Income tax reforms come into force
Taxpayers in France will start having their income tax deducted from their monthly paychecks under a new system that comes into force in the new year.
Until now, it has been up to householders to file their own annual income tax returns and pay tax on the income they have received in the previous year. But from 1 January, France will operate a pay-as-you-earn (PAYE) system called le prélèvement à la source with employers, pension administrators and other agents taking responsibility for collecting taxes at source.
The new system will apply to anyone living and/or working in France with French and foreign source income, including tax-resident British nationals with French source income.
Self-employed people will pay a monthly or quarterly instalment, calculated by the administration according to their income from previous months, and then adjusted according to their actual income.
The following types of income will be subject to the new PAYE system: Employment income (i.e. salary) Taxable state benefits (e.g. sickness, unemployment) Retirement income (pension, lifetime annuities) Maintenance payments Non-french income taxable in France (including UK pensions paid to UK retirees resident in France) Rental income (including French property rental income of UK residents) Business profits
The following types of income/gains will be excluded from the system: Investment income (i.e. dividends or interest) Capital gains (real estate property and financial investments) Non-french income which is subject to French tax credit in accordance with a double tax treaty (UK rental income of a French resident falls into this category)
Taxpayers will pay their 2018 taxes on 2017 revenues, but 2019 taxes on 2019 income. This means that current revenues for 2018 will not be taxed, in what has been dubbed the ‘ année blanche’ – literally white year.
The new system does not completely end the paperwork burden for householders. They will still have to report their actual revenues to the authorities every year so that any overpayments can be refunded and any tax due can be settled.