Declaration of Savings and Investment Income in France 2019
Tuesday 07 May 2019
Particular care is needed this year in the declaration of savings interest and investment income on your French tax return.
Since the beginning of the year a single flat-rate tax has been in place for bank savings interest and investment income, such as dividends.
The tax is called Prélèvement Forfaitaire Unique (PFU), and is a fixed rate of 12.8%.
In addition, social charges of 17.2% are payable, making a combined rate of 30%. The rate is up to 34% in the case of those with an exceptionally high taxable income over €250K pa.
The tax is imposed at source by banks and financial institutions. So on every €100 of income earned, €30 will be deducted for tax and social charges, leaving you €70.
However, although the tax is the default deduction, there is no obligation for you to be taxed on this basis, as it is possible to later opt to be taxed using your marginal rate of income tax. This would mean that all your investment income and capital gains would be taxed in this way; you cannot pick and choose.
Clearly, therefore, if because of your total income you pay no income tax, you would be better off opting to use income tax scale rates, as you would be relieved of the need to pay 12.8% tax on the income. Such an option may also be appropriate for those taxed at the first income tax rate of 14%.
The option for scale rates may also be better for those earning dividend income, due to the 40% abatement and the deductibility of social charges that then applies. Neither the abatement or the partial deduction of social charges is available under the PFU.
Although most income earned in 2018 will be exempt from income tax and social charges, due to the introduction of deduction at source, that does not apply to investment income. You can read about the rules that apply in our article Taxation of 2018 Income.
In order to avoid paying the PFU, on the main tax return Form 2042, in Section 2.1, you will need to indicate that you wish to opt be taxed using income tax scale rates, by ticking the box 2OP - 'Vous optez pour l’imposition au barème de l’ensemble de vos revenus de capitaux mobiliers et de vos gains de cession de valeurs mobilières'.
Aside from the particular circumstances for 2018 income, there is also another more general reason why the flat-tax may not be a good choice for many expatriates.
This is because of legal changes that have occurred to the liability of EEA residents to the social charges, which have been abolished for all those who have social security cover through another Member State. We considered these changes in our article Reform of Social Charges.
This obviously applies to non-residents living elsewhere in the EEA, but it applies equally to residents in France who hold an S1/A1 certificate of health entitlement, through which their health insurance cover in France is provided by their EEA country of origin.
Although such households are no longer liable for the social charges, the government have introduced a 'solidarity tax' on capital income and gains to which they are liable. The rate of the tax is lower, at 7.5%.
However, there is no provision in the law that allows financial institutions to deduct a lower rate than 17.2%.
As a result, unless you opt out of the PFU, social charges of 17.2% will be applied, when you may only be liable for the 7.5% solidarity tax.
It is possible your local tax office will adjust the rate that is applied, provided you opt out of the PFU, and you indicate on the supplementary Form 2042C of your tax return that you have an exemption from the social charges.
This you do in Section 8 headed 'Divers', and the line 'Revenus du patrimoine exonérés de CSG et de CRDS' you should tick box 8SH/8SI, as appropriate.
It might well also be possible to obtain a later correction from your local tax office, but it is preferable to avoid having to make such a claim.
The advice given here can only be of a general nature, so do take professional advice in order that an analysis of your individual circumstances can be undertaken.