4. Taxation of Property Rental Income in France
4.1. French Rental Income - Non-Residents
i. Income Tax
You are liable to French income tax on French rental earnings, whether or not you are resident in France, although if you are liable to no more than €305 in income tax, it is not imposed.
This follows the general principle that applies between most countries, that rental income is liable to tax in the country where the property is situated.
Accordingly, even though you may be non-resident you will need to submit a tax return to the French authorities of your rental income in France (together with any other French sourced income).
In addition, you will need to declare the income to the tax authority in your own home country.
France has double taxation agreements with many countries, so in most cases you are unlikely to face being taxed twice on the same income.
UK residents benefit from a double taxation treaty, which grants partial relief against liability to tax in the UK. This means you need to declare the rental income to both the French and UK tax authorities.
Where your UK tax is greater than the tax payable in France the difference is paid in the UK. However, if the UK tax is less there is no repayment of the French tax in the UK.
The same rules apply to US and Canadian non-residents.
Since 2019 there are two rates that apply to the rental income of non-residents.
For income up to €27,478 the rate remains taxed at 20%. Rental income beyond this level is taxed at 30% (2022 income).
These rates apply on the net rental income. That is to say, after deduction of eligible costs, or the standard allowance, depending on the system of taxation you use. We set out the different forms of taxation in the following pages.
If you are able to justify a lower rate based on your worldwide income, you need to indicate this option on the tax return and include your tax return and tax notice from your home country.
As the tax rate in your home country may not be known at the time you send in your French tax return, it is possible, nevertheless, to request a lower rate on the basis of a certified statement, or to make a retrospective claim, as the government confirmed in a parliamentary statement in 2019:
"Toutefois, lorsque le contribuable justifie que le taux de l'impôt français sur l'ensemble de ses revenus (de source française ou étrangère) serait inférieur, ce taux (dit « taux moyen ») est applicable à ses revenus de source française. Le bénéfice du régime d'imposition du taux moyen peut être demandé a posteriori (après la réception de l'avis d'impôt) à l'appui de justificatifs, mais aussi a priori, lors de la déclaration des revenus.
Dans cette dernière situation, le contribuable déclare à l'aide du formulaire 2041-TM (en ligne ou papier) le détail de ses revenus de sources française et étrangère. Ce formulaire permet d'attester sur l'honneur l'exactitude des éléments communiqués, dans l'attente de fournir le cas échéant des pièces justificatives sur demande de l'administration fiscale.......
Si l'usager ne peut produire son avis d'imposition (ou sa déclaration) en raison de la législation fiscale applicable dans son État de résidence, il doit être en mesure de fournir au service des impôts des particuliers non-résidents une copie de son visa et justifier par tout moyen de la nature et du montant de ses revenus.
Lorsque la demande du taux moyen est effectuée a posteriori, le service des impôts des particuliers non résidents demande tout document probant de nature à établir le montant des revenus de source étrangère. Si le contribuable ne peut produire son avis d'imposition (ou sa déclaration) en raison de la législation fiscale applicable dans son État de résidence, une attestation sur l'honneur ainsi que la copie de son visa sont demandées. La promotion auprès des non-résidents du recours au taux moyen et des modalités déclaratives correspondantes est notamment assurée par la communication d'informations générales via la notice 2041-E-NOT, ainsi que par des communications ciblées à destination des usagers concernés via des courriels spécifiques adressés par la direction des impôts des non-résidents."
If your home country tax notice is not available at the time, alongside your tax declaration, you need to submit Form 2041TM sur l'honneur, pending receipt of the relevant paperwork.
ii. Social Charges
In addition to income tax, non-residents are also liable for social charges on rental income.
The issue is a contenious one, which we have covered extensively in our Newsletter.
As a result of legal challenges, in 2019 the French government changed the low to remove liability for social charges from non-residents from within the EEA who are in a social security system of another Member State.
However, they replaced the social charges with a solidarity tax (prélèvement de solidarité) at the rate of 7.5%.
Non-EEA residents remain liable for the full panoply of social charges at the rate of 17.2%, which of course, might ordinarily include UK residents.
However, in January 2021, the French government accepted that under the terms of the Brexit agreement, UK residents with capital income and gains in France were only liable for the 7.5% solidarity charge, and that overpaid social charges could be reclaimed. You can read about this decision and the implications in our news article Brexit - Non-Residents and Social Charges.
What remains unclear is whether those benefiting from the solidarity tax can offset the solidarity tax against their liability to tax in their home country.
The previous law stated that as a general principle French tax regulations state that social charges should be considered part of the income tax system, stating:
"Pour l'application de ses conventions fiscales, la France considère que ces contributions sont assimilées à l'impôt sur le revenu."
That principle is in line with a decision of the Constitutional Council in 1990, which stated that the social charges were "impositions de toute nature."
However, this principle could only be adopted where there was otherwise no express provision to the contrary in a double taxation treaty.
In the case of the UK, Article 24 of the 2008 Double Tax Convention with France lists the French taxes that would be used to eliminate double taxation, to the specific exclusion of CSG (Contributions Sociales Généralisées) and CRDS (Contributions pour le Remboursement de la Dette Sociale).
As a result, the regulations state that :
"La convention fiscale du 19 juin 2008 liant la France et le Royaume-Uni écarte quant à elle expressément la possibilité d'imputer la CSG et la CRDS sur l'impôt prélevé au Royaume-Uni......."
In addition, there are some countries that contest the definition of social charges as income tax for the purposes of double taxation, which is particularly the case for the USA, where there is no specific mention of the social charges in the treaty.
iii. Business Registration
Given the high level of taxation on non-residents, it may possible to register furnished lettings activity as a business in France, although it is more complicated for non-residents. We consider the issue in our article Non-Residents and Micro-Entrepreneur Business Status.
However, for non-residents from the EU, in the event you were registered as a professional (over €23K income), there is a legal issue about liability for social security contributions , as under European law EU nationals are only liable for social security contributions in one country.
iv. Capital Gains Tax
We considered the capital gains tax rules that apply on rental properties in our France Insider article at French Capital Gains Tax on Sale of Rental Property.
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