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Implementation of PAYE system in France from January 2019 

How is the French tax system changing?

Complex tax reform

The way French tax is calculated (joint tax return for households/numerous tax deductions and tax credits), and the specific French filing tax requirements which imposes a tax return to be filed the year after the income is received, will be maintained. This causes complexity, particularly for investments decisions in 2018 and in 2019 when the new system is implemented. Not all income will be subject to the new withholding tax system.

How PAYE will be collected at source

1) Collected by the paying agent through the PAYE system. PAYE on French source salaries, French source pensions and state benefits will be collected at source by whoever pays them. For salaries, it will be employers; for pensions, the pension administrators, and for unemployment benefits, the national unemployment agency. The collecting agent is solely responsible for collecting the correct amount of tax and taxpayers themselves cannot be held liable for any errors or omissions.

2) Collected by the French tax authorities through monthly direct debit from the taxpayer’s bank account. For all other types of income (including business profits and independent income, rental income, maintenance payments, purchased lifetime annuities and non-French source income concerned by the PAYE), the French tax authorities will collect the tax either monthly or quarterly by direct debit from a bank account provided by the taxpayer. The monthly debit will represent 1/12 of the 2017 income tax as calculated at the bottom of the last tax bill issued in August. The taxpayer will incur penalties if the tax authorities are unable to collect the tax, for example due to insufficient funds in the account.

Investment income not affected by the PAYE system

The favourable income tax rate of 7.5% granted to policies held for eight or more years is still applicable to policies which do not exceed €150,000 per person (€300,000 for a joint policy). For investments made before 27 September 2017, tax can still be paid under the “Prélèvement ForfaitaireLibératoire” system to benefit from the income tax rates of 7.5% and 15%. Policies held for more than eight years will continue to receive the €4,600 allowance (€9,200 for married couples / PACS partners).

1. The average income tax rate applied the previous calendar tax year (so year 2017 for 2019 income) and which is specified on their last tax bill issued in August/September.

2. Joint filers may also request separate rates depending upon their respective incomes.

3. In the absence of the known tax rate, a “neutral rate” may apply for employees.

Income tax return

2018 income will still have to be declared, but it will be neutralised by the CIMR tax credit – (“Crédit d’Impôt de Modernisation du Recouvrement” or “Tax Credit for the Modernisation of the Recovery”.) Exceptional income and excessive increases in current income will not be neutralised by the CIMR and will therefore be taxed. Exceptional income not neutralised by the CIMR (and therefore taxed for the year 2018) includes: severance pay of employees and compensation paid to corporate officers; pension benefits paid in the form of capital; sums withdrawn on a Salary Savings Plan, and in general, any other income which is not likely to be collected annually.

Article kindly provided by Blevins Franks with thanks also to Catherine Terry, Tax Lawyer, email@example.com, for providing information on this complex French PAYE tax reform.

Peter Elias at 11:03 Filed Under: customer care, financial advice, tax



