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Taxes in France

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Taxes in France
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France is a country with a high level of well-being of the population. The social support system is one of the most humane in the European Union. The country is interested in the economic condition of its citizens. A progressive taxation system acts as a guarantor of such social stability and financial security.

Who should pay taxes

In most cases, taxes in France should be paid by those who are tax residents of this country. In particular cases, non-residents also pay taxes if they own property in France or get any kind of income from French citizens. A person becomes a resident when he is in France for more than 183 days a year. The tax residence of another country is not retained. For the French tax service, obtaining residency means that the centre of an individual’s economic interests is this host country.

So, if you become a resident of France and own property here, you will be required to pay property taxes. Income tax will also be required for payment for all income in and outside France. In addition, you will need to pay social contributions.

If you are a resident of France, but you do not own property, you will need to declare and pay income tax from all sources of income inside and outside the country. Social contributions will also be required to pay.

If you are a non-resident, but have property in France, you will need to pay taxes related to property, as well as income tax on income earned in France.

If you have no residency and property in France, you need to pay tax only if you have received income, with the appropriate permission to receive income in the country.

What is important to know about taxation in France

Income splitting

One of the most important distinguishing features of French taxation is that, unlike most countries, taxes are calculated not from an individual, but from a social structure called an «income splitting» (foyer fiscal). A household is a group of people united by cohabitation and family ties. The principle of income splitting taxation is that each taxpayer is taxed on all the profits of his family: for all the income of the same income splitting, one declaration must be filed. Unlike in many countries, spouses cannot choose the option of filing separate income declarations. Apart from France, such a system exists only on the territory of Belgium and Switzerland bordering France.

Progressive rate

The French taxation system has a social (redistributive) type. This means that the system supports low-income segments of the population financially, provides well-being for students, young professionals and people without income, but at the same time uses restrictions to limit the profit of people beyond the middle class.

One of the main regulators is the income tax in France, calculated at a progressive rate. According to the law, income less than 10 thousand euros per year is not taxed, in the range from this amount to 26 thousand euros the tax is 11%, from 26 thousand euros to 74 thousand euros the income will be taxed already 30%, over 74 thousand euros the tax is 41%, the maximum tax for income from 160 thousand euros is 45%. When calculating the amount of tax, it is necessary to take into account all income received in France and abroad by all persons in the same income splitting: spouses and children. The calculation of the income splitting tax is carried out in this way: the total income of all family members is summed up, the amount is divided by the number of income splitting members (the child is considered as 0.5), the percentage of each of the resulting equal shares is calculated at a progressive rate, the totals are summed up to receive the amount to be paid. For non-residents, the income tax in France is 20% in the range of up to 26 thousand euros and 30% if the profit is higher.

Social contributions

If you have the residency, it is mandatory to pay social contributions, from which a pension fund and medical insurance are formed. At the same time, the system allows you to use medical and other insurance and benefits that compensate for costs.

The French tax system is very dynamic. The income from state taxes annually accounts for up to 90% of the country’s budget, and every year there are numerous changes in rates up or down, depending on strategies of supporting the economic balance. Thus, the country guarantees a reduction in the influence of economic factors in times of crisis and instability.

Property taxes in France

Investing in property in France is a reliable way to save and increase finances, as well as one of the options for obtaining a residence permit after purchase. For high-quality management of the investment balance, it is necessary to understand what taxes follow the purchasing of property in this country.

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Notary fees

If you decide to purchase property in France, then a notary will deal with all the documentation, registration in state registers, communication with the city administration and banks. The entire amount from the account is transferred to him at the time of registration and conclusion of contracts. Then he transfers it to the seller after the deal is completed. Notary fees amount to 2.5% of the property value for primary housing and 7.5% in case of purchase of secondary housing. This amount also includes all other administrative expenses. Legislatively, this action is considered as an increase in fixed capital.

Property ownership tax

After purchasing a property, you will need to pay property tax (taxe foncière) annually, whether you live in France or not. The rate of this tax is dynamic and is determined by local authorities. The basis of taxation is the cadastral value of property. The factors on which the tax rate depends are the area of property and the region where it is located. In general, the more developed the city district and the more enterprises are located in it, the lower the property tax rate.

City

Taxe foncière, %

Taux de la métropole, %

Paris

20,5

4,4

Marseille

44,54

2,59

Lyon

31,89

0,55

Toulouse

35,35

13,2

Nice

29,62

6,4

Cannes

51,09

0,96

Boulogne-Billancourt

15,09

4,4

Strasbourg

37,44

4,6

Montpellier

52,63

0,167

Bordeaux

48,48

4,53

Lille

48,35

5,5

Grenoble

65,79

1,29

Source: toutsurmesfinances.com

Residence tax

The residence tax is paid directly by the person who lives in the purchased property. If the property is bought for rent, then the tenant pays for it. The rate is also determined by the local authorities and depends on the welfare of a city. The innovation of 2023 was the abolition of this tax for all income splitting whose property is considered the main place of residence.

Luxury Tax

If the value of the purchased property exceeds the established limit of 1.3 million euros, French legislation provides deduction of luxury tax (impôt de solidarité sur la fortune) at a progressive rate of up to 1.5% of the cost of property. Apartments, private houses, garage and utility blocks, as well as land without buildings are considered as property for this tax. When calculating the luxury tax, it matters whether you have a residence in France or not. Persons whose centre of economic interests is located outside France and who is a tax resident of another country must pay luxury tax only for their property located in France, the amount of which exceeds the specified limit. If you have just obtained French residency and were a resident of another country in the previous 5 years, then you will have to pay tax only for property in France before the expiration of the five-year period. After the end of five years of residence in France, you will need to pay luxury tax in the same way as citizens of this country: for all property around the world. There is a legal way to avoid paying luxury tax in France by having a residence in the country — to register your property with a legal entity, a family company SCI, where family members will have shares, each not exceeding the 1.3 million euro limit.

Rental income tax

When planning to make a profit from property in France, it is necessary to know about the dividing into categories of premises intended for rent (Impôt sur le revenu). The main parameter of that dividing is the presence or absence of furniture from a special list in the apartment for rent. Among the main items on this list are bed linen, kitchen utensils and cutlery, a lighting system.

In case of complete or partial absence of items from the list, an apartment fits the category of «unfurnished» and income from renting it out will be subject to simple income tax at a progressive rate. At the same time, there is a difference in the declaration process and the right to tax deductions, depending on whether the annual income from the delivery exceeds the amount of 15 thousand euros.

Taxable asset value, €

Rate, %

Up to 10,064

0

10,064–25,659

11

25,659–73,369

30

73,369 —157,806

41

157,806

45

Source: 3tacotax.fr

If the apartment has the entire list of items that characterise it as «furnished», then the income from such a rent is subject to commercial profit tax (BIC). Renting an apartment can be classified as professional and non-professional. Two main differences of categories: it is considered that you rent an apartment for non-professional rent if:

  1. The annual income from this apartment rent of all members of your income splitting is less than 23 thousand euros.
  2. The income from renting a furnished apartment is less than the total amount of other income of your income splitting.

In all other cases, the rent will be considered professional. The amount of tax is considered a coefficient at a progressive rate depending on the amount of total income.

Vacant property tax

In some regions of France, the government promotes economic development by introducing a tax on vacant property (la taxe sur les logements vacants) for unfurnished apartments that have been empty for more than a year. In such cases, the owner will have to pay 12.5% tax after one year of downtime of the property and 25% each subsequent year.

Sales tax

The difference between the amount of property when buying and selling is considered an increase in finances and is taxed under French law (Plus-value immobilière). Sales tax consists of two parts: income tax on the amount of profit and social contributions. The amount of the rate depends on whether you are a resident of France at the time of the sale. If your place of residence is France, the rate will be 19% of the profit for income tax and 17.2% for social contributions. For non-residents, the income tax rate in France is 30%, and the percentage of social contributions is determined by an international tax treaty.

There are many tax benefits and exceptions to reduce income tax. Thus, for residents of France, sales tax is not required to be paid if the property was the main place of residence (the sum of the days of stay in the country in a year exceeded the number of days of stay in other places). In other cases an apartment is considered a secondary place of residence and the tax must be paid.

After 5 years of ownership of property, income tax rates on profits and social contributions will decrease. So, after 22 years of ownership, the profit will no longer be subject to income tax, and after 30 years of ownership, there will be no need to pay a social contribution.

Inheritance tax

When transferring ownership rights to heirs, it is necessary to know the rules of inheritance taxation in France. The tax (l’impôt sur les successions) is required to be paid by resident-heirs who have lived in the country for more than 6 years. The tax must be paid even if the inherited property is located outside France. If the inheritance is received by a non-resident, then only property within the country is taxed. The tax rate is progressive and depends on family connections. The primary right of inheritance belongs to the spouse, who is exempt from paying tax. Next, the priority of inheritance goes to children, for whom the tax rate varies from 5% to 45% of the cost of property. If the person is not a relative, the rate increases to 60% of the cost.

To reduce inheritance taxation and simplify the procedure, it is possible to arrange the purchase of property in France for a legal entity SCI — a family company. The legislation assumes that heirs receive large tax benefits every 15 years.

How to declare tax in France

In the first few months, when obtaining French residency or buying property, you need to contact the local tax authorities yourself and take a form for registration. When filling out, it must be indicated that the tax declaration is submitted for the first time. After that you must personally bring it to the tax service. After registration in subsequent years, personal presence is not required, you can make declarations online in your personal account. For the first time, the payment must be made in full, in the future, the payment is possible in three stages. When declaring income, it is important to enter information about all sources of profit in France and outside, including salary, rental income, interest on securities. The declaration should be submitted even if you did not have a profit for this year.

Fines

The delay or incorrect data in the declaration entails the imposition of fines, and in some cases even more severe consequences. Thus, unintentional non-compliance with the filing deadlines will lead to an increase in the amount of payments by 0.75%. Over the year, the rate will increase to 9% plus the main tax. If intentional concealment of income is detected, the amount of the fine will increase to 40-80%. Regular concealment, according to the law, leads to criminal liability, seizure of property and a fine of up to 250 thousand euros.

Tranio’s legal team is ready to find the optimal solution for any sort of non-standard situation.

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