If you are going look at French taxes and spending in France, you have to start with a single astonishing fact: approximately 57% of GDP comes from France’s Public sector spending.
That means more than ½ of the spending in France’s economy is coming from the government (per the Office of the French Prime Minister). And from where does the French government get all that money to spend? From taxes, of course!
The French have a love of paperwork and bureaucracy that is all encompassing. To pay for all this public sector activity, France collects taxes. In order to understand all these taxes in France, we need a bit of background before we actually get to each tax.
France has the highest taxes in the world at around 46%, narrowly beating out Denmark and Belgium.
It should be noted that with those taxes, there are plenty of benefits in France. From free healthcare, maternity leave, to paid leave to get married(!), there is plenty for French people to appreciate.
However, it should be noted that the French have another peculiarity: rather than paying for new benefits out of the existing tax budget, they instead create a new tax.
Every time French politicians want to fund a new project, whether it be a subsidy for bio at the canteen or a new metro line from the airport, they create a new tax. This has led to the creation of hundreds of “micro-taxes” and what is known as the mille feuille fiscal (meaning 1000 layers of taxes).
As an example, France has 192 different taxes that collect less than 150€ million each, compared to Germany which has 3 such micro taxes. As the joke goes, it certainly helps keeps the accountants busy!
Another example is the number of towns in France, with the country having 40% of all the communes in Europe. There are over 35,000 towns in France, with some having as little as 20 people in them, but still have their own government and mayor. As a comparison, neighboring Germany which is similar in size and has a larger population, has only around 11,000 communes, while Italy and Spain have around 8000 communes.
And with that somebody has to pay for all these benefits and goverment mille feuille. So let’s get to the contribuable (taxpayer) who is paying all those French taxes, shall we? Allons-y!
- Federal Income tax for French Residents
- Social Charges
- Social taxes paid by the Employer
- Goods and Services Tax (Value Added tax or VAT)
- Taxes on Property
- Wealth taxes in France
- Inheritances taxes
- Taxes on Gifts
- Personal income tax rates for Non-Residents
- How to file your income tax return in France
- Self-Employed and Corporate Taxes in France
Federal Income tax for French Residents
i) Personal income taxes on Worldwide Income
Residents of France must include all worldwide income on their French personal tax return. The tax is called impôts sur le revenu.
Revenues include everything from salaries, self-employed income, rental income, dividends, interest, capital gains, etc. whether it is earned in France or overseas. In 2021, the basic income tax bracket rates on taxable income are as follows:
- Up to €10,084 revenues: 0% tax
- €10,085 – €25,710: 11%
- €25,711 – €73,516: 30%
- €73,517 – €158,222: 41%
- + €158,223: 45%
ii) Childcare Expenses
As is the case in many countries, the personal income tax bill in France is reduced by the size of your family. Tax credits are provided as apportioned by the number of children under 18 in the family. A family of 2 parents and 3 children will receive 4 parts:
- 1 part for each parent
- 1/2 part for 1st two children
- 1 part for each additional child
Historically, this has had the effect of encouraging French families to have more children.
Taxable income and income taxes are also reduced by various childcare expenses (frais de garde des jeunes enfants) and after-school programs that offer tax credits in France, for children under the age of 6 or handicapped. There are also small credits for older children, as well deductions for adult children that are being supported by their parents.
iii) Grandparent and Parent deductions
If you are supporting a parent or grandparent, you may also be able to claim certain tax deductions, depending on your own resources.
iv) Nanny and Cleaner Tax Credits
There are also tax deductions for having an emploi à domicile (meaning an employee at home) who does tasks like watching a child or cleaning homes.
v) Television license
An example of the mille feuille fiscal, there is a tax that is automatically added to the French income tax return, unless you specifically check a box to select that you do not have a television at home.
Known as the redevance télé, it is around €140/year and goes towards supporting French public television.
vi) Foreign bank accounts
All foreign bank accounts need to be declared in France. Once declared, the information usually rolls forward every year in your personal income tax return, so you don’t have to refill everything again.
vii) Paying income taxes
Since 2018, the income taxes in France has been deducted at source, compared to prior years when they were usually paid a year later. The personal income tax rates in France are progressive, meaning that they increase as you earn more.
Studies show that after tax credits and deductions, only 43% of French people actually pay income taxes. So where does the rest of the money for government spending come from? Read on!
One of the most misunderstood taxes of the French system doesn’t have the word “tax” in it at all. These are the charges sociales (social charges), which are a type of witholding tax.
Hovering at around 23-25% on salaries, and 12-18% on other types of income like interest, capital tax and dividends, this is a flat tax.
The social charges are used to pay for benefits like pensions, healthcare, unemployment and other big ticket items of France’s social safety net.
So while more than half of French people may not pay income taxes, in effect everyone pays social charges.
Social taxes paid by the Employer
If you thought the charges sociales paid by an individual were high, wait till you hear about the charges patronales. Paid by the employer, these patronal charges hover between 25% – 43% of the person’s gross salary, increasing in % as the salary increases.
As an example, if a person in France earns a gross salary of €100k, the following scenario unfolds:
+ €62k – employee net pay after income taxes and social charges.
+ €81k – collected by French tax authorities for social charges, patronal charges, and income taxes.
= €143k – the cost to the employer for gross salary and patronal charges.
¹ Figures from French Government URSSAF calculator in 2021.
While patronal charges may seem like a “tax” paid by the employer and not the individual, there is a reason many multi-national companies decide to minimize their footprint in France and hire elsewhere.
You will find that as a result, average salaries in France for similar jobs are comparably lower than in the US, UK, or Germany.
Goods and Services Tax (Value Added tax or VAT)
In addition to taxes on income, across Europe and in France there is a Taxe sur valeur ajoutée (TVA) or “Value Added tax (VAT)”. The current VAT rate is a flat tax of 20% in France which is already included in prices you see in retail shops and restaurants.
This is the standard rate, while certain essential items may be taxed at a lower rate of 5-10%.
Taxes on Property
i) Annual Property Taxes
Property owners will owe an annual taxe fonciere on their primary and secondary residences. The rates vary from commune to commune, and is based on the estimated rental value of the property you own.
In practical terms, most French people struggle to understand this calculation. In essence, if the annual rental value of your property is €12,000, the tax rate could vary anywhere from 10-50% of this value.
ii) Habitation Taxes
In addition, both property owners and renters are liable to pay taxe d’habitation. This calculation also varies widely based on the commune you live in, income, etc. This tax is currently being phased out for lower income earners, and is supposed to phase out completely over the next few years.
iii) French capital gains taxes
As in most countries, capital gains tax (impôt sur les plus values) is payable in France by residents on the sale of buildings, land, and other investment holdings held worldwide.
Capital gains tax on property is 19% including both income tax and social charges.
iv) Primary and Secondary Residence Exemption
Residents in France will find that sales of their primary residence in France is not subject to capital gains tax under a primary residence exemption.
In addition, if a secondary residence has been held for more than 30 years, or being sold to purchase a primary residence under certain circumstances, it can also be exonerated from capital gains tax.
v) Dividends, Interest, and Investment income
A single flat-rate tax of 30% can be applied on investment income such as interest and dividends, including both income tax and social charges. (Eg. €10000 x 30% = €3000 tax.)
Alternatively, the French taxpayer can choose to be taxed on dividend income at their applicable income tax rate after a 40% abatement is applied. (Eg. €10000 dividend income x 60% after abatement x 41% income tax rate = €2460 tax.)
Obviously the decision will depend on the total amount of the dividend and the applicable personal tax rate.
Wealth taxes in France
In 2018, France eliminated a general wealth tax on all financial assets, and replaced it with a new annual Impôt sur la Fortune Immobilière (IFI), which only applies to real estate properties.
French residents are subject to the IFI when the net taxable value of their real estate assets is greater than €1.3 million. A 30% reduction applies to principal residences.
The wealth tax rates that currently apply are the following:
- €800,000 to €1.3 million: 0.50%
- €1.3 million to €2.57 million: 0.70%
- €2.57 million to €5 million: 1%
- €5 million to €10 million: 1.25%
- €10 million+: 1.5%
As you can imagine, with high property prices and the cost of living in Paris, a relatively high proportion of Parisians could be subject to IFI.
A limit does apply however, with total wealth taxes capped at 75% of income, to account for cash-poor pensioners living in high-value homes.
Inheritance tax, otherwise known as droits de succession (rights of succession) in France are notorious for being quite high. All worldwide assets are subject to French inheritance tax, and the general rate varies between 55-60%.
There are however tax-free allowances for certain heirs:
- €100,000 for a child, father or mother
- €15,932 for a brother or sister
- €7,967 for a nephew or niece
After the personal allowance has been deducted, the following rates apply to direct descendants:
- Up to €8,072: 5%
- €8,072–€12,109: 10%
- €12,109–€15,932: 15%
- €15,932–€552,324: 20%
- €552,324–€902,838: 30%
- €902,838–€1,805,667: 40%
- €1,805,667+: 45%
For siblings of the deceased, rates of 35%-45% apply. Other inheritors are taxed at 55%-60%.
Taxes on Gifts
Because inheritance taxes are so high, many French families choose to transfer wealth using gift donations before they pass on.
In certain cases, it is possible to gift monies or assets to family members without paying taxes. Money can be given for events like weddings or Christmas, as long as it is reasonable. While “reasonable” is not defined, it is generally considered to be limited to 1%-2-5% of net worth of the donor.
In addition, each child can receive up to €31,865 from each of parent, grandparent and great-grandparent, every 15 years.
After the initial exemption, a further abatement is allowed every 15 years depending on the heir:
- €100,000 euros per child;
- €80,724 euros allowance for a donation to the spouse or PACS partner;
- €31,865 euros per grandchild;
- €5,310 euros per great-grandchild;
- €15,932 euros for each brother or sister;
- €7,967 euros for a nephew or a niece.
These amounts being transferred may need to be legally drawn up in front of a notaire (notary), and must be declared to French tax authorities. In addition, the donor must be under 80 years old.
Personal income tax rates for Non-Residents
In general, a person is considered a resident of France if they live in France at least 6 months of the year, have substantial property there, or even close family ties (spouse and kids) travelling back and forth. It can get complicated, so seek professional advice.
Non-residents generally pay tax on their French income at a minimum rate of 20% up to €27,510, and 30% for income above this threshold.
How to file your income tax return in France
In the 1st year after moving to France, a paper tax return must be filed, for which I highly recommend getting professional advice. After the 1st year however, French people usually fill out their tax returns online by themselves.
Information like salaries, interest, and dividends earned in France from other legal entities, are usually already pre-filled online. Expenses and tax credits do have to filled in manually however.
While it may seem intimidating, most people just look at last year’s return and do the same.
The deadlines for filing the French personal income tax return change every year and are dependent on what department in France you live in. In general, the period extends from the 3rd week of May to the 1st week of June. You can find more information on the government impôts website here.
Self-Employed and Corporate Taxes in France
If you wish to run your own business in France, you should know that the French corporate tax system (“Impôts sur les Societiés” or “IS“) is just as complex, if not more than personal income taxes.
There are a variety of statuses that businesses can operate under from sole trader to large corporations. The following statuses which are largely simplified below include:
- Auto entrepreneur – solo entrepreneur or freelancer taxed on revenues (not profits) with a flat-rate deduction on turnover included in personal tax return. There is an alternative régime réel, where actual expenses are deducted.
- Entreprise individuelle (EI) – solo entrepreneur taxed on profits.
- Entreprise unipersonelle à la responsibilité limitée (EURL) – limited liability corporation for solo shareholder.
- Société à responsabilité limitée (SARL) – limited liability corporation for multiple shareholders.
- Société par actions simplifié (SAS) – simplified limited liability corporation.
- Société anonyme (SA) – large limited liability corporation with more than 7 shareholders.
- Société civile immobilière (SCI) – Corporation created to manage real estate properties.
Each type of company has its own tax rules, deadlines, filing requirements, and other exigences so it is best to get competent professional advice in all cases.
And that’s how you get to that 57% of GDP in French government spending! I should note again that these are just the broad lines of the major taxes in France. There are many other miscellaneous taxes that even the French get confused by.
If you enjoyed that article, you may like to read more about the cost of living in France.
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