French income tax return

• You live in France and are a tax resident of France.

  You are considered to be resident of France:

  • if your home or main residence is in France;
  • if you carry out a professional activity in France;
  • if your center of economic interest lies in France.

   

• You do not live in France, you are not a tax resident of France, BUT you have French assets.

Your residence is the basis of any tax, investment and income planning. This point must be clear to know where to start.

There is ongoing confusion regarding the determination of the place of residence, because although the rules regarding residence are relatively clear, different interpretations are found within administrations.

When in doubt about domicile or whether one can be considered a resident of two countries, the provisions of the Double Taxation Convention prevail.

Let’s take the example of the UK: article 3 of the Double Tax Treaty tries to clarify the situation.

The first criterion is “where is your home?”. Your home is supposed to be the country where you have the closest “personal and economic ties”, but this may still rise some doubts. According to the ruling in a court case, a business man who spent very little time in France but had his family living and going to school in France, is considered as a resident of France.

Now, if you own a property in the UK (which is not rented out), which is thus considered a “home”, the second criterion is “where do you spend most of your time?”. If you spend roughly the same amount of time between the two countries and none of the other criteria is decisive, then the country of your nationality will have the right to claim your residence. Thus, in general, the authorities are trying to find out in which country you are “resident”, even if you travel a lot.

You are considered resident at the moment you declare your arrival to the French authorities: it is not the actual date of your arrival that counts, as there are no border controls.

 Do you live in France and are you a French tax resident?

Whatever your nationality, you must declare your worldwide income, regardless of its source or country of origin.

Income is treated and taxed differently depending on its source and country of origin, .

If there is any doubt as to your residence, or if you could be considered a resident of two countries, the provisions of the Double Taxation Convention apply.

Let’s look at some examples of UK income:

Rental income from property and certain other foreign sources of income, such as public sector pensions or income from a foreign activity, will continue to be taxed in the UK, but you still will have to declare the taxable amount on your French return. It will not be taxed again in France under the double taxation treaty, but it will be taken into account to determine the rate at which other income should be taxed, and will have the effect of pushing your other income into a higher tax bracket.

Other pension income from private pensions and foreign state pensions is taxed in France and must be paid gross in the country of origin.

For the following types of income such as pension lump sums, tax-free investments, dividends from foreign shares, premium bonds, offshore bank interest, capital gains tax and rental of gîtes, it is advisable to seek help in completing your tax return.

• Do you live abroad and have French assets?

Whatever your nationality, you only need to declare income from French sources, even if they have not generated any income. Some of these assets will be taxable and some will not.

The main categories considered as income from French sources are:

– Income from real estate located in France or rights relating to such property;
– Income from French movable property and all other shares and securities invested in France;
– Income from professional activities, carried out in France, whether employed or not, or from transactions for profit carried out in France;
– Capital gains from the transfer of property rights relating to businesses carried on in France and immovable property situated in France;
– Capital gains from the transfer of corporate rights relating to companies having their head office in France.

This list is not exhaustive, and for any other income not listed, please contact our tax team.

• Double taxation Treaties

Double taxation treaties are designed to avoid double taxation of income earned in one country by a resident of another country. They also clarify the taxing rights between two countries on different types of income from cross-border economic activities. The treaties also provide for tax reductions or exemptions for certain types of income.

For specific information on double taxation treaties, please contact our tax team.

• Tax forms

There are many different forms, but here are a few references that are often applicable to the expatriate community:

– Form 2042: This is the main tax return and should include all of your worldwide income and gains.
– Form 2042 C (Supplementary): this is a supplementary form that is needed in serveral cases. The main ones are if you have any income from a personal business, such as furnished lettings or if you have paid tax in another country that needs to be offset against French tax.
– Form 2047: this form, which must be completed by anyone who receives income from abroad, gives details of this income, even if the figures have already been given on the main form 2042.
– Form 3916: this is necessary if you have any bank accounts outside France, as you must provide this information annually.

French tax system is based on self-assessment.

Tax is assessed at the level of the tax household, i.e. the family unit consisting of a single person, spouses (regardless of marital status) with their children and other dependants. In other words, the tax base is generally the total income of the different members of the tax household.

Apart from exceptions, all income, regardless of its origin, is aggregated to determine a total net income to which a tax scale is applied.

This scale has progressive income brackets:

The basis for assessing French income tax is to break down the household’s total income into units, or “parts”. This is done to take account of dependents and to reduce the impact of the progressivity of the tax.

For a married couple, for example, this means that the joint income is divided equally between both of them. The half share is applied to each of the tax brackets and the resulting tax calculation is then multiplied by two.

A married couple with children has the benefit of additional “sharing” for their children (i.e. the children are considered to have earned a share of the household income), as shown below, which further reduces the tax liability.

For example, a married couple with 4 children could divide their combined household income into 5 “parts” with the different tax brackets only applying to one fifth of the total income. The resulting tax calculation is then multiplied by the number of “parts” (i.e. 5) in the household.

This may seem like a very complicated calculation method, but it has the advantage of keeping your marginal tax rate as low as possible.

Therefore, in reality, a large “household” will have to earn a very high taxable income before moving into the top tax bracket, and for the majority of couples, if one spouse earnes the majority of the earned income or pension income, the French tax is lower than the UK counterparts for example.

Finally, there are certain cases where additional “1/2 parts” are allowed, such as if you are widowed and have raised children, who are now adults. It is therefore very important to complete the section about your personal situation as fully as possible.

Income tax is assessed once a year on the taxable income earned by a tax household during a given calendar year (January-December).

Tax returns must normally be submitted to the tax administration before May of the following year. You can check the current deadline on our ‘personal tax return’ page.

If this is your first return, the tax forms will be sent by post.

Assessment notices are then received in August or September.

Yes, if you are a French tax resident and had income from a foreign source. Depending on the source and the country of origin, income is treated and taxed differently in accordance with the double taxation treaties.

You do not have to file a personal tax return if you had no income at all in the previous year, neither French nor foreign income,  although it is advisable to do so. In fact, a declaration of non-taxation may be required by certain authorities in order to obtain benefits or advantages. Such a notice of non-taxation can only be obtained if an income tax return has been completed with the tax authorities.