Expatriate tax - France

The employers of non-EU nationals are usually required to apply for a work permit prior to the employee taking up employment in France. It is, therefore, important that the expatriate’s employment contract and benefit package is structured tax efficiently before the contract is submitted to the Department of Trade and Employment in France. A posting of the workers declaration must also be sent to the work inspectorate.

Under the work permit procedure, the employer will be required to advertise the position in France and the EU before the Department of Trade and Employment will consider issuing a work permit to a non-EU national if a suitable candidate cannot be found.

A residence visa must also be obtained for the expatriate to live in France. Where the expatriate’s spouse and family relocate to France, relevant visas and a separate work permit (where the spouse will also work) will be required. Where the expatriate is an EU national the above procedure is usually not required.

The French tax year runs from 1 January to 31 December.

Individuals who are French residents for tax purposes must file their tax return before mid-May or the beginning of June for online filing when available.

Non-French residents for tax purposes must file before mid-May.

Payment of the French tax is based on a « Pay-as-you-earn » tax system. It is mandatory to report bank details for a SEPA bank account when filing the annual tax return. Income tax is withheld directly from payslips for wages.

However, monthly or quarterly (upon option) instalments are withheld directly from the taxpayer bank account for other income, such as rental income, and self-employed income.

The global taxable income is divided within the household in a number of equal parts (e.g. one part for a single person, two parts for a married couple, 0.5 part for each of the first two dependent children, one part from the third child). Then, the progressive tax scale is applied on the taxable income per part obtained. Lastly, the partial tax is multiplied by the number of parts, determining the payable gross tax.

Please note that progressive income rates apply subject to specific rates detailed below.

For employees, the relevant tax rate will be communicated by the tax authorities to employers on a monthly basis in order to withhold income tax on payslips.

The taxpayer may choose to keep his/her rate confidential. In this case, no communication of actual rate will be made by the tax authorities to the employer, and a neutral rate will be applied to the net taxable salary. Please note that the neutral rate is a rate computed based on the situation of a single taxpayer with only professional income.

Finally, a couple may choose to individualize their tax rate. It basically means that each taxpayer will be applied a rate proportional to his/her income rather that the rate of the household.

The above tax rate are the latest rates available. They apply to income received in year 2023.

Sample income tax calculation (for a single taxpayer)

A charge to French tax is dependent on whether the income arises in France. The extent of the charge will be determined by an individual’s tax residency status.

Taxation of individuals in France is determined by their residency or the source of their earnings. Persons are resident in France for French tax purposes if:

• they have their home or permanent place of abode in France
• they carry on a professional activity in France unless this activity is carried out incidentally
• they have the centre of their economic interests in France.

French residents are taxed on their worldwide income and gains. Non-residents are only taxed on their French source income and gains.

A French tax charge arises on employment income derived from duties performed in France. Assessable employment income includes all wages, salaries, overtime pay, bonuses, gratuities, perquisites, and benefits etc.

As mentioned above, where duties are performed in France, any remuneration received in respect of these duties is treated as French sourced income and, therefore, is subject to French income tax regardless of the expatriate’s tax residence status (subject to a relevant double taxation treaty).

In general, where the benefit is enjoyed in France, a French income tax charge will arise. Therefore, housing, meal allowances, provision of a car and relocation allowances will come within the charge to French income tax in addition to the individual’s salary.

A tax exemption on the allowances paid to employees seconded to France, workdays spent out of France and 50% of foreign source passive income has been implemented under specific conditions.

Where income has been subject to double taxation (in France and a foreign jurisdiction) relief can be granted where provided for in the relevant double taxation treaty.

France grants a wide range of tax deductions.

French resident taxpayers are entitled to deduct a 10% personal allowance on salaries and pensions for deemed expenses – capped to €14,171 in 2023. They may also be entitled to the following as allowances: child tax credit, education, sitter, alimony, employment of a household employee, gifts in favour of specific organisations and tax credit for the acquisition of certain real estate.

Some non-resident individuals may also be entitled to allowances to offset against French source taxable income.

Tax on capital gains on shares
Capital gains on shares are taxable at the flat 12.8% rate applicable to the investment income.

Alternatively, the taxpayer may opt for the application of the progressive tax rate for the taxation of capital gains. The former tax rebates are applicable only to shares acquired prior to 1 January 2018. These rebates apply at a 50% rate after the 2nd year of ownership, and 65% after the 8th year of ownership. An incentive regime entitles taxpayers to benefit from better rebates for length of ownership that can apply at a 50% rate after the 1st year, 65% after the 4th year and up to 85% after the 8th year, subject to conditions.

The option for the application of the progressive rate is “global” meaning that it applies to all investment income taxable in the same year.

Tax on capital gains on real estate
For calculating the taxable capital gain, a tax allowance per year of ownership is available after the fifth year of ownership, which grants a tax exemption from capital gains after 22 years of ownership and social contributions exemption after 30 years of ownership.

This tax rebate is computed differently for income tax and social taxes.

For income tax:

For social tax:

Some exemptions are available for main residence.

A flat tax rate of 19% applies for the capital gains realised on real estate by individuals, resident or non-resident. Some exemptions do exist.

A surtax varying between 2% and 6% of the net taxable gain applies if it exceeds €50,000.

A liability to French inheritance and gift tax depends not only on the French tax residency status of the deceased/donor and of the beneficiary, but also on the location of real estate and assets when the deceased/donor is not a resident in France. The rates vary depending on the degree of kinship between the deceased/donor and the beneficiary.

The expatriate’s French tax residency status will determine whether investment income such as interest, dividends etc., will become liable to French income tax.

Interests and dividends are liable to 'flat tax' (12.8% of income tax + 17.2 % of social taxes). Alternatively, the taxpayer may opt for the application of progressive rate for this investment. As mentioned above for capital gains, this option applies globally for every investment income and capital gains on shares.

There are local taxes (occupancy tax, property tax on built properties, or non-built properties) to which an individual is liable in France.

The occupancy tax is progressively cancelled and should not be payable on main residence as from 2023.

See 'capital gain tax' above for taxation of gain upon selling.

Real estate is also subject to annual property tax, usually paid in October - depending on the value of the property and a rate set by regional authorities.

Social security as of 1 January 2022

‘National insurance contributions’

Also:
• non-executive
• self employed
• unemployed.

Specific social levies
French residents are also subject to 17.2% social contributions on their investment income (eg rental income, capital gains, as well as on their fixed interests’ securities and dividends) including:

• 9.2 % contribution (called CSG)
• 0.5% contribution (called CRDS)
• 7.5% social levies (« prélèvement de solidarité »).

Part of the CSG (6.8%) is deductible from the taxable income the year after payment of the contribution.

Non-residents are also subject to social contributions at a 17.2% rate on their rental income and real estate capital gains. Non-residents affiliated to another statutory social security system in one of the EEA countries (UE and Island, Norway and Liechtenstein), in the United-Kingdom or in Switzerland only are subject to the 7.5% social levies (« prélèvement de solidarité »).

There are two different tax regimes depending on whether or not the stock options or free shares (RSU) plans qualify under French commercial law.

If the plan does not qualify, the exercise/vesting gain is taxed as standard salary in the exercise/vesting year.

Stock options/Free shares plans which qualify benefit from a favourable tax regime, whose conditions will vary depending on the grant date. One of the main differences for employees from a cash flow perspective is that under a qualified plan, taxation of the gain is deferred at sale.

Stock options

For stock options granted before 28 September 2012:

• exercise gain is taxed at a flat rate of 18%, 30% or 41% of the profit deriving from the exercise of option (difference between exercise price and market value at the date of exercise)

Stock options granted as from 28 September 2012 are taxed as salary and thus liable to progressive tax rate.

For options granted as from 16 October 2007, an employee special social security contribution applies.

Tax is levied at the time of the sale of shares except the employer special social security contribution.

Gain at sale is treated as standard capital gains on shares.

Free shares (RSU)

Free shares granted as of 28 September 2012 and before August 8th, 2015 are taxed as salary and thus subject to progressive tax rate.

Free shares granted as of 8 August 2015 and until 30 December 2016 are taxed as part of the taxable income at progressive income tax rates and liable to social taxes attributable to capital.

Free shares granted as of 31 December 2016 and until 31 December 2017 are taxed as follows:

• gain up to €300,000 is taxed at progressive rates after application of rebate for length of ownership
• gain above this ceiling is taxed as salary without benefiting from any tax rebates.

Free shares granted as from 1 January 2018 are taxed as follows:

• gain up to €300,000 is taxed at progressive rates after application of 50% tax rebate or a fixed tax rebate for company owner retiring.
• gain above this ceiling is taxed as salary without benefiting from any tax rebates.

Tax is levied at the time of the sale.

Gain at sale is treated as standard capital gains on shares.

A wealth tax based on real estate assets (Impôt sur la fortune immobilière) applies. French tax residents are taxable on their worldwide income (double taxation may be avoided through double tax treaties).

There are no other specific taxes relating to expatriates in France.