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France Individual - Income determination

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Employment income

Unless expressly excluded by a tax treaty as subject to tax in another country or by domestic law, employment income earned in France and abroad by a resident is subject to French income tax, regardless of where payment is made and whether it is remitted.

Employment income is widely defined and includes all employment benefits provided by the employer whether in cash or in kind. Social security and pension contributions made to French and qualified foreign plans are tax deductible. Business expense reimbursements are not taxable.

Benefits-in-kind are, as a general rule, included in income at market value. The following are exceptions:

  • Reimbursements of travel costs incurred by an employee exclusively for business purposes and furniture removal expenses are generally both fully non-taxable.
  • A cash lump sum provided by an employer to compensate the employee for housing costs is assessed in full for income tax purposes, although housing (rented or owned by the employer) provided to the employee is subject to special rules. In this case, the taxable benefit is assessed, not at the actual cost of the rent, but at the fixed rates provided by the French social administration (depending on the level of remuneration as well as the number of rooms) or, upon election by the employer, at the rental value used by the tax authorities to levy local taxes. In order to qualify, the expatriate must not be a managing director/corporate officer of the company owning or renting the dwelling.
  • Impatriate allowance may be fully exempt from PIT according to the special inbound tax regime (see the Taxes on personal income section).

Non-residents liable to PIT on employment income are subject to WHT. After deducting mandatory employee social security contributions and the standard 10% salary deduction, employment income is subject to WHT at source by the employer at the rates of 0%, 12%, and 20%. The 12% WHT is a final non-refundable tax. Non-residents are, nevertheless, liable to PIT (resident rates) on the portion of remuneration subject to the 20% band. For non-residents, the minimum rate of tax applicable to net annual income up to a limit of EUR 27,519 (for 2018) is 20% and 30% for the fraction above this limit (limit for income from France mainland). Therefore, the annual tax may be higher than the 20% WHT; in such a case, the 20% WHT levied by the employer is offset, but an additional income tax is due by the employee. If the annual tax is lower, the total WHT tax is the final tax liability of the employee. Under certain conditions and in limited cases, refunds of WHT can be claimed.

The Finance Act Bill for 2019 reformed the tax system for non-resident taxpayers. This reform, expected to come into effect on 1 January 2020, is to bring the taxation of non-residents closer to those of French tax residents by eliminating the WHT at 0%, 12%, and 20% on the non-French tax residents' wages (Article 182 A of the General Tax Code), to implement a PAYE (PAS), and to remove the partially liberating nature of the WHT. However, as part of the draft Finance Bill for 2020, amendments relating to the taxation reform of the non-tax residents of France are discussed. The amendments provide for:

  • A moratorium on the elimination of the partially liberating nature of the WHT that cannot take place before 1 January 2021.
  • The continuation, as a transitional measure, of the WHT under Article 182 A of the CGI for the years 2020 and 2021 (to be confirmed).
  • The abolition of this specific WHT and the application of the PAYE (PAS) as of 1 January 2022.
  • The maintenance of a WHT for French-source equity gains (resulting from plans qualified under the French Commercial Code) but calculated as of 1 January 2022 according to the PAS tax base rules (no deductibility of professional fees) and the proportional rate resulting from the PAS default rate grids.

These measures will have to be confirmed during the final vote of the law planned for the end of December 2019.

Equity compensation

There is a specific tax regime in France applicable to stock options and free shares gains that depends notably on the date of grant of the stock options or of the free shares and on whether or not the plan is ’qualified’ (under provision of the French Commercial Code).

For 'non-qualified' plans, the acquisition gain is taxed the year the options are exercised (for stock options) or the shares are vested (or put at the employee's disposal if different from the vesting date) for free shares. The acquisition gain is taxable according to progressive tax rates.

For 'qualfied' plans, the taxation of the acquisition gain occurs the year of the sale of the shares. Depending on the date of the grant of the stock options or free shares, the relative acquisition gain may be taxed according to progressive tax rates or flat tax rates. In addition, the acquisition gain is subject to social surtaxes, and may be subject to social tax.

The capital gain, if any, is taxed at the flat tax rate of 30%. See Capital gains tax in the Other taxes section for more information.

Both the acquisition gain and capital gain may be subject to the exceptional surtax on high income (CEHR), if applicable.

Considering the complexity of taxation of the stock options and free shares gain in France, specific advice from a tax advisor is required.

Business income

Profits or gains derived from trades, professions, or vocations carried out in France are subject to tax regardless of whether the individual is resident of France. If the individual is resident in France, a liability may also arise on profits or gains on activities carried out abroad unless tax treaties provided otherwise.

Capital gains

Capital gains are generally subject to the flat tax rate. See Capital gains tax in the Other taxes section for more information.

Dividend income

Generally, a French resident is liable to French income tax on investment income, whether from French or foreign sources. Dividend income is subject to a flat rate tax (PFU, sometimes referred to as the 'flat tax') set at 30%, including income tax at 12.8% and social surtaxes at 17.2%.

Upon receipt of the dividends, French tax residents are subject to a compulsory WHT as a type of instalment payment against the final tax (self-assessment/return to be prepared in certain situation).

Taxpayers may opt to tax all of the income subject to the PFU at the progressive income tax rates if more beneficial. In this case, the 40% reduction previously applicable to dividends remains applicable. It should be noted that this option is applicable to all of the income subject to the PFU without a possibility of a partial option.

The CEHR applicable to a fraction of fiscal reference income at the 3% and 4% rates remains applicable in addition to the 30% PFU.

Interest income

Generally, a French resident is liable to French income tax on interest income, whether from French or foreign sources. Taxable interests are subject to a flat rate tax (PFU, sometimes referred to as the 'flat tax') set at 30%, including income tax at 12.8% and social surtaxes at 17.2%.

Upon receipt of the interests, French tax residents are subject to a compulsory WHT as a type of instalment payment against the final tax (self-assessment/return to be prepared in certain situation).

Taxpayers may opt to tax all of the income subject to the PFU at the progressive income tax rates if more beneficial. It should be noted that this option is applicable to all of the income subject to the PFU without a possibility of a partial option.

The CEHR applicable to a fraction of fiscal reference income at the 3% and 4% rates remains applicable in addition to the 30% PFU.

Rental income

Rental income (for unfurnished properties) is taxed as ordinary income after deducting actual expenses borne by the landlord, such as mortgage loan interest, management expenses, repairs, property taxes, and insurance expenses. However, no actual depreciation cost will be taken into account (except for specific investments).

Nevertheless, when the tax household receives annual rental income (not relating to specific type of investments) lower than EUR 15,000, the gross income may be directly reported on the tax return and is taxed after deduction of a fixed allowance of 30% corresponding to expenses.

Alternatively, the tax household may opt for the determination of net rental income taking into account the actual expenses paid (instead of the 30% flat rate deduction). This election is made through the filing of the annual PIT return and cannot be revoked for a three-year period.

Rental losses (generally due to repairs), with the exception of interest on loans, are creditable against other income up to a limit of EUR 10,700. Depending on the nature of the property, rental losses exceeding this limit are creditable against rental income only and can be carried forward for ten years following the year in which the loss is incurred.

Inbound assignee regime (Article 155 B)

Inbound assignees who actually benefit from the inbound regime can exempt 50% of the amount of the following income, under certain conditions, that mainly relates to the geographic situation of the paying entity:

  • Foreign-source interest and dividends.
  • Foreign-source royalties.
  • Foreign-source capital gains.
  • Foreign-source industrial and intellectual property (IP) gains.

For more details on the social surcharges and their applicability to capital gains and investment income, see the Taxes on personal income section.


Last Reviewed - 22 November 2019

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