2019 sees the introduction of PAYE and lower social charges on investment income in France for many expatriate retirees and non-residents.
A new year in France usually sees the introduction of some new tax rules or rates. This year is no exception, although the changes are rather muted compared to last year’s big reforms to the taxation of investment income and wealth tax.
The biggest changes in 2019 are the introduction of a pay-as-you-earn system for income tax, and a reduction to social charges imposed on investment income for many retired expatriates.
This is a good time to review your tax planning, to make sure you know where you stand with your taxes and establish how you can limit your exposure to unnecessary taxes.
There are no changes to French income tax rates for 2019 (payable on 2018 income). The income tax bands for each rate have increased very slightly to index them for inflation, so the current bands rates are:
| Up to €9,964
| €9,964 to €27,519
| €27,519 to €73,779
| €73,779 to €156,244
| Over €156,244
The ‘exceptional tax’ remains in place for 2018 income. This charges an extra 3% or 4% for income over €250,000 and €500,000 respectively, with higher thresholds for families.
Income tax is payable on earnings, pensions and rental income at the above rates, and you are taxed as a household rather than an individual (which can be beneficial for some families).
Investment income is taxed at a fixed rate (the Prélèvement Forfaitaire Unique or PFU) of 30% which includes both income tax and social charges. This has not changed since last year. If you do not earn much investment income you can opt to use the progressive rates of income tax instead, for all your income, plus social charges.
For non-residents, the minimum tax rate on French source income has increased from 20% to 30%.
France has begun implementing a pay-as-you-earn system from 1st January 2019.
It applies to:
- employment income
- retirement income (pensions, lifetime annuities)
- rental income (including French property rental income of UK residents)
- taxable state benefits
- maintenance payments
- non-French income taxable in France
- business profits
- consultancy fees/independent income
Income tax will now be deducted at source for French employment income and pensions each month. For other affected income, such as self-employment earnings, rental income and UK pensions, tax will be collected through monthly or quarterly direct debit from your bank account.
The amount payable is calculated on your last income tax return (so for 2019 it will be your 2017 return), with any balance due by the end of the year.
Investment income – interest, dividends, capital gains and gains from life insurance policies/non-French assurance-vie – is excluded from PAYE. It also does not apply to non-French income that receives a tax credit in France under a double tax treaty.
Social charges remain at 9.7% for employment/self-employment income, 9.1% for pension income and 17.2% for investment income including rental income.
However, for individuals in receipt of pension income of less than €2,000 per month (€3,000 for a couple) the charges will be reduced back to the 2017 rate, i.e. 7.4%.
Individuals covered under the health system of another EU/EEA country are no longer subject to the contribution sociale généralisée (CSG) or contribution au remboursement de la dette sociale (CRDS) social charges on their investment income and capital gains. Instead, the new prélèvement de solidarité will apply at a flat rate of 7.5%.
This is good news for those holding Form S1 and non-residents, since their social charge burden on investment income reduces from 17.2% to 7.5%.
You can submit refund claims for any charges paid at the higher rate during 2018, speak to your tax accountant.
Wealth tax/real estate tax (IFI)
There are no changes from 2018, so ‘wealth tax’ is only levied on real estate assets. The threshold for this Impôt sur la Fortune Immobilière (IFI) tax remains €1.3 million and the scale rates of tax are the same as last year. The 75% limitation also stays in place.
Following demonstrations in France, a committee has been set up to review whether the ‘old style’ wealth tax (which applied to most worldwide assets) should be reintroduced next year.
Other measures for 2019
The changes to the calculation of taxe d’habitation, introduced in the previous budget, mean that 65% of French households will be exempt from this tax in 2019.
There are reductions for certain components of the social security contributions for employees and employers. The main rate of corporation tax reduces to 31% (from 33 1/3%).
It is important to understand how French taxation affects you personally, and establish tax planning solutions based on your objectives and family circumstances.
Regular reviews are essential to make sure your arrangements are up to date. For expatriates, an adviser with cross-border experience can help you make the most of opportunities offered by the French tax system.
Contact us for a financial planning review for France
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.