French taxation. For those who are resident in France there are five tax rates and bands on net taxable income, as follows:

Transcription

1 French taxation Income Tax Rates/Bands 2018 For those who are resident in France there are five tax rates and bands on net taxable income, as follows: Income Share Tax Rate Up to 9,807 0% Between 9,807-27,086 14% Between 27,086-72,617 30% Between 72, ,783 41% Above 153,783 45% The rates are applied on a sliced basis so that each household 'part of the income is charged on a progressive basis. Thus, if a couple have net income of 30,000 in the year there are two 'parts' of 15,000, with each part taxed using the scale rates. Exemption Thresholds In practice, less than 50% of inhabitants in France pay any income tax at all; only around 14% pay at the rate of 30%, and less than 1% pay at the rate of 45%. The following tables have been provided by the French tax authority. The first table shows the maximum net taxable income below which a couple living on their own, and with a varying number of dependants in the household, would not be taxed. As can be seen, a couple with no dependants would not pay any income tax in 2018 if their net taxable income in 2017 was no greater than 27,838.

2 Number of Parts Nil Imposition 2 Parts 27, Parts 32,742 3 Parts 37, Parts 42,549 4 Parts 47, Parts 52,356 5 Parts 57,259 Income Tax Payable 2018 You can use the following formulae to calculate the (approximate) amount of tax you will pay in It is only suitable if you are resident. The formulae and subsequent tables have been provided by the French tax authority. Income Tax Rate Calculation Up to % 9,807 to 27,086 14% (I X 0.14) - (1, x N) 27,086 to 72,617 30% (I X 0.30) - (5, x N) 72,617 to 153,783 41% (I X 0.41) - (13, x N) 153, % (I X 0.45) - (19, x N) I = Net taxable income N = Number of parts in the household

3 Thus, a household with net taxable income of 50,000 and three household 'parts'. The total income is divided by 3, being 50,000/3 = 16,666. This amount is in the 14% band of taxation, so the calculation is ( 50,000 X 0.14%) - 1, X 3) = 2,881. The result will before application of the ceiling under the quodient familial, and any credits or reductions in tax to which you may be entitled. The following table shows the tax payable by a couple with no dependants, for net taxable income up to 65,000. Income Tax Payable 30, ,000 1,464 40,000 2,655 45,000 3,554 50,000 4,250 55,000 5,087 60,000 6,587 65,000 8,087 Contribution Exceptionnelle sur les Hauts Revenus In addition to the basic rates of income tax those fortunate few with a taxable income of upwards of 250,000 pa are liable for a special tax called contribution exceptionnelle sur les hauts revenus. This tax is at the rate of 3% on income up to 500,000, and at the rate of 4% on income above 500,000. Married couples and those in a civil partnership are exempt up to 500,000, when they then become liable at the rate of 3% to 1m, and 4% above this figure. The tax is imposed on net income, after determination of the tax liability under the standard scale rates.

4 Non-Residents Non-residents are subject to a flat rate of 20% on net taxable income, except in the case of savings and investment income, when the Prélèvement Forfaitaire Unique (PFU) applies. 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. If these are not available at the time you need to submit a letter sur l'honneur, pending receipt of the relevant paperwork. In addition, if you are liable to no more than 305 in income tax, it is not imposed. Income tax in France 2017 vs 2018 French residents have just had the pleasure of completing and submitting their household income tax returns for 2017 income. Working out how tax much we owe can be a bit of an eye-opener, so this is a good time to review your tax planning to see if you can improve the situation for next year s return. There are some key aspects to consider There have been a number of tax reforms in France over recent years - are you up-to-date with the latest tax legislation? Are you taking advantage of the various opportunities the French tax regime offers to save tax? Explore ways that you can lower both your income tax liabilities and inheritance tax liabilities for heirs. Are you sure your tax planning is fully compliant in France and that you are paying tax in the right country? Cross-border tax planning can be confusing, but in today s world of automatic exchange of information make sure you are getting it right. Income tax and the 2018 reforms 2017 income tax (payable in 2018) covers a range of income, including employment, pensions, rental and investment income. The progressive rates of income tax range from 14% for income over 9,807 to 45% for income over 153,783. There is an additional tax on high income 3% for a single person with income between 250,000 and 500,000 per part (nothing is due from a family) and 4% for income exceeding 500,000 per part for an individual, 3% for a family (unless exceeding 1 million per part ). As always, additional social charges will be payable later in the year. The current rates are 9.7% for employment income; 9.1% for pension income (unless exempt) and 17.2% for investment income all 1.7% higher than last year. For 2018 income, though, we will move from former President Hollande s income tax system (where he had scrapped fixed rates of tax for investment income to start taxing it as general income), to the new system introduced by President Macron at the start of this year. A new 30% flat rate of tax will now apply to investment income. This prélèvement forfaitaire unique (PFU) applies to interest earnings, dividends and capital gains from the sales of shares and securities. It includes both income tax (12.8%) and social charges (17.2%), so for higher earners could prove a significant tax saving. Those with lower income would pay more tax under this new PFU, but households in low-income brackets keep the option for progressive income tax rates and avoid paying more tax. When it comes to capital gains, the 50% and 65% tax reliefs for owning shares for a number of years is no longer available under the flat tax system. It now only applies if you opt for the income tax rates and only for shares bought prior to Likewise, the 40% deduction for dividends has been abolished, and is now only available to those who elect to apply the scale rates instead of flat tax. The 30% flat tax also applies to investment policies. This includes assurance-vie contracts set up after 27th September If the premium of your policy is less than 150,000 ( 300,000 for joint policies), you can choose whether to pay tax at 30% or the scale rates of income tax, whatever works best for you. Note, though, that if the policy is unapproved for French tax purposes, eg, an Isle of Man or Channel Islands policy, the scale rates will always apply. The prélévement libératoire system remains in place, so assurance-vie policies held for more than eight years benefit from a 4,600 allowance ( 9,200 married/pacs couples).

5 Wealth tax reform 2018 also introduced a second significant reform that affects investments. The old wealth tax impôt de solidarité sur la fortune (ISF) has been abolished and replaced by a new wealth tax impôt sur la fortune immobilière (IFI). This IFI only applies to real estate assets, so all your savings and investments, including assurance-vie policies, are no longer subject to this tax. Reviewing your tax planning It is worth exploring the various ways you can hold your investment capital to see how you can take full advantage of these tax reforms. For example, if you are deciding between investing in property or shares, consider both the wealth tax reforms and how rental income is taxed compared to investment income. Take specialist tax and wealth management advice to find the solution that works best, both for you today and your heirs in future. Pension income There are no significant changes to the taxation of pension income in France, other than social charges have increased from 7.4% to 9.1%. As usual, you can avoid these charges completely if you are not affiliated to the French healthcare system or hold Form S1. If you are resident in France your UK pension income is taxed only in France, at the normal income tax scale rates, with a 10% allowance on gross pension income (max 3,752 per household). There is one exception UK government service pensions remain taxable in the UK. They are not taxed in France but still count towards your annual income for the purposes of calculating your tax rate, so must be included on your French tax return. Pension lump sums are fully taxable in France as income (with an exception for accidents of life ). So taking a lump sum can be expensive in France unless you meet certain conditions. If you can take your whole pension fund as one lump sum, and the pension contributions were deducted from your or your employers taxable income, then you may be able to benefit from a low tax rate of 7.5%. This could enable you to invest your pension savings in more tax-efficient arrangements in France. But you need to be very careful when making such big pension decisions, as getting it wrong can affect your retirement financial security, so take professional, regulated pensions advice. The 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; an individual is advised to seek personalised advice. Article courtesy of Blevins Franks