Income Tax in France

Tax Compliance
The return due date is 1 March but in recent years the tax administration has extended the date to mid-May (May 18 for the declaration of the 2015 income). Extended deadlines exist for internet filing.
The tax year ends on 31st December.

The income tax return is generally a family return with spouses and dependent children reporting their income jointly. Married couples are required to file jointly - exceptions are allowed only under very limited circumstances. Single, divorced, and widowed taxpayers are also required to file a family return including their dependents. In certain cases, major children can be claimed as dependents: if they are under 21 years of age, or are less than 25 years of age and are students.

France uses an income-splitting system to determine the applicable tax rate – therefore, the larger the family size, the lower the income tax.

Income taxes for residents are payable in the year after the income is earned. The tax liability is payable in either three installments or 12 monthly payments, at the taxpayer’s option. Unless the taxpayer opts for monthly payments, he/she must make payments on 15 February and 15 May, each equaling one-third of the amount of the previous year’s total income tax. The final payment is due on 15 September after the actual assessment is received. The taxpayer may opt before October to make 10 equal monthly payments by bank transfer, beginning in January of the following year, totaling the full amount of the previous year’s income tax liability, and any additional tax due is payable when assessed ( so the two last installments are paid taking into consideration the 10 monthly installments already paid).

The French tax authorities will automatically refund (without action required from tax payer) any excess payment if the 2 or 10 installments are higher than the final income tax assessed.

Income tax for the initial year of residence in France is usually not due until the 15 September of the year following arrival, since no February or May estimated payments are required.

The payment should be made on the French tax authorithy website through a SEPA bank account for the payment over Euros 2 000. If not a penalty of 0.2% will be applied on the amount due.

France Quick Tax Facts for Individuals

Income Tax Rate
Progressive to 45%
Additional contribution for high remuneration
3% / 4%
Capital gains tax rate (other than real estate)
Progressive to 45%
Capital gain tax rate (real state)
Worldwide income (if resident in France)
Tax Year
Calendar year
Return due date
18 May (Extensions when filed electronically)

Taxable Income and Rates

For personal income tax purposes, taxable income is aggregate of net income or profits in specified categories. These are income from employment, business income, professional income, investment income, real estate income and capital gain. Taxable compensation paid by an employer includes all benefits in kind, such as private use of company car and company provided housing.

Employment income includes wages and salaries (usually computed on a cash basis) and all allowances and benefits-in-kind normally are taxed at their fair market value.

Tax Rate for Residents

Taxable Income
Tax rate on income
From EUR
Above 152,260


For 2016 compensation, the income tax withholding rates for non-residents are 0, 12 and 20 percent, depending on the amount of net compensation, as outlined below. The tax may, in some cases, be final. When compensation reaches the 20 percent bracket, an annual individual non-resident income tax return is also required even though tax has been withheld at the source. When an annual non-resident return is required for either French-source compensation income or other French-source income, this income is subject to the same progressive tax rates outlined above or a flat rate of 20 percent, whichever of the two is higher.

Non-resident withholding rates for 2016 income

Monthly Taxable Income
Tax Rate on Income
From EUR
Above 41,952

The maximum marginal tax rate on the graduated rate scale applicable to 2015-2016 income is 45 percent, reached at EUR 152,260 of taxable income for a single taxpayer; this amount is doubled for married taxpayers and increases according to family size.

The computation of income tax is quite complex. The total net income of the taxpayer must be determined and divided by a coefficient corresponding to the marital status and number of dependents in order to arrive at the net taxable income per part. The income tax table is then applied to the result and the income tax thus computed is subsequently multiplied by the same coefficient to arrive at the gross tax burden.

If however the net taxable income exceeds a certain ceiling, the benefit from additional dependents is gradually reduced so that a high earning taxpayer does not receive the full benefit of the coefficient system.

The coefficient system takes into account the taxpayer's marital status and the number of dependent children.

Table of Coefficients

Single, divorced, or widowed persons with no dependents
Single or divorced persons with joint custody of 1 child
Single, divorced, or widowed persons with 1 dependent (the coefficient is 2 if the taxpayer does not live as if married with another adult)
Married persons with no dependents
Married or widowed persons with 1 dependent; single or divorced persons with 2 dependents
Married or widowed persons with 2 dependents
Single or divorced persons with 3 dependents           
Married or widowed persons with 3 dependents
Single or divorced persons with 4 dependents
Married or widowed persons with 4 dependents
Single or divorced persons with 5 dependents
Married or widowed persons with 5 dependents
(For each additional dependent, the coefficient is increased by 1)

Corporate Tax
France levies CIT at a standard rate of 33.33%.

The 2017 Act progressively reduces the CIT rate from 33.33% to 28% by 2020.

· For ‘small companies’ under EU law whose tax years begin on or after 1 January 2017, the standard CIT rate will be 28% on taxable income up to EUR 75,000 and 33.33% on taxable income exceeding EUR 75,000.
· For all companies whose tax years begin on or after 1 January 2018, the standard CIT rate will be 28% on taxable income up to EUR 500,000 and 33.33% on taxable income exceeding EUR 500,000.
· For companies with revenues less than or equal to EUR 1 billion whose tax years begin on or after 1 January 2019, the standard CIT rate will be 28%. For companies with revenues exceeding EUR 1 billion, the standard CIT rate will be 28% on taxable income up to EUR 500,000 and 33.33% on taxable income exceeding EUR 500,000. For companies in a tax consolidation, the applicable revenues will be the aggregate of the consolidated group members’ revenues.
· For all companies whose tax years begin on or after 1 January 2020, the standard CIT rate will be 28%.

A resident company is subject to CIT in France on its French-source income. In that respect, income attributable to foreign business activity (if there is no treaty in force between France and the relevant foreign country) or to a foreign permanent establishment (PE) (if a tax treaty applies) is excluded from French tax basis.

A non-resident company is subject to CIT in France on income attributable to French business activity or to a French PE, as well as on income from real estate located in France.

Social contribution tax
Concerning large-size companies, a social contribution tax amounting to 3.3% is assessed on the CIT amount from which a EUR 763,000 allowance is withdrawn.

In addition, the Finance Bill for 2016 implemented an additional contribution due by the companies that are liable to the social contribution tax and whose turnover of the preceding year is equal to or exceeds EUR 1 billion.

This additional contribution is levied at a rate of 0.04% and is assessed on the estimated turnover of the year.

An instalment that amounts to 90% of the additional contribution must be paid and declared at the latest by 15 December of each year.

The additional contribution balance is paid each year at the same time as the social contribution tax, meaning 15 May of the year following the one during which the tax is due. The additional contribution paid during a year is deducted from the amount of the social contribution tax for the following year.

3% additional contribution on dividend distributions
Dividend distributions (or deemed distributions for tax purposes) made as of 17 August 2012 by French companies are subject to a genuine 3% additional tax, which comes on top of underlying CIT. The 3% tax is not due (i) by French companies meeting the EU small and medium enterprise (SME) criteria, (ii) by foreign partners in a tax transparent French partnership, and (iii) by French branches of EU companies.

Tax credits are not creditable, with the possible exception of foreign tax credits eligible under a double tax treaty (DTT).

Distortion of taxation resulting from the form of establishment in France (branch vs. subsidiary) will generate new litigations based on EU principles. Foreign investors may revisit the most appropriate structure (branch vs. subsidiary) for investment in France.

In fact, in March 2015, the European Commission launched an infringement procedure against France regarding the 3% tax as non-compliant with EU Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries, articles 4 and 5. Under this procedure, the French government will have to submit its observations. This tax litigation is still in progress.

Moreover, the French Constitutional Court ruled on 30 September 2016 that the 3% distribution tax exemption available to members of a French tax consolidation group is unconstitutional because it creates an unjustified difference in treatment between entities that are member of a French tax consolidation group and entities that are not.

As a result of this ruling, the 3% distribution tax exemption has been enlarged to the following distributions made on or after 1 January 2017:

· distributions between companies that meet the conditions to be part of a French tax consolidation group, and
· distributions made to companies that cumulatively:
o   are subject to a tax that is equivalent to a corporate tax in the European Union or in a state that has concluded with France an administrative assistance agreement on tax matters covering tax evasion and avoidance, and
o   would satisfy the conditions to be part of a French tax consolidation group with the distributing company.
This being said, distributions to NCSTs are not eligible for an exemption unless the distributing company can demonstrate that the activities conducted by the company established in an NCST are real and that the company does not commit tax fraud or seek to locate profits in the NCST.

Patent box regime
Under certain conditions, income derived from the sale or license of patents or patentable inventions is taxed at a reduced CIT levied at the rate of 15%.

Capital gains
A reduced tax rate of 15% applies to certain capital gains. See Capital gains in the Income determination section for more information.

Local income taxes

No income tax is levied on income at the regional or local level.

1 comment:

  1. Honest question.
    How long did it take for you to gather tax info on these countries?

    Tax Advisor