Thursday 14 May 2020
Income tax reporting procedures in France have been streamlined in recent years, but it still remains an arduous task for most international French property owners.
As we have previously reported in our Newsletter, over the past couple of years there has been a reconfiguration of income tax collection procedures in France.
Since January 2018 a single rate ‘flat tax’ (Prélèvement Forfaitaire Unique) has been in place for savings interest, dividends and the sale of shares. The tax is deducted at source. You can read about the PFU in our Guide to Taxation of Savings Interest and Investment Income in France.
And since January 2019, deduction at source is more widespread, with the introduction of 'prélèvement à la source' on French salaried and pension income, effectively a form of ‘PAYE’, with which British readers will be aware, and a practice adopted by most other countries in Europe.
The changes mean that for many French households their income each year is now reported directly to the tax authority by their employer, pension provider or bank/financial institution.
As a result for around 12 million French households it is no longer necessary for them to submit an annual tax return.
However, international households are less affected by the changes, particularly retired expatriate households, business owners, landlords, and non-residents with French sourced income.
Not only do there remain several tax forms in place (and depending on your income and circumstances you are normally obliged to complete a number of them), the forms themselves are typically perplexing, even to French nationals.
In general, there is not a great deal that you need to enter, and some is already entered automatically by the tax authority. The bigger problem is that you need know which boxes to complete, which is not always self-evident.
The reporting of international pension income is a particular problem, due to the exemption that applies from social charges to those on an S1, and the exemption from French income tax and social charges of government service pensions. Each year we hear of many pensions that have been incorrectly assessed, either because of reporting errors, or because the local tax office is not familiar with the rules. The same often happens with rental income.
The forms now have to be completed on-line, so taxpayers also have to navigate their way around the architecture of a French government website, a challenge in itself. Only if this is your first year of making a tax declaration, or you have no access to the internet, or you are otherwise simply unable to accomplish the task are you entitled to make a paper return. In the latter case you risk a small fine, although it is not always applied.
Although there are guides available to which offer some assistance in form completion, they need to be used with care, as the forms for this year have only just been published, the format of the forms is changed from year to year, yet the guides have been on the market for weeks. We have noted quite a few changes on the forms this year to those of 2019.
If your circumstances are complicated then clearly you would be wise to seek professional support, particularly for the first year of completion, or where your circumstances have changed significantly.
Normally, local officials are able to assist with completion of the form, but it is not easy to make a visit this year due to Covid-19. You should ring your local office before you visit to check on access. Most are only likely to see you in extremis and by appointment only.
The dates for on-line returns this year, delayed as a result of Covid-19, are as follows:
If you submit a paper-based return in 2020 the date is 12th June.
For non-residents, the date for submission of your on-line tax return is 4th June. For a paper return it is 12th June.
If you are either a landlord or a business that is taxed on the basis of the régime réel you have until 30th June to submit the specific declarations that are required. It is the same date for those who use a société civile immobilière (SCI).
So what are the forms you may need to complete?
Form 2042 – Declaration des Revenus
This is the main form, which has several annexes, as we describe below.
If you have previously made a tax declaration some of it will have been pre-completed (préremplieF2042K) by the tax authority. A small number will also will have an automatic declaration (déclaration automatique F2042K Auto) so they have no need to make a declarataion, unless cirucumstances have changed or there are errors. The F2042 will include on it all family and other personal information. The information on family circumstances will determine how you are taxed. Accordingly, if your family circumstances have changed (child, death, divorce, marriage) these changes need to be recorded on this form.
Form 2042C – Revenu complémentaire
This is a rather complicated and diverse form that is mainly for taxpayers who have received dividend or similar investment income, and for those who have realised capital gains on share sales.
In addition, it is for those who have made tax-exempt real estate investments eg, Pinel, Duflot, Scellier, Malraux. It is also used to record capital gains on the sale of your main home (although exempt from income tax).
If you receive a foreign salary or pension that is exempt from taxation in France, but used to obtain the tax rate on other income, then it also needs to be entered here.
Form 2042C Pro – Revenu Complementaire – Professions Non-Salariées.
This for is for those who run a business, taxed either as BIC (Bénéfices Industriels et Commerciaux) or BNC (Bénéfice Non Commercial), and those who run an agricultural business.
In addition, those who have income from furnished lettings (including a chambre d'hote), even if not business registered, are required to complete this form.
It includes micro-entrepreneurs who have opted for a fixed rate of income tax payable with their social security contributions (versement libératoire).
Those business owners who have adopted the régime réel are also obliged to report separately their results by the use of Form 2031 for BIC earnings and Form 2035 for BNC earnings.
Form 2042 RICI - Réductions d'impôt /Crédits d'impôt
The form is used if you have an entitlement to a reduction in tax, or a tax credit.
This might apply if you have made a charitable donation, children at school or in further or higher education, child-care, home-help, energy conservation, and elderly adaptations in the home.
Needless to say, there are various conditions that apply to these entitlements.
Form 2044 - Déclaration des revenus fonciers
The form is used for the declaration of income from unfurnished accommodation, but only if you have adopted the régime réel form of taxation.
The income includes that from investments in property funds, such as SPCI and FPI.
Form 2047 - Revenus encaissés à l'étranger
Used to declare income that was banked abroad by a resident of France. It includes all types of income, even though it may not be taxable in France. Strictly speaking, there is also a requirement to declare on this form income originating abroad, even if banked directly in France, but unless the income is substantial the tax offices seem less concerned that it is declared on the form, eg pension income.
Form 3916 - Déclaration par un résident d'un compte ouvert hors de France
If you hold bank accounts outside of France you are obliged to declare them, even though they may be inactive. Some local offices do not insist on an annual declaration if there is no change, but best to agree any variation with them in writing.
Form 2042 NR - Départ à l'étranger ou retour en France
You must submit this form if you left France in 2019 and received, after your departure, income from French sources.
Similarly, you need to submit it if you relocated to France in 2019 and received, before your arrived, income from French sources.