7. Social Security Contributions in France
- 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)
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 rather particular type of social charge, called the
prélèvements sociaux, or
contributions sociales.
The charge actually comprises five main different taxes, as follows:
- Contribution Sociale Généralisée (CSG);
- Contribution au Remboursement de la Dette Sociale (CRDS);
- Prélèvement Social (PS);
- Contribution Additionnelle ;
- Contribution RSA.
Strictly speaking, the charges are not a social security contribution, as they do 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, French rental income, and capital gains (if you are resident), 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 they are not progressive, and they are not part of the income tax system.
Nevertheless, part of the CSG is
deductible for income tax purposes (4.2% on pensions, 5.1% on salaries and 5.8% for other income), and there are some limited exemptions and reductions available.
In particular, certain popular savings schemes are exempt from the charges, which you can read more about in our pages on
Banking in France.
Pension income below an income threshold is also exempt.
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 of them 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 for 2012, is shown below.
Table: Social Charges - Rates
| CSG | 7.5% | 6.6%* | 8.2% |
| CRDS | 0.5% | 0.5% | 0.5% |
| Prélèvement Social | 0% | 0% | 3.4% |
| Contribution Additionnelle | 0% | 0% | 0.3% |
| Contribution RSA | 0% | 0% | 1.1% |
*The rate of CSG on pension income is 3.8%, provided you pay less than €61 in income tax.
In addition, if your pension is below the level that would make you liable for the taxe d'habitation you are exempt from the payment of the social charges on this income.
A social charge is also payable on foreign salaries and foreign business income for those based in France, but taxed outside of France. The charge is imposed to paid to cover health insurance cover in France. It 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).
This rule only applies if you are affiliated to the French social security system in France.
The liability of pension income to the social charges will also depend on your circumstances:
7.6.2. Retirement Age Pensions
As we stated in an earlier page, if you are of retirement age from within the EU, and in receipt of a E121 (now 'S1'), the social charges are 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(S1) form.
This means that workplace pension income other than the state retirement pension also escapes the charges.
The law covering the issues is frequently misunderstood by local French tax officials, as a result of which those on an E121 (S1) form sometimes erroneously pay social charges on their pension income.
The starting point for the legal position is EEC Directive No 1408-71 14 June 1971, which governs the application of social security payments and the free movement of persons within the EU.
The Directive is enshrined in French law through Article L 136-1 de la code de la sécurité sociale. The article states:
'Il est institué une contribution sociale sur les revenus d'activité et sur les revenus de remplacement à laquelle sont assujettis......Les personnes physiques qui sont à la fois considérées comme domiciliées en France pour l'établissement de l'impôt sur le revenu et à la charge, à quelque titre que ce soit, d'un régime obligatoire français d'assurance maladie;'
The rules are given further elaboration in Circulaire DSS/SDFSS/5B No2001-350, 17 juillet 2001, where it states: 'Sont exemptés du paiement de la CSG, les titulaires de revenus de remplacement visés à l'article L. 136-2 du code de la sécurité sociale résidant en France et qui ne sont pas à la charge, à quelque titre que ce soit, d'un régime obligatoire français d'assurance maladie.'
The law is similarly reiterated in Circulaire n° 2002/4 du 25 janvier 2002 of the Caisse nationale d'assurance vieillesse, where it states 'Seuls les pensionnés de vieillesse domiciliés fiscalement en France ET à la charge à quelque titre que ce soit, d'un régime obligatoire français d'assurance maladie, peuvent faire l'objet d'un précompte CSG/CRDS.'
The circular adds: ne sont pas soumis au prélèvement de la CSG et de la CRDS.......les pensionnés domiciliés fiscalement en France mais dont la charge des prestations en nature de l'assurance maladie incombe à un régime obligatoire d'assurance maladie autre que français.'
We acknowledge that the rules do not explicitely state that if you are on an E121(S1) you are exempt from the payment of social charges on your pension income, but this is what they mean. An 'E/S' form is a certificate of entitlement to health cover elswhere in the EU granted by your home country.
Purchased annuities outside of the workplace pension 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 Retirement Pensions
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/S' form (E101, E121, S1) are not liable for the charges.
Early retirees on 'E/S' 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/S' form), does not pay the charges on pension or foreign employment income.
Accordingly, if as an early retiree you are obliged to take out private health insurance as you cannot obtain access to the health system, you will not be required to pay the charges on your early retirement pension.
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 lack of consistency.
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. Government Service Pensions - Government 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 'government 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.
iv. Collection Procedures - Perhaps the most important reason is that, as the CSG on pension income is collected by URSSAF, the social security collections agency (not collected by the tax authority as with CRDS) then, if they do not know of your existence, or you do not declare your income to them, you may not receive a tax demand for CSG (as many do not). That having been said, we are not suggesting that you should do any more than declare your income to the tax authority!
- If you pay less than €61 in income tax, then the rate of CSG is reduced to 3.8%. Below a certain threshold, pension income is also exempt.
Since 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 rule applies to French early retirement pensions, it is unclear whether they also apply to expat early retirement pensions. The preliminary indications are that there appears to be no consistency in the application of the rule!
You can read a substantial article in our
Newsletter on the application of social charges to UK early retirement pension income.
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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