to our podcast episode on tax planning with tax expert Aidan Grant from Collyer Bristow. Listen here.
