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2017 New French Tax Rules

TRANSITION TO TAX AT SOURCE IN 2018

Currently, French tax residents pay income tax in the year following the year in which the income is received.

With effect from 1 January 2018, a new system for collecting income tax will be introduced in France similar to that in the UK (PAYE). Income subject to this new taxed at source will include wages, pensions income and unemployment benefits received in France.

By contrast, income generated outside France, due to technical and legal issues cannot be taxed at source.

Self-employment revenue, employment income paid by a non-French employer will be submitted to monthly or quarterly income tax payments.

The tax authorities will calculate the individual’s tax rate based on the previous three years annual tax returns.

This new tax at source system will be implemented progressively:

● In 2017, taxpayers will pay the individual income tax calculated on their 2016 income.
● In 2018, taxpayers will pay tax on their 2018 income and will declare their 2017 income.

In order to avoid the taxpayers paying income for two years income in the same year on filing their 2017 tax returns, each taxpayer will benefit from a special tax credit called” CIMR” (the “Tax Credit for Modernisation of Income Tax Collection”). As a result the 2017 earned income will be most likely tax free!

However, exceptional income and tax credits pertaining to the 2017 tax year will be taken into consideration in the calculation of the tax rate and could remain taxable.

Both resident and non-resident taxpayers will still be required to file individual income tax returns every year. Penalties will apply for failure to comply with this tax at source system.