France's income tax system covers a wide variety of social groups and their sources of income. Income tax in France is a key component of public finances, playing an important role in financing social, infrastructure programs and other areas of public life.
In this article, we will look at where income tax is paid in France, as well as the rules and changes that have been made in recent years in this regard.
We will introduce readers to:
- In what cases is personal income tax paid in France?
- personal income tax rates
- pensions
- income from real estate
- capital income
- Corporate income tax in France
- What is tax residency in the context of income tax in France?
All those who want to know more details are welcome to continue reading!
In what cases is personal income tax paid in France?
In 2019, France introduced a revolutionary law for the country, which obliges employers to collect advance income tax payments during employees' monthly paychecks. This was aimed at streamlining the state's fiscal mechanisms and aligning taxation with the current financial situation of employees.
As of January 1, 2019, the French tax administration implemented Pay As You Earn (PAYE) or withholding tax rules. As a result, employers were required to withhold contributions to French income tax (l'impôt sur le revenu) from employees' paychecks. For example, 2017 income was taxed in 2018 and payment of the tax due was then required. Currently, taxpayers are settled on current year income. After the end of the tax year, they will have the opportunity to apply for a possible refund of any overpaid tax. This change harmonizes the tax system and in this respect resembles the model known in Poland.
Rates of income tax in France are varied and include several income thresholds. For individuals, a wide variety of income sources are taxed, such as labor wages, real estate income, capital gains, pensions and annuities.
In the next section of the article, we will take a closer look at the tax cases. It is worth noting that the tax thresholds of the French personal income tax given below are changed periodically depending on the fiscal policy of the government, based on the provisions of the Budget Law.
Personal income tax rates in France
Personal income tax rates in France are determined for each income threshold. For French residents in 2023, they will be as follows:
- Income below €10,777 0%
- 10,777 - 27,478 EUR 11%
- 27,479 - 78,570 EUR 30%
- 78,571 - 168,994 EUR 41%
- above €168,994 45%
The minimum rate applicable to non-residents is currently 20%.
In the French tax system, there are also various allowances and deductions that can reduce the tax burden. These include deductions for living expenses of family members, deductions for educational purposes, deductions for expenses on environmentally friendly investments such as the purchase of modern heating systems, deductions for charitable donations and other.
Pensions
Income tax is also charged on the collection of pensions. The provisions of the agreement between the governments of France and Poland explicitly stipulate that pensions are taxed in our country if the recipient resides in Poland. This makes it possible to avoid double taxation in terms of income and property taxes.
Income from real estate
Real estate rentals generate income that is subject to taxation. The French property tax system takes into account the differences between French residents and non-residents. Residents are taxed globally on their real estate assets, i.e. on all their real estate around the world. Non-residents, on the other hand, pay tax only on their real estate assets located in French territory. Both cases of real estate taxation, for residents and non-residents, involve rates that increase according to the value of the property.
In addition, France has a cadastral tax, the amount of which is calculated as a percentage of the theoretical income that could be generated by the property.
Capital income
Capital gains, such as bank interest, dividends or investment earnings, are also taxable. France applies a flat tax of 30% to income and gains from savings and investments, consisting of income tax and social security contributions. It is also worth noting that taxation on cryptocurrency trading has decreased significantly, falling from 45% to 19% as of 2018, which has had a positive impact on the willingness to invest in these assets.
Corporate income tax in France
Corporate income tax in France is the taxation of the income of various business entities. Double taxation treaties play an important role for international business, allowing to eliminate the collection of taxes for the same income in different countries.
French CIT rates are based on a company's income level. For fiscal year 2022, they were:
- with a turnover of less than €10 million + up to €38,120 income - 15%
- all other situations - 25%.
What is tax residency in the context of income tax in France?
- Has a home or primary residence in France
- performs professional activities in France not on a secondary basis
- most of a person's source of income is in France.
