Guide to French Income Tax
3. Liability to French Income Tax
- Who Pays Taxes in France?
- Are you Resident or Non-Resident?
- What is your Fiscal Household?
- What Income is Taxed in France?
3.2. Resident or Non-Resident?
3.2.1. Resident in France
3.2.3. Mixed Residency Status
3.2.1. Resident in France
Although there is a definition of 'tax resident' in French law, national law is subordinate to international laws and treaties to which France is party and different countries each have their own definition of legal residency.
The definition of 'domicile fiscal' in French tax law is enshrined in Article 4B of the Code Général des Impôts (CGI), where it gives a definition that is personal, professional and economic.
It states that you will be fiscally resident if:
- 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 residency status the general principle that is applied is that if you spend 183 days per calendar year in France then you are deemed to be resident, although it is not a definitive rule. Thus, if you spent less than 183 days in France, but more than in any other country, you could still be deemed France resident.
Specifically, Article 4B states that those who are resident are:
- Les personnes qui ont en France leur foyer ou le lieu de leur séjour principal ;
- Celles qui exercent en France une activité professionnelle, salariée ou non, à moins qu'elles ne justifient que cette activité y est exercée à titre accessoire ;
- Celles qui ont en France le centre de leurs intérêts économiques.
The regulations state that any one of these three criteria need apply for you to be fiscally resident in France, a position that was reaffirmed in a parliamentary response by the French Minister of Finance, stating: "Il s'agit de critères alternatifs et indépendants les uns des autres. Il suffit qu'un seul de ces critères soit rempli pour qu'un contribuable soit considéré comme domicilié fiscalement en France."
We can consider each of the determining criteria in turn.
The 'foyer' is generally meant to refer to the place where the family resides, which permits the authorities to consider that someone who lives temporarily outside of France because of their work remains resident in France if it is the country where their family resides.
ii. Main Residence in France
You will be resident in France if you live in France for at least six months of the year. This rule does not require that you live in a permanent home you have in France, but that you are merely on French soil for six months of the year.
However, the six-month rule is not absolute and there are circumstances, particularly in the case of business owners or professionals who may travel regularly, where even though they may have a home in France they may not be considered to be resident if they are frequently abroad.
In such cases, the French authorities and courts have been willing to review the circumstances for a longer period than a year in order to establish whether there is tax residency.
Conversely, even though you spent less than six months in France, you could also be resident if you spent more time in France than in any other country.
If you run a business or you are salaried employee in France, then you will be deemed to be fiscally resident.
If you have more than one business or employment in more than one country, then you will be considered to be resident in France if your main business or employment is located in France.
Even if you work remotely for clients or an employer based outside of France you will normally be consider to be tax resident in France, which means you need to either register a business in France or your employer needs to declare you as an employee and pay relevant social security contributions.
Your main employment need not necessarily be the one from which you generate most income, but the one where you spend most of your time.
There are particular regulations that govern cross-border workers (work in one country but live in another), notably those working in Switzerland, Germany and Belgium and more generally within the EEA.
The principal that applies in such cases is that income tax is payable in the country in which you earn your living, subject to the terms of any double taxation treaty. The rules are not always the same for social security rights and obligations.
There are also particular rules for EU nationals working temporarily in another EU country.
Particular rules also cover professional groups working across borders, such as diplomats, mariners, aircrew, and haulage drivers.
iv. Economic Interests
This is the place where you have your major investments, your place of business, from where you manage your assets.
Accordingly, if your main investments are held in France then it is possible you may be resident on this criterion alone.
The case law on this matter is quite complex, but it is clear that you would need to earn your main income from France for this rule to apply, particularly if you were non-resident on the basis of the other two criteria.
In the case of multiple activities or sources of income, the centre of economic interests of the taxpayer is in the country where the person derives most of its income.
Under Article 55 of the French Constitution, all national legislation is (formally at least!) subordinate to international treaties and laws to which France is party.
It is beyond the scope of this article to examine the range of international treaties and laws as they affect France.
However, a few words can be said about the position within the EEA.
There is very little law within the EEA concerning tax and residency, as Member States have been reluctant to agree to harmonisation of laws. The role of the EU really goes little beyond ensuring that there is no discrimination in the application of tax laws.
So there is no legal definition of 'tax resident' in EU law. The issue is only covered by Article 11 of the Implementing Regulation 987/2009, which lists a number of elements to determine the 'centre of interests' of the person concerned.
In relation to the United Kingdom, now no longer part of the EEA, the legal definition of 'residence' is less precise than that for France and has in recent years been made seriously complex under the 'Statutory Residence Test (SRT)' rules, requiring calculations and record keeping by individuals that in some cases is likely to make the SRT impossible to administer.
Broadly speaking, if you spend more than 183 days in the United Kingdom you are regarded are tax resident, but you can also be resident if you are resident for a shorter period.
Thus, you also likely to be ordinarily resident if, over a period of several years, your residence in the UK becomes part of the 'ordinary pattern of your life'. In particular, even if your visits to the UK tend to be relatively short and infrequent, if they average three months (91 days) or more in a tax year and you have a home in the UK and do not spend any great amount of time in a home elsewhere, then you may be considered to be UK resident.
There are also a host of other potential scenarios that are examined and catered for under the rules, which may well mean than in certain circumstances it is possible to be resident in both the UK and France.
Where there is a conflict between UK and French national laws, the Double Tax Convention 2008 sets out the steps for determining tax residency. They are very similar to those given in national law. It states:
'2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident only of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the States shall settle the question by mutual agreement.'
There is separate consideration in the tax treaty for settling the tax status of companies; the broad rule that applies is that the company shall be 'a resident of the Contracting State in which its place of effective management is situated.'
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.
As cross-border working and living within Europe becomes more commonplace, it has become something of a game of chance for the tax authorities to interpret 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 continues to work outside of the country, although it is possible to have mixed residency status, as we state below.
Strictly speaking, the French authorities state that if your family home is in France, 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, although not necessarily for social security obligations.
If it is not possible to determine your residency status on the basis of the three factors, but you have French nationality, then you will be deemed to be France resident.
We have found that there are substantial differences in the way individuals are taxed. In some cases the local French office take the view you are resident in France for tax purposes ; in other cases they accept that you can be taxed in the country where you work and where you mainly live.
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 or business and the terms on which it is undertaken.
In other cases, it is simply down to the way a local official has decided to interpret your circumstances!
European Economic Area rules state 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 EEA 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 EEA 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 interpretation.
Nevertheless, if you do pay social security contributions to your country of employment, but income tax in France you probably get the best of both worlds, certainly if you work in the UK. This is because social security contributions are lower in most other European countries than France, which happens to have one of the most progressive income tax systems in Europe.
If you are based in France, but on a regular basis earn salaried income from both the UK (or other country) and France, and you are taxed outside of France on this income, you may still be subject to the payment of a social charges to cover health insurance in France, provided you are in the French health system.
There is some uncertainty as to the legal validity of this rule as, in principle, under EEA regulations workers should only be subject to the social security regulations of one Member State. Accordingly, if you are an EEA citizen facing this charge, you would be advised to get appropriate professional advice.
If you have any doubts about your residency status then, in order to minimise the risk of being considered fiscally resident in France, you should own a home in the country where you work and spend at least 183 days a year there.
For UK residents, in your first year, those relocating to France can 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. The form is not, however, compulsory, as you can advise through your self-assessment declaration if you declare on this basis. Less important also for those who will continue to have income that is taxed in the UK eg rental, government pension.
When you complete your first French tax return UK nationals 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. Since Brexit the form is now only in English, and some French tax offices seem reluctant to sign and stamp it for return to the UK, but a visit to their offices to explain is normally enough to obtain their cooperation.
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.
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 liability in your home country.
In the case of UK nationals, under the terms of the double taxation treaty, partial relief on rental income is granted against liability to UK income tax.
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 Service des Impôts des Particuliers Non-Résidents, TSA 10010, 10 rue du Centre, 93465 Noisy-le-Grand, Cedex.
The e mail address of the office for non-residents is: firstname.lastname@example.org. Their telephone number is (00 33) 01 72 95 20 42.
3.2.3 Mixed Residency Status
With an increasing number of people living and working across international borders, it is possible for couples to have mixed tax residency status.
On this basis, and despite the Article 4B parameters, it is possible for one of the spouses to a marriage to be tax resident in France, whilst the other is non-resident.
As the guidance from the French government states:
"Residency for tax purposes is determined for each member of a household. If you are married or in a civil partnership, and one of you lives abroad and the other in France, then you are a “couple with mixed residency status”. You may be considered a resident of France for tax purposes even if your spouse or partner is considered a non-resident (or vice versa). You will be subject to different tax treatment."
This is particularly the case where, for instance, the household income is generated from entirely outside of France, by a spouse who works and lives outside of France.
According to the regulations:
"If one of you is a French resident for tax purposes and the other is not under the terms of a tax treaty, and if you are married (or in a civil partnership) under a joint property regime, you must declare:
- All the income of the spouse or partner resident in France, and of the children or dependants residing in France for tax purposes;
- The income from French sources of the non-resident spouse or partner, provided that the tax treaty grants France the right to tax this income.
- NB : Income from foreign sources of the non-resident individual is excluded from the tax base and is not included when applying the so-called “effective tax rate” rule. Non-resident members of the tax household are included for income splitting purposes."
However, the fact that the criteria adopted in determining residency in France are successive means that obtaining such mixed residency status would need to be determined on an individual basis. Not surprisingly, the tax authority are also predisposed to interpret the test in their favour.
French Earned Income
Finally, it is worth stating that, whatever your residency status, with few exceptions you are required to pay tax and social charges on income arising within France.
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