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French Taxation

French Tax Credit 2019

Tuesday 08 October 2019

Despite most 2018 income being exempt from taxation, many of you have told us that you have received a demand for payment of the social charges.

Due to the introduction this year of deduction at source (prélèvement à la source) very few households have paid any income tax or social charges on their 2018 income.

To avoid double taxation in 2019, the tax due on income in 2018 was erased by means of an exceptional tax credit, called the crédit d’impôt modernisation du recouvrement (CIMR).

The major exception to this general rule has been savings and dividend income, which has continued to be taxed at source through a flat-rate tax called the prélèvement forfaitaire unique.

In addition, 'exceptional' income has been excluded from the tax credit, meaning that if your income in 2018 was in excess of 2017 (or the average of three years) you were liable to income tax on the additional income.

Such income includes termination and severance payments, profit-sharing payments, but also lump-sums paid on retirement.

Nevertheless, a large number of you, both residents and non-residents, are reporting that you have received a demand for payment of the social charges, despite that fact that you have otherwise obtained a tax credit for income tax.

In large measure, the explanation lies in a confusion of the social charges (prélèvements sociaux) with the newly introduced solidarity tax (prélèvement de solidarité).

Since last year, residents and non-residents from the EEA who are not affiliated to the French health system are exempt from social charges on their capital income and gains.

In addition, those expatriates in France who hold an S1 certificate of exemption, or who are covered for health via a private insurance policy, are exempt from the social charges on their pension income.

However, in relation to capital income and gains, the government replaced the social charges with a new solidarity tax, at the rate of 7.5%.

This tax, unlike the social charges, does not benefit from the tax credit. Simply stated, the solidarity tax is not one of the prélèvements sociaux.

That interpretation is likely to be subject to a legal challenge, but the law on the tax credit only refers to the social charges, not the solidarity tax.

Separately from the solidarity tax, it does appear that some local tax offices have not granted a tax credit on the social charges.

If the charge does not relate to exceptional income earned in 2018, or income that remains liable to the social charges, then this is an incorrect tax assessment, which you should appeal.

The administrative doctrine on the inclusion of the social charges in the tax credit are set out in the Bulletin officiel.

It states unambiguously that:

'Un crédit d'impôt poursuivant le même objectif est également prévu en matière de contributions et prélèvements sociaux recouvrés par voie de rôle, qui suivent les mêmes modalités de recouvrement que l’impôt sur le revenu, et est accordé dans les mêmes conditions.'

It continues:

'Le crédit d'impôt en matière de contributions et prélèvements sociaux est accordé dans les mêmes conditions que celles prévues en matière d'impôt sur le revenu pour le bénéfice du crédit d’impôt pour la modernisation du recouvrement (CIMR) et, le cas échéant, de son crédit d'impôt complémentaire.'

Not only does the relief cover capital income and gains, it applies to salaried and pension income:

'Dès lors que les salaires, pensions et rentes viagères ne présentent pas un caractère exceptionnel au sens du C du II de l'article 60 de la loi de finances pour 2017, ils sont considérés en totalité comme éligibles au bénéfice du CIMR, sans qu'ait d'incidence la circonstance que le montant perçu en 2018 soit supérieur à celui perçu au cours des années antérieures ou postérieures.'

It also covers business income, although based on a three-year cycle to determine whether the income in 2018 was exceptional, as follows:

'Compte tenu du mode de formation des bénéfices réalisés par les travailleurs indépendants, le caractère non exceptionnel des BIC, BNC et BA est apprécié en comparant les bénéfices réalisés au titre de l'exercice 2018 à ceux réalisés au titre des années 2015, 2016, 2017, puis, le cas échéant, 2019.'

Micro-entrepreneurs who elected to be assessed for income tax using the prélèvement libératoire (micro-fiscal) are not eligible.

Accordingly, if you have received a demand for social charges on non-exceptional income or gains you should contest the imposition with your tax office.

Conversely, if the charge is merely the solidarity tax, there is no entitlement to a tax credit.

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