To pay or not to pay tax in France

I have been asked a lot recently whether Brexit will change the tax situation of foreigners buying property in France. Tax laws are, however, regulated by independent laws and treaties negotiated between individual countries rather than the EU. This includes the double taxation treaty which was put in place between France and the UK in 2009 to prevent people paying tax twice on the same income.

Most of the regulation around tax is based on legal residency but it is important to note that there is a difference between legal residence and tax residence. It is easy to end up being a tax resident in two countries which is when it becomes important to check that a double taxation treaty exists between your home country and France to ensure that you are not taxed for the same income in two countries.

The distinction between legal residency (the legal right to reside in France) and residency for tax purposes (which determines whether you are taxed on your worldwide income and gains in France or just that arising in France) is, however, not always straightforward.

The most often quoted rule as to whether you are tax resident in France is that you spend more than 183 days in the country (in the calendar year). If so, then you are considered to be resident for tax purposes and will be taxed in France on your worldwide income. Whereas if you spend fewer than 183 days in France, you might be considered as a legal resident but not tax resident and hence you would pay tax only on income generated in France.

However, it can be more complicated than this because, under French rules, there are other criteria that can mean you will be deemed resident in France for tax purposes. So it is perfectly possible that, even if you spend fewer than 183 days in the country, you are still considered a tax resident and will be required to pay tax in France while also being liable to pay tax in your home country (hence the tax treaties to ensure you pay some in each rather than pay double). The main criteria for determining tax residence are:

  • If your main residence is in France (in other words where you base yourself, where your spouse/close family lives; your foyer)
  • If your principle activity is in France (even if you work for a foreign company this still applies if you do your work regularly from France)
  • France is where you have your most valuable assets

If it is decided that you are tax resident in France, you are liable to pay French tax on your worldwide income, gains and wealth. However, the UK/France double tax treaty provides that generally if you are classified as resident in France but work in the UK then you pay UK tax on this income and this is not taxed directly in France. This does, however, need to be declared on your French tax form and added to any other income to determine your overall tax rate. You then receive a credit equal to the French tax and social charges that would have been due meaning you do not pay tax in France on your UK income although it does increase the rate of tax you pay on your other taxable income.

It is worth remembering that, although France is generally considered to be a high-tax country, in fact,  if you have children or a large family, it can be beneficial to pay tax in France because French income tax is calculated based on the household income, not on individual income so the tax is based on the number of individuals in the household.

The French tax year is the same as the calendar year and the tax return is called a déclaration de revenus. It can be filled in online and the deadline for submission is May. As in the UK, you may also be liable for capital gains tax on gains made from the disposal or sale of assets. If you do become tax resident in France, it might also pay to review your savings and investment structures because often what is tax efficient in the UK is usually not in France.

Tax residency and tax liability are extremely complicated and your situation is unlikely to be the same as your neighbour’s. In addition, please note that I am not a financial expert and the regulations change regularly so this is just a rough guide and I would always recommend taking financial advice as part of your planning when looking to buy property in France. I can point you in the direction of experts in all fields and can advise and help with your property search so please get in touch:

Comments are closed.