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TAX

EXPLAINED: French tax – annual declaration rules and what if you’re not in the system?

It's nearly everyone's favourite time of the year - tax time! But who needs to file a return in France, what do they need to declare and what if you haven't been in the system until now? We asked French tax expert Alex Romaine for advice.

EXPLAINED: French tax - annual declaration rules and what if you're not in the system?
All photos: AFP

The annual French tax declaration is no-one's favourite task, but some foreign residents of France are under the impression that it doesn't apply to them or that they don't need to declare everything.

We look at some of the most common misconceptions about the French system.

Who has to do it?

This is the big one – there are many foreign residents or frequent visitors to France who are currently under the mistaken impression that they don't need to file the annual return.

Tax is complicated but the basic rule of thumb is that if you spend a significant amount of time in France – even if you don't earn an income here – you may have to file an annual return.

Even salaried employees – whose income is taxed at source – also have the file the annual return, at least for now.

READ ALSO How to understand your French payslip

French tax expert Alex Romaine, of Charles Hamer French Tax Services Ltd, said: “The first thing is to establish if you fall under French tax rules and this can be quite complicated so I would always suggest that people seek professional advice.

“Full time residents of France are – unless there are very unusual circumstances – likely to fall under the French system. For second home owners if they spend more than 180 days a year in France they could also be considered tax resident – so it's important to check and not simply assume that you don't need to file a return in France.

“And there are many people who fall under both the French system and the system in their home country. So if you're not filing a return in France you need to check that you definitely don't need to.”

READ ALSO How the annual French tax declaration works

And what do you need to declare?

Basically everything.

Alex said: “It's your entire worldwide income that must be declared on the French tax return – not just what you have earned in France.
 
“So common examples of that would include pensions from the UK, interest from bank accounts, ISAs, share dividends, pension lump sums, income from letting out property (even if your property does not make a profit) and any income earned from work outside France.
 
“All bank accounts that you have must be declared too – even if they're dormant.
 
“This is all connected to money laundering regulations and the fines for not doing so can be quite high – we've seen €1,500 per undeclared account per year. The regulation really encourages people to close down their dormant accounts and tidy up their affairs a bit.”
 
But in good news, double taxation agreements mean that you don't have to pay tax twice on the same income, you simply have to tell the French tax authorities about it.
 
Alex said: “To take the example of somebody working in France but getting income from a property in the UK.
 
“They would have to declare that property income in the UK through self assessment and pay tax on it. So when you come to fill in the French tax return you also declare the UK property income in the correct section, but you will get credits against the tax you already paid in the UK.”
 
So it's perfectly possible that you will file the return and end up with a bill for €0. If all your income comes from outside of France or if you are an employee with no other income whose salary has already been taxed at source you might not end up paying anything at all. 
 
 
Most people can now file their return online. Photo: AFP
 
So you might have to fill in tax declarations in two countries?
 
Yes, many people will be filing in two countries.
 
US citizens are legally required to file a tax return in the USA wherever in the world they live, and many will also have to file in France. 
 
What if I'm not in the system?
 
So what happens if you're reading this article with a growing sense of dread, realising that you should have been filing a French tax return for several years now, but haven't been?
 
Well the basic advice is to 'fess up.
 
Alex said: “Full disclosure at your local tax office would be the place to start.
 
“You don't need to wait until tax return time, you can go down to your local tax office, take all your documentation with you and explain to the official that you didn't realise that you needed to file a return in France.
 
“We find that generally if you hold your hands up to your mistake French tax offices are willing to help in most cases.
 
“However not all local tax offices have the expertise required to deal with incomes earned abroad, we have seen cases of people paying more tax than they needed to on foreign incomes, so it would be helpful to get professional advice too from a specialist.” 
 
And if you're tempted to ignore it and wait for them to catch up with you? Don't – penalties are likely to be more severe if you have not made full disclosure.
 
Alex said: “The authorities tend to be more severe for people who are running a business in France – we have seen some eye-watering amounts for lettings clients – but even for residents they can impose unpleasant fines on people who have not been filing returns and are unable to fully justify why they believed they were not French tax residents.”
 
 
Is there anything different this year?
 
Well it's less about the French system changing and more that – with Brexit pending – many British residents in France are getting their affairs in order and coming fully into the French system for the first time.
 
Alex said: “After December 31st this year – the current end of the transition period – we are probably going to see fewer of these cases of people either in a grey area tax wise or living under the radar.
 
“After Brexit, British people who want to spend more than 90 days out of every 180 in France will likely have to formally establish themselves as permanent residents of France and if you are a permanent resident you are also a tax resident.
 
“That should clear up some of the uncertainty but is also going to make it harder for people to live under the radar.”
 
He concluded: “In short – head in the sand is likely to make the problem far worse, especially after the end of the Brexit transition period.”

Alex Romaine is French tax agent at Charles Hamer French Tax Services Ltd.

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TAX

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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