Definition of residence for tax purposes
Except if provided otherwise by a tax treaty, an individual, whether French or foreign national, is resident in France for tax purposes if the person meets one of those four conditions :
- his permanent home is in France;
- he spends more than 183 days during a calendar year in France, or even less if he/she spends more time in France than in any other country;
- he conducts his/her professional activity in France;
- his economic interests are centred in France.
Tax treatment of French residents
French tax residents are taxed on their worldwide income.
Tax treatment of non resident of France
People non-resident in France are taxed in France on their income from a source in France only (subject however to the terms of tax treaty if one has been signed with the country of residence). Specific rules apply to taxation of non-residents (20 % minimum tax rate, social contribution exemption, tax exemption some interest incomes, withholding taxes on some categories of income etc.)
Information below is applicable to French tax residents
Taxable income and deductions
There are different categories of income, each with different computation and taxation rules :
- wages, salaries, pensions and annuities,
- real property income,
- income from transferable securities,
- business profits,
- professional profits,
- agricultural profits,
- capital gains.
Wages and salaries, pensions and annuities
This category includes wages and salaries, received in consideration of an employment contract, as well as pensions, retirement benefits and annuities.
The net amount of the taxable income in that category is determined by deducting in particular from the gross amount paid the mandatory social contributions and the expenses inherent to duty or employment when the employee is working.
Barring exceptions, gross earned income includes all sums and benefits in kind available to the taxpayer. Expenses incurred to acquire the earned income are normally taken into account notionally (a 10 % deduction capped to a certain amount raised each year). However, taxpayers may opt for the deduction of their actual professional expenses.
Pensions and annuities without consideration are eligible to a special 10 % relief capped to a certain amount
Wages and salaries, pensions and annuities are subject to the progressive tax scale.
Real property income
Taxable real property income is equal to the difference between the amount of receipts and the total expenses relating to the property.
Taxpayers with low real property income = € 15.000 per year enjoy a simplified taxation regime ("micro foncier") The taxable real property income is determined after deducting a 30 % relief representing expenses.
Taxable real property income is subject to the progressive tax scale (+ social contributions).
Taxpayers may opt either for a 30,1 % withholding tax, or for a taxation at the progressive tax scale (+ social contributions). In the latter case, the costs and expenses pertaining to income from transferable securities are deductible at their actual amount insofar as they are incurred to acquire or maintain the taxable income
Dividends benefit from a 40 % relief. The costs and expenses pertaining to income from transferable securities are deductible at their actual amount insofar as they are incurred to acquire or maintain the taxable income. An additional deduction of € 1,525 for a single or of € 3,050 for a couple is then applied.
Taxable dividends are subject to the progressive tax scale (+ social contributions).
Furthermore, a tax credit is granted, equal to 50 % of the amount of the received distribution, capped to € 115 for a single or € 230 for a couple.
Taxpayers may also opt for a 30,1 % withholding tax. In this case, the withholding tax is applied to the gross dividend, without any deduction or tax credit.
Capital gains from transferable securities
Capital gains derived from the sale of stock or securities are taxed at a flat 30,1 % tax rate if the amount of sales during a year exceeds € 25,730.
Capital gains from real property
Capital gains derived from the transfer of real property, rights related to real property or similar rights by individuals managing their private assets are subjected to individual income tax at a proportional rate.
The proportional tax rate amounts to 28,1 %.
The assessment basis is equal to the difference between the price of transfer and the acquisition price (or, in case of acquisition for free, the value of the property at that date).
The gross capital gain qualify for a tax relief of 10% for every year the property is held after the fifth year, which means that they are tax exempt when sold after having been held for at least 15 years.
Certain capital gains are expressly exempt, such as those derived (under certain conditions) from the sale of the taxpayer's main home ("résidence principale").
Deductions from overall income
For economic or social reasons, certain personal expenses of the tax household are treated for tax purposes either as expenses which may be deducted from overall income (or as tax reductions).
Among expenses taken into account, alimonies may be deducted from overall income if certain conditions are met. Other expenses, exhaustively listed, may be deducted up to an amount most often capped.
Tax is assessed at the level of the "tax household", i.e. the family entity consisting of a single person, two partners having concluded a solidarity civil pact or spouses - regardless of their marriage settlement - and their children or other dependants.
The assessment basis is generally the total income of the different members of a tax household.
A progressive tax scale is applied to the taxable income (except where a flat rate is applicable) after used the income splitting system (quotient familial) which consists in dividing the taxable income of the tax household in a number of equal parts (e.g. one part for a single person, two part for a married couple). Next, the progressive tax scale is applied to the taxable income per part (split income) thus obtained.
Lastly, this partial tax is multiplied by the number of parts for determining the payable gross tax (the tax benefit obtained by application of the income splitting system is capped).
After determining gross tax, any tax reductions and tax credits for which the taxpayer may be eligible are granted, where appropriate.
Certain personal expenses paid by the taxpayer whom the lawmaker wishes to support, particularly for social or economic reasons open right to a tax reduction or a tax credit.
Deductible tax credits correspond for example to expenses for investment work in the main home, costs of young child-minding etc.
Individuals are liable to French wealth tax in two cases:
- French tax residents are taxed upon the value of their net worldwide assets exceeding € 790,000;
- Non-French tax residents are taxed if the net value of their French assets (excluding financial investments in France) exceeds € 790,000. Exemptions are applied if provided by a tax treaty between France and the country of residence.
In any case, the sliding scale varies from 0.55 % to 1.80 % of the net taxable amount.
Taxe d'habitation :
This tax is assessed on the occupant (regardless the occupant is the owner or not) of all types of accommodation. This tax is assessed on the basis of the rental value of the building. This rental value corresponds to a theoretical annual rent that the owner could derive from the property if it was rented.
Real Property tax (taxe foncière)
This tax is paid by the owner before the end of the each year. This tax is assessed on the basis of the rental value of the building. This rental value corresponds to a theoretical annual rent that the owner could derive from the property if it was rented.
mercredi 9 décembre 2009
Personal Income Tax in France