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France plans to deduct income tax at source

No sooner had the deadline passed for this year’s dreaded tax declarations than the French government announced plans that it would move towards a system of taking income tax automatically out of workers' wages. Not everyone will greet the news with a sigh of relief.

France plans to deduct income tax at source

Perhaps President François Hollande simply got fed up filling out his tax return this year.

The day after the deadline for sending off French tax returns, France’s government spokesperson Stephane Le Foll suggested they had finally had enough of the current system.

The government intends to move towards a system whereby income tax (Impôt sur le revenu) is taken automatically at source rather than the following year after the individual annual declarations, as is the case in France currently.

Le Foll did not set any dates nor deadlines but just said it was what they would now work towards.

“The idea is to move towards a simplification of tax collection, with gradual implementation through the simplifying of payslips and taking [taxes] at source,” was how Le Foll put it.

He added that president Hollande had given the go ahead to put a new system in place but that the government would take its time to make sure everything runs smoothly.

The French tax declaration system often leaves both locals and expats confused. Given that certain social security payments are deducted automatically the question is asked why can't income taxes be paid the same way.

It would at least mean the end of having to save up wages for over a year to cover the much-feared tax bill – which is normally paid in three parts.

But anyone desperate to see the end of annual tax declarations shouldn’t hold their breath. The issue has been raised many times before, and as recently as 2013, when former PM Jean-Marc Ayrault admitted the current system was “almost unreadable and very complex”.

Back then an Ifop public opinion poll showed that just over half of those surveyed supported deducting taxes at source.

There are issues that would mean changing the system very complicated in deed and despite Hollande’s wishes the hurdles may yet scupper the move.

“The practicality of changing the way taxes are paid in France, means it would be extremely difficult to do,” French tax expert Patrick Delas, from Russell-Cooke in London told The Local previously.

“It would also be extremely expensive for a government that doesn’t have any leeway in terms of budget. It will also mean much more work for businesses, who already have the complicated job of working out social security contributions.

“There will also be the people who work in the revenue offices for the government, who will fear job losses if this change is made.”

Delas also believes that many tax payers themselves would rather have the chore of filling in declarations once a year than have their employers deducting their taxes.

“Many employees will not like the fact that their companies will have access to personal information, whether they have second incomes, their household income or whether there has been a change in their personal life etc,” he said.

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PROPERTY

The post-Brexit tax rules on selling second-homes in France

British second-home owners in France who want to sell their properties are being warned of an extra layer of administration - and expense - in place since Brexit.

The post-Brexit tax rules on selling second-homes in France

Brits wishing to sell property in France may now need to appoint a représentant fiscal (tax representative) in France in order to properly declare the sale to French tax authorities. 

Who?

This law applies to people who own property in France but do not live here – mostly that would be second-home owners but it could also apply to, for example, anyone who has inherited property.

This requirement has always been the case for non-Europeans such as Americans, Canadians and Australians and now also applies to Britons since the end of the Brexit transition period. People who live in another EU or EEA country are exempt.

The law is based on residency, not nationality. So if, for example, you have your main residence in the UK but have an Irish passport, you would still be covered by this requirement.

Exemptions

As well as EU residency, there are a couple of other exemptions;

  • If you sell your property for less than €150,000
  • If you have owned the property for more than 30 years (in which case the sale is exempt from capital gains tax and social security contributions).

What is a représentant fiscal?

This is simply a representative for tax purposes in France, and the person does not need specific qualifications in law or accountancy.

The following can be appointed:

  • A company or organisation already permanently accredited by the tax authorities;
  • A bank or credit institution operating in France;
  • The buyer of your property, if they are domiciled in France for tax purposes (they do not need to be a French citizen);
  • Any other individual who is domiciled in France for tax purposes (they do not need to be a French citizen) – in this case they will need to be accredited by the local authority;
  • If the property is in Paris, the individual will need to be accredited by the Île-de-France tax authorities – département de Paris-Pôle gestion fiscale Centre-Missions foncières, 6 rue Paganini, 75020 Paris. Tel: 01 53 27 46 45

If you decide to appoint an individual rather than a company as your représentant fiscale, bear in mind that the process can be quite complicated, so it would be better to check that they are confident in dealing with the tax authorities, to ensure that you don’t end up with unfinished business with the tax office.

If you chose a company, they will naturally charge for the service. 

Whichever representative you chose, you will need to provide a dossier of documents relating to the property sale and also confirming that you are a tax resident of a country outside France (tax returns, banking information, for example).

Will you have to pay tax on the proceeds of the sale?

If your main residence is not in France, you have no other income in France and you do not complete the annual French tax declaration you will not usually have to pay tax in France on the proceeds of the sale, provided your total estate is worth less than €1.3 million.

Properties worth more than €1.3million may be liable for the impôt sur la fortune immobilière (property wealth tax).

You will of course have to declare the income from the sale in the country where you are resident and, if applicable, pay capital gains tax.

What about French property taxes?

If you have owned property in France you will have been paying the taxe foncière and taxe d’habitation.

These will cease, but bear in mind that taxe foncière is charged based on who owned the property on January 1st of the relevant tax year. So if you sold your property in February 2022, you will still get a tax bill in autumn 2022 to cover that year. Only the following year will the new owner become liable, unless the sale contract for the property included an agreement to share or split outstanding taxes.

Find more information on the Internationals section of the French tax office website HERE or pay a visit to your local tax office in France. Find your local office by searching ‘Centre des Finances publiques’ plus the name of your commune – tax offices are open to the public on a walk-in basis and the staff are usually friendly and helpful. 

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