When you’re an expat living in France or an entrepreneur with a French business or real estate, the subject of tax can bring all sorts of headaches. Making sure you are paying the correct amount, not only in your country of residence or business but also in your home country, is an important part of your financial planning.
Expats living in France or business people who own a French company or earn money from French sources, have to declare their income to the tax department in France. Being a tax resident in France means you either permanently reside in France or you have a minimum presence of 183 days in the country. If your tax domicile is in France, you are liable for French taxes on all of your income and you will have to file an income tax return with the tax office.
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If you’re a foreign entrepreneur with a French company who lives outside France, you will need to check your payment obligations in your country of residence. In some cases, depending on certain tax treaties, income from French sources or interest earned in France must be declared both in France and in your country of residence. (This is particularly true for US citizens as America requires you to pay tax if you are a US citizen, no matter where you live in the world.)
According to the French government website, you need to determine first whether your home country has an international tax treaty with France. If it does, then that treaty will take precedence. But unless your country’s international tax treaties state otherwise, you are considered to be a French tax resident for any of the following reasons:
- you live in France most of the time;
- anyone in your household - your partner or children – live in France;
- your main employment is in France;
- your main economic interests and investments or the location of your main business is in France.
If you are married or in a civil partnership, and one of you lives abroad and the other in France, then you are considered a couple with mixed residency status. You will be subject to different tax treatment depending on your circumstances but will still have let the tax authorities know of your situation.
For foreign entrepreneurs in a mixed residency status who are non-resident, income from any businesses abroad is excluded from the tax rate rule. For more information for businesses on how to navigate the value added tax system in France, take a look at our related article: How do I pay VAT/TVA tax in France? and for entrepreneurs who want to take advantage of the new exemptions in France, click on our article Expat tax exemptions attract entrepreneurs to France.
Paying Tax in France for US Citizens
Taxation in the US is based on citizenship, so even if you are living in France, if you have an American passport, then you will always have to pay tax to the IRS as well as filing an income tax return in France.
To file, you can submit a paper return or automatically online. An automatic return does have some benefits as once it’s completed much of the information can be used the following year, with any changes updated such as marital status, adoptions, births, deaths, family situation, salaries and allowances.
Wealth Tax on French Real Estate
The Impȏt sur la Fortune Immobilière (IFI) is a wealth tax on French real estate assets for individuals whose assets exceed a limit of 1,300,000€.
The tax is calculated on the net value of the taxable assets so the tax payer must make an estimated declaration of his assets including buildings, apartments, land, and real estate owned through company shares.
Be aware that French tax residents are liable to the IFI on the basis of ALL real estate in any part of the world, and but non-residents who have property in France are liable to the IFI on just the French property.
There is a total exemption for assets used for professional activities or offices and there are certain assets that have deductions such as:
- 30 percent deduction if the asset is the principal residence
- 75 percent exemption for woods, forests and shares of forestry groups
- 75 percent exemption for long-term leased rural property and shares of agricultural land groups that cannot be qualified as professional assets up to a value of €101,987
If the property is owned jointly by people who live together but are not married, they are still liable to the IFI on all the couple’s assets, whether they are common or not. However, property jointly owned by spouses in the midst of separation or divorce, are only taxed on their half. Property that has been inherited or gifted to children is also taxed, and must be declared by one of the parents who has statutory administration of their property, while property belonging directly to adult children is not part of the taxable estate of their parents.
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When the net value of taxable assets exceeds 1.3 million euros, the wealth tax (ISI) is calculated using a progressive schedule, which is the same as for the old solidarity wealth tax (ISF) which was abandoned in 2018. It is made up of six tax brackets with rates ranging from 0 to 1.5 percent.
As soon as the limit of 1.3 million€ has been exceeded, the calculation of the tax begins at 800,000€. For example, for real estate assets valued at 1.3 million euros, the IFI is also calculated on the brackets between 800,000 and 1.3 million euros, i.e. 500,000 euros at the rate of 0,5 percent.
The IFI must be declared at the same time as the income tax. On the other hand, if you do not have taxable income for income tax, you must complete the 2042-IFI-COV declaration.
International tax planning is complex and the stakes are frequently high which is why successful tax planning and good tax advice is needed from experts, otherwise the tax office could ask for an audit. (Take a look at our article Audits in France - What to Expect.)
You can contact the French government website or for more information on tax matters and business in France, you can download our free brochure below, contact our experts on 0033 (0)1 53 57 49 10 or email us from our contact page and we’ll be happy to help.
