3. Liability to French Income Tax

1. 3.1 Basic Rule on Liability to Income Tax
2. 3.2 Are you Resident or Non-Resident?
3. 3.3 What is your Fiscal Household?
4. 3.4 What Income is Taxed in France?

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3.2. Resident in France or Non-Resident?

3.2.1. Resident in France

To be ‘fiscally resident’ in France only one of the following three conditions need apply:

• It is considered you have your main home in France;
• You carry on a professional activity in France, either self-employed or as an employee;
• Your centre of ‘economic interests’ is in France, e.g. investments, business.

In order to assist with the determination of resident status the general rule that is applied is that if you spend 183 days per calendar year in France then you are deemed to be resident.

But you would also be deemed to be resident if any one of the other conditions stated above applied.

If you arrive in France with an intent to becoming resident, then you become resident when you step onto French soil.

In some cases you can actually be resident in both countries, and the terms of the double taxation treaty between your home country and France would determine the rules that applies in these cases.

In particular, as cross-border working and living within Europe becomes more commonplace, it has become something of a game of chance for the various tax authorities to interprete the circumstances of all cases in a consistent manner.

Thus, there can be uncertainty about the status of families who relocate to France, but where the breadwinner countinues to work outside of the country.

Strictly speaking, the French authorities state that if your family home is in France, then even though you may work outside of France, and spend most of your own time out of the country, you are considered to be resident in France for tax purposes.

The differences may sometimes be explained by the provisions of the international tax treaties in place between France and other countries.

They may also sometimes be explained by the nature of the employment, and even sometimes the different treatment of employees and those who run a business.

In other cases, it is simply down to the way a local officials have decided to interprete your circumstances!

What is interesting in all of this is that the EU take the view that, in relation to social security payments, whilst your family will be considered to be resident in France, you will pay social security contributions in the country of employment.

In other words, within the EU the rules state that your social security rights and obligations relate to where you undertake your professional activities. If it is based outside of France, then that is where you will pay your social security contributions.

However, there are no EU wide regulations covering the tax treatment of cross-border workers.

We consider some greater clarification on this issue is needed, as the professional advisors we have spoken to also have different views on how the law should be interpreted. Too much of it all seems left to open to local intrepretation.

If you are based in France, but earn business or salaried income from both the UK (or other country) and France, and you are taxed outside of France on this income, you are still subject to the payment of a social levy to cover health insurance in France. The charge is 5.5% on salaried income and for business income it is 2.4% up to €34,822, and 9.6% between €34,823 and €171,113 (2011).

The rule only applies if you are affiliated to the French social security system in France, which would normally be the case if you were earning business or salaried income in France.

Even though you will pay tax in your country of employment, some local French tax offices insist that you complete a tax return. Strictly speaking, you will not be taxed twice on your income earned outside of France, but this income will be taken into consideration in calculating your liability to tax on any French earned income e.g. rental income.

In your first year, those relocating to France from the UK should complete the HM Revenue Form 85, which advises the UK tax authority that you are moving abroad, and will enable you to reclaim any overpaid tax.

When you complete your first French tax return you should also complete the Form FD5, which the French tax authority then use to confirm to the UK authority that you are French tax resident.

If you do finally relocate to France, in the year you become resident you will be taxed separately on the basis of your actual residence in each country.

The UK Customs and Excise Office have published some guidance to assist with determining the resident status of those living between two countries.

3.2.2. Non-Resident

If you consider you are non-resident, but you earn income from France (e.g. rental income, interest), your liability to taxation is going to depend on the terms of any double taxation treaty between France and your home country.

In general, under the terms of most double taxation treaties rental income is liable to taxation in the country where it is earned.

However, depending on the terms of any double taxation treaty between your home country and France, you may well then be entitled to partial relief or exemption against potential tax liablity in your home country.

What this means is that, if the tax you pay in France is greater than that you would pay in the UK, then no further taxation is payable in the UK.

Conversely, if you pay less in tax than you would pay in the UK, then you will get a tax credit against income tax paid in France.

We have separate pages on the Taxation of Rental Income in France.

As a non-resident, in order to declare your French earnings you need to contact the Centre des Impôts des Non-Résidents (CINR), TSA 10010, 10 rue du Centre, 93160 Noisy-le-Grand, Cedex.

The e mail address of the office for non-residents is: nonresidents@dgi.finances.gouv.fr. Their telephone number is (+33) 01 57 33 83 00.

You can also download the tax declaration at Déclaration De Revenu (Non Résident).

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