7. Social Security Contributions in France

1. 7.1. Basic Rules of French Social Security
   7.2. Employers and Employees in France
   7.3. Self-Employed
   7.4. Retired Persons
   7.5. Early Retirees
   7.6. Social Charges (CSG/CRDS/PS)

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7.6. Social Charges in France

7.6.1. What are the Social Charges?

The list of social security contributions considered in previous pages includes a distinct social welfare levy known in France as the prélèvements sociaux, or contributions sociales.

The levy actually comprises three different charges, as follows:

• Contribution Sociale Généralisée (CSG)
• Contribution au Remboursement de la Dette Sociale (CRDS)
• Prélèvement Social (PS)

Strictly speaking, the charges are not a social security contribution, as they does not generate an entitlement to social security benefits, although the CSG goes towards funding health care in France.

The social charges are applied on a wide variety of income sources, such as income from investments, rental income, and capital gains, so needs to be considered separately from social security contributions per se, which are mainly charged to wages and business profits.

Essentially the charges form part of the general system of taxation, but it is not a progressive tax, and is not part of the income tax system. Nevertheless, most of the CSG is deductible for income tax purposes and there are some limited exemptions and reductions availalbe.

In particular, certain popular savings schemes are exempt from the charges, which you can read more about in our pages on Banking in France.

There is a debate going on in France about the future of the social charges and one proposal that seems to be gathering currency is to integrate all three charges into the income tax system.

Between them, the tax revenues from these charges are far higher than that from French income tax.

A summary of the income on which the charges applicable are applied, together with the relevant rates, is shown below.

Table: Social Charges - Rates

	Wages/Salaries/	Pensions/Benefits	Investments/Rental/Capital Gains
CSG	7.5%	6.6%	8.2%
CRDS	0.5%	0.5%	0.5%
PS	0%	0%	3.4%
Total	8%	7.1%	12.1%

The prélèvement social (PS) has been increased from 2.3% to 3.4% from 2009, for all rental income earned in 2008 onwards, with savings, dividends, and capital gains on real estate charged the rate from 2009 onwards.

The liability of pension income to the social charges will depend on your circumstances:

7.6.2. Retired Persons

As we stated earlier, if you are of retirement age from the EU, and in receipt of a E121, the charge is not applied on pension income received from outside of France. This is because your health costs are covered from your home country through the use of the E121 form.

This means that workplace pension income other than the State retirement pension will also escape the charges.

Purchased annuities outside of the workplace pension of this type are not recognised in France and could be construed as investment income. As this can be a complicated area, you would be wise to take take professional tax advice. However, that said, declaring them as pension income is actually a correct way of reporting this income. It is then for the tax authority to decide whether they wish to raise any queries or objections to the declaration being made in this way.

Although your pension will be exempt, all retired persons are liable for the social charges on any rental and investment income they receive.

7.6.3. Early Retirees

The liability of early retirement pensions from the EU to the social charges is a question that is extremely vexing, not only for us, but for French officials, and for financial advisors with whom we have discussed the issue.

The basic rule that applies is that you are liable to pay the charges if you are (i) resident in France and (ii) affiliated to a system of compulsory health insurance in France.

Accordingly, those who are covered by an 'E' form (E101 or E121) are not liable for the charges.

Early retirees on 'E' forms gain exemption because, as their health costs are met by their home country, they do not fulfill the second criteria.

In effect, anyone living in France who is not part of the social security system (because they have an 'E' form), does not pay the charges on pension or foreign employment income.

You will be liable for the charges on rental and investment income, as there is no prior condition on health affiliation on such income.

Nevertheless, even for those already in France, and who fulfill both conditions of residence and health affiliation, we have discovered that practice on early retirement pensions varies around the country.

There are a number of different explanation for this apparent inconsistency.

i. Legal Interpretation - We believe one reason is because tax offices are interpreting the law in different ways. Thus, some tax offices seem to exempt all pensions from all or some of the charges, including pre-retirement pensions, whilst others tax early retirement pensions.

ii. Public Service Pensions - Public service pensions taxed in the UK also escape the social charges by virtue of the double taxation treaty between the UK and France. Nevertheless, there is often confusion as to what constitutes a 'public service pension', with some expats wrongly thinking that they should be exempt from the social charges, when they are liable.

iii. Completion of Tax Return - One other factor in the lack of consistency is the way income tax returns are completed. If you complete or tick the wrong box, you may find you are taxed in the wrong way, sometimes to your benefit!

v. Income Thresholds - If you pay less than €61 in income tax, then the rate of CSG is reduced to 3.8%.

As a result of new legislation in 2008, new recipients of an early retirement pension pay the higher rate of 8% on their pensions, instead of 7.1%. Those already in receipt of an early retirement pension at this date are unaffected by the changes. The law has been introduced in order to dissuade people from taking early retirement.

While it is clear this new rules apply to French early retirement pensions, it is unclear whether they also apply to expat early retirement pensions. We shall no more when the 2009 tax returns for income earned in 2008 have been processed.

We would be most interested to hear of your experiences on this issue. You can e mail us at editor@french-property.com

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