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How paying your income tax in France is going to change

The way we pay income tax in France looks set to change dramatically. Here's a look at the main questions.

How paying your income tax in France is going to change
Photo: AFP

French Finance Minister Michel Sapin signalled this week that a long talked-about reform will definitely go ahead and it affects most of us.

Sapin confirmed the change to the way income tax is paid and promised that the process would be “as simple as possible”.

So let’s see what that means.

What’s going to change?

Basically, the way we pay our income tax in France will change from us paying it ourselves one year late, to it being taken out of our pay automatically each month as we earn.

So currently workers in France either don’t pay their taxes on what they earned in 2015 until 2016, or, as most do, they pay estimated amounts, monthly or thrice-yearly, based on the previous years taxes.

But in future the money will be automatically deducted from our monthly salaries, in an employer based Pay-As-You-Earn (PAYE) as it is in most European countries.

This means that income tax goes from being an annual headache to just an extra line on your payslip, although the yearly tax declarations will still have to be made.

Is it a good idea?

While your monthly pay packet will obviously be reduced, given that the tax has already been deducted, there are certain advantages. For a start, if your salaries fluctuate, and apparently they do for 30 percent of French people, then it will take away the stress of having to put money aside to pay your income taxes a year later, when perhaps your earnings may have dropped significantly.

Although you can currently pay income tax each month for the previous year, many workers pay in one lump sum or in three yearly amounts. Plus in theory there should be a lot less paperwork without the annual back and forth between you and the tax man.

From the government's point of view, it helps in all sorts of ways, not least by the huge savings that will be made in administration costs. It will also help cut down on tax fraud, they say, and will give the government more regular income. It will also allow the government to more easily adjust its tax policies to the current economic conditions.

When’s it going to happen?

Finance Minister Sapin confirmed this week that the change will come into force on January 1st 2018. However the reform will need to get the green light from parliament first, and Sapin says this should happen in summer this year. In the summer of 2017 companies will have to contact fiscal authorities to find out what tax codes to give their employees. Then they will have to set up their new systems.

Is it just income tax that will be deducted monthly?

Nope, the reform will affect the tax on salaries but also pensions or replacement income like unemployment benefit, income earned by freelancers or “indépendants” as well as income on property. These account for the earnings of 98 percent of French households. So if you are working or retired your income will be taxed at source.

How will it be organized?

The minister confirmed this week that the job of deducting income tax from workers’ salaries will fall to the companies themselves, so accounts departments in French companies have a stressful year or two ahead it seems.

Business organizations are not too happy about this and fear added complexities to an already complex system.

The company will have to contact financial authorities to get a tax code for each employee to find out how much they should be paying. Then a slight tweak to the already complicated French payslips will see a line added showing how much has been deducted.

Tax will continue to be calculated on the basis of household or “family” earnings for those who are married or joined by civil marriage (pacsée) rather than individually. Nevertheless, each member of that household, so normally each member of the couple, will be given their own tax code, depending on what they earn.

That means that in the case of huge disparities in salaries, one member of the couple can take the burden for paying most of the tax, rather than it be split evenly. But the finance ministry insists the overall amount for the married couples will be the same.

Could we end up paying more tax?

The reform won’t change the calculations used for working out how much tax workers pay. Current tax credits will also be maintained. The tax codes will be adjusted so households don't end up paying more tax, according to the government.

So will companies find out about my secret income?

Unions had expressed concerns that employers could find out information about workers' other earnings, perhaps through property or inheritance and use it to negotiate salaries. But Sapin insists companies will only be given a tax code for the individual and the household earnings will not be revealed.

How do they switch from one system to the other?

It’s quite simple really. In 2017, workers will pay their taxes on their 2016 earnings and in 2018, they will begin paying taxes on a monthly basis in real time. While it appears at first sight that workers won’t pay taxes on their 2017 earnings, it doesn’t really mean we are getting a year off from having to feed the tax man. Because in 2017, 2018, 2019 etc we’ll still pay taxes and the tax man will still get his earnings.

 

 

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The vocab you need to understand French taxes

Declaring and paying taxes in France can be a complicated affair, especially for first-timers, and the intricate French vocabulary does not exactly simplify the process. This language guide might help.

The vocab you need to understand French taxes
Illustration photo: Miguel MEDINA / AFP

If you are encountering the French tax system for the first time, just looking at the various forms can make you dizzy, as the vocab isn’t exactly everyday-French.

Even French natives sometimes struggle to understand what they are being asked about, which is why the government has created a tax lexicon (available HERE).

It is 23 pages long, but we have picked out the key terms and added a few that might be unfamiliar to foreigners.

If, however, you are looking for a specific term that doesn’t appear in the list below, we recommend you check the official guide. 

We have also explained in detail how to fill out the annual tax declaration HERE.

Nom – as with all French forms, nom refers specifically to your surname or family name. Your prénom (first name) comes later. Tax forms generally ask for your nom de naissance which is the family name you were born with (even if you have changed your name through marriage) and will then ask for nom auquel vos courriers seront adressés or name for correspondence to be addressed to.

EXPLAINED: What’s in a name? Understanding how to fill out forms in France

Avis d’imposition – tax notice. This is for your annual tax return. If your main residence is in France you must fill in a tax return – even if all your income comes from another country. France has double taxation agreements with most countries, so if you have already paid tax on, say, income from a rental property in the UK you will not be liable for more tax in France on the same income. But you must still tell the French tax man about it.

EXPLAINED: Who has to make a tax declaration in France in 2021?

Déclarant – refers to the person declaring the taxes. The verb is déclarer and un déclarant is la personne qui déclare – the person who declares. The form has spaces for two déclarants because married couples and those in a civil partnership file a joint return. If you are declaring as a single person just ignore the column for déclarant 2.

Foyer fiscal – tax household. France bases taxes on the household and you will be asked about it in detail when filling out your declaration. Couples who are married or in a civil union (Pacs) should make one joint declaration rather than two. If you got married halfway through the year you can now declare one common declaration for the whole year.

Etat civil – civil status. Choose between célibataire (single), marié (married) or Pacsé (in a civil partnership). 

Parent isolé – single parent. This only goes for those who were not living with a partner on December 31st the year before declaring the taxes. If you got divorced, separated or lost your partner after that date, you have to wait until next year to declare it. In addition to parents, this category also includes singles who are taking care of a disabled person.

Enfant mineur – child under 18 years old.

Enfant majeur – a child over 18 years old. Parents in France may attach their adult child to their tax declaration until the age of 25, under certain conditions.

READ ALSO: What the French government doesn’t tell you about filing taxes

Personne à charge – means ‘person to take care of’, and means that you have a person in your household that you are financially responsible for, usually referred to in English as a dependant. 

Concubinage – a couple who live together but aren’t married or in a civil partnership. If that’s you, you’re not allowed to tick the box of parent isolé if you have children.

Numéro de sécurité sociale – social security number. If you’re registered with French social security this number (15 figures) appears on your Carte Vitale health card and if you’re an employee it should appear on your payslips. If you don’t have a social security number in France, tick the box “pas de numéro de sécurité sociale“.

Prélèvement à la source – This sounds confusing, because it’s sometimes translated as “withholding tax”. However it just means the tax that is automatically deducted from your salary each month if you are an employee. Usually referred to in English as ‘taxation at source’ or PAYE (pay as you earn), it’s a relatively recent innovation in France.

READ ALSO: The French tax calendar for 2021 – which taxes are due when?

Revenus des indépendants – income for the self-employed. Whereas employees get their taxes deducted automatically from their payslip, self-employed people, contractors or freelancers have to declare all their income and social benefits, if any, on their tax declarations. 

Micro-entrepreneur – this is a specific professional status that self-employed people may opt for if their income is below a certain threshold. It used to be known an auto-entrepreneur.

Comptes à l’étranger – foreign bank accounts. If you have a bank account in a country other than France, you have to declare that to the tax man, or risk a €1,500 fine (€10,000 for those with an account in a country that doesn’t have a tax evasion deal with France) per account. New international banking rules aimed at money-launderers mean it is increasingly easy for countries to find out this information.

Contribution à l’audiovisuel public – this means ‘contribution to the public audiovisual’. It is the French equivalent of a TV licence and is paid by almost everyone. You pay it if you have a TV in your property, even if you don’t watch French TV.

Abattement – rebates. France has a long list of specific tax rebates, some of which are directed professional groups while others go to parents for costs like childcare and domestic help. Find out more about the deductions available here.

Paiement en ligne – online payment.

Coordonnées bancaires – bank information (such as the account holder’s name, account number, BIC and IBAN) you are given the option to add this to your tax declaration so that payments can be taken – or refunds credited – directly.

Taxe d’habitation – the housing tax paid by those living in a property, not the owner, is in the process of being phased out and most people won’t have to pay it this year. However second home owners are excluded from the phasing out and still have to pay it, bar a few exceptions. This is separate to the annual tax declaration and bills are sent out in the autumn.

Taxe foncière – this is the tax for property owners, second home owners pay both this and the taxe d’habitation. The tax on property owners has risen in many areas over the past couple of years.

READ ALSO What is taxe foncière and do I have to pay it?

Revenus fonciers – this means ‘property income’, but it only refers to income coming from properties that are rented out unfurnished. If you rent out a furnished property that also has to be declared, but under the box called bénéfices industriels et commerciaux (BIC).

READ ALSO: Five things to know about renting out your holiday home in France

Micro foncier – the box to tick if the revenus fonciers are up to €15,000 annually, which allows for a 30 percent tax rebate on the gross income.

Régime réel – the box to tick if the revenus fonciers exceed €15,000 annually, in which case there won’t be any tax rebate available.

Pensions – pensions. You have to declare any pensions you receive, whichever type it may be, even if they are paid by another country. There are several other similar terms that belong to the same category as pensions.

Allocations – economic help schemes.

Indemnités – allowances.

Retraites – pensions.

Rentes – annuities. 

Prime – bonus.

Revenu brut – gross revenue.

Revenut net – net revenue.

Demande gracieuse – means ‘gracious request’ and is what you may do if, upon receiving your tax notice, you realise you could have paid less tax if you had ticked a different box somewhere or given additional information. The term ‘gracious’ is there to signify that the tax man can choose to accommodate your request if he so pleases, but there’s no rule saying he has to. As a general policy we would recommend always being very polite to tax authorities.

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