The list of social security contributions considered in previous pages includes a rather particular type of social charge, called the prélèvements sociaux, also known as the contributions sociales.
The charge actually comprises five different taxes, as follows:
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, 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.
Between them the tax revenues from these charges are far higher than that from French income tax.
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, unfurnished rental income, investment and business income and 3.8% for other income. This occurs in the year following payment of the social charges. Thus, assume rental income of €14,000 in the year, which are liable to social charges at the rate of 15.5% = €2,170. The following year a part of the CSG payable is deductible from income tax - €14,000 x 5.1% = €714.
There are also some important limited exemptions and reductions available.
In particular, in some circumstances pension income is exempt (see below) and certain popular savings schemes are exempt from the charges, which you can read more about in our pages on Banking in France.
There is frequently discussion about integrating at least some of these charges into the income tax system, but it is unlikely this is a reform will be carried out quickly or comprehensively.
A summary of the income on which the charges applicable are applied, together with the current rates, is shown below.
Table: Social Charges - Rates 2017
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*The rate of CSG on pension income is 3.8%, provided you pay less than €61 in income tax.
In addition, if your net taxable income 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 your pension income. The reference year for eligibility to this exemption in 2017 is your taxable income for 2015, as notified on your tax notice for 2016.
In a limited number of cases 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 cover health insurance in France, so is only payable if you are affiliated to the French social security system 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 €34,822 and €174,113 (2013). The charge is also only imposed subject any applicable double taxation treaty.
The liability of pension income to the social charges will also depend on your circumstances, as we set out below:
If you are of retirement age from within the EEA, and in receipt of a S1 (formerly E121), 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 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 S1 form sometimes erroneously pay social charges on their pension income.
The starting point for the legal position are European Regulations 1408/71 and 574/72. These were later substantially amended by Regulations (EC) 883/2004, which became the basic regulation, and (EC) 987/2009, which set out the procedures for implementing the basic regulation. These rules govern social security rights and payments within the EEA.
The Regulations are 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 explicitly state that if you are on an S1 you are exempt from the payment of social charges on your pension income, but this is what they mean. An 'S' form is a certificate of entitlement to health cover elsewhere in the EU granted by your. home country.
You should ensure you keep a copy of your S1 to produce to your tax office, but your local CPAM health office will also supply you with an Attestation de droits à l'assurance maladie, on which the coding should indicate to the tax office that your health cover is provided through an international agreement. You can also request this document on-line at www.ameli.fr.
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. The issue is one that is controversial, as we have reported regularly in our Newsletter.
The liability of early retirement pensions from the EEA to the social charges depends on your circumstances.
In the past, most early retirees in France escaped social charges (or at least CSG) on their pension due to the tax collection procedures that have been in place.
The CSG on pension income has historically been collected by URSSAF, the social security collections agency (not collected by the tax authority as with CRDS).
As most early retirees would not have been known to URSSAF, or you did not declare your income to them, you may not have received a tax demand for CSG (as many did not).
However, since January 2012 responsibility for collection of CSG on pension income has been transferred to local tax offices, since when more expats are finding they are paying social charges on their early retirement pension.
Nevertheless, there remains three circumstances where you will not be liable to the social charges on your pension:
I. Not Affiliated to French Health System - The basic rule that applies is that you are only liable to pay the charges if you are: (i) resident in France and (ii) affiliated to the system of compulsory health insurance in France.
Accordingly, those who are covered by an 'S' form are not liable for the charges.
Early retirees on 'S' forms (fewer now as entitlement abolished in 2015) gain exemption as their health costs are met by their home country, and so they do not fulfil the second criteria. In such circumstances the regulatory framework given above for retired persons applies equally to early retirees.
In effect, anyone living in France who is not part of the social security system (because they have an 'S' form), does not pay the charges on pension or foreign employment income.
Accordingly, if as an early retiree you are obliged or choose to take out private health insurance you will not be required to pay the charges on your early retirement pension.
Indeed, some early retirees voluntarily stay out of the system, as they find private health insurance cheaper. Whether that makes a sensible long-term strategy is more questionable.
Whatever the case you will be liable for the charges on rental and investment income, as there is no prior condition on health affiliation for such income.
II. Government Service Pension - If you are in receipt of a 'government service pension' taxed in the UK you also escape the social charges by virtue of the Double Taxation Convention between the UK and France, as under the DTC the social charges are considered to be a 'tax'.
III. Low Income - If you pay less than €61 in income tax then the rate of CSG is reduced to 3.8%. Below the threshold that would give you exemption from the local property tax pension income is also exempt.
Whatever your circumstances, we have found that local tax offices interpret the law differently.
Thus, some tax offices seem to exempt all pensions from all or some of the charges, including pre-retirement pensions, whilst others tax all early retirement pensions.
Similarly, the manner in which the Double Tax Convention is applied in France is not consistent, and you may well need to take advice on your circumstances or challenge the assessment that has been made.
If the tax office will not accept your argument, then appeal to the Conciliateur Fiscal, the local tax ombudsman. In the event that your appeal to the CF is turned down then you need to appeal to Médiateur du Ministère de l’Économie, des Finances et de l’Industrie.
You should also make sure that you correctly complete your tax return. We have found that a large number of expatriates do not to so, as a result of which they find the social charges are imposed, when they might ordinarily be exempt.
This is particularly the case for those exempt on an 'S' health certificate, as you need to include this form with your tax return or the tax office will not be aware of your circumstances.
We would be most interested to hear of your experiences on this issue. You can e mail us at firstname.lastname@example.org
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