France has been going through major changes in labor law since the election of President Emmanuel Macron in 2017. Swift and regular changes are quite common in the French system. This implies a need to constantly monitor updates in order to stay conform with current legislation and tax conditions.
Although the withholding tax (prélèvement à la source) was already initiated during François Hollande’s presidential term, the implementation of it has been postponed and will first be effective as per 1 January 2019.
In this post Internago lists the most important things that employers need to know.
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What is the withholding tax regime about?
The withholding tax is a method of tax collection, consisting of having the income tax withdrawn by the payer of the income rather than by the recipient of the income, at the time the income is paid to the recipient.The tax is thus withheld or deducted from the income due to the recipient.
There will be an obligation to withhold and remit taxes on a monthly basis as from 1 January 2019 to all companies employing French tax residents.
Employers must apply the specific employees’ tax rates as provided to them by the French Tax Authorities – DGFiP (Direction Générale des Finances Publiques).
Employers must collect the necessary monthly withholding tax on employee net salaries and declare the amounts on the payslips accordingly. A “net salary”(FR: salaire net) is in French terminology referred to as a gross salary minus employee social charges, which are normally around 22-23 %.
There will still be an obligation to submit a yearly income tax return in the year following the year in which the income was received. For example, the tax return for income received in calendar year 2018 would be declared in May-June 2019.
How does it work with payments and tax filing in practise?
Employers need to pay these income taxes monthly to the DGFiP via the DSN (Declaration Social Nominative) filing system, several days after the making salary payments.
The repayment dates are specified according to company size (number of employees). Depending on the number of employees there will be a time lag between the filing of the DSN and the actual payment of the taxes:
- Companies with more than 50 employees file the DSN on the 5th every month and pay taxes on the 8th every month;
- Companies with more than 50 employees file the DSN on the 15th every month and pay taxes on the 18th every month;
- Companies with less than 11 employees have the option to e pay the taxes on a quarterly basis.
What is the DSN?
The DSN (English: Nominative Social Declaration) is intended to communicate the information needed to manage the social charges protection of employees to organizations and administrations concerned. It replaces and centralizes a number of administrative formalities addressed by the employer to various actors (CPAM, URSSAF, Pôle d’emploi (employment center), DGFiP (tax center), special schemes, etc.).
The DSN is based on a single digital encrypted transmission, in a monthly flow, of data from the payroll and reports of events such as:
- declarations of social security contributions;
- certificates required for the payment of social security allowances (sickness, maternity, paternity, AT-MP);
- employer certificates for employment center in case of end of contract;
- monthly declarations and surveys of labor movements;
- monthly mission reports from temporary employment employers (RMM).
Which different tax rates exist?
There are three major tax rates – personalised, neutral and individualised.
- Personalised ‘‘Personnalisé”
- The average income tax rate that was applied for the individual taxpayer during the previous calendar tax year;
- Neutral ‘‘Neutre”
- In the absence of the known tax rate, a “neutral rate” may apply. An employee can also demand a neutral rate for integrity reasons. A neutral rate is based on a “single, no kids” household situation.
- Individualised – ‘‘Taux individualisé”
- In order to take into account the possible disparities of income within a couple, the spouses will be able, if they wish, to opt for an individualized rate of levy according to their respective incomes,
Why is it happening?
The introduction of withholding tax regime (“prélèvement à la source” or PAS) that is intended to eliminate the one-year time lag between the receipt of income by workers and the remittance of the tax on this income. Withholding tax will remove the one-year lag between revenue collection and taxation. For those who are experiencing changes in their financial and family situation, the tax will adjust faster.
It is implemented in most major developed countries, hence France is now being aligned to the global norm in regards to the tax collection process.
What will not change?
- This is not a reform changing the amounts of tax to be paid, but on how and by whom taxes are collected over time. This means that income taxes will remain progressive in France.
- The tax rates will always consider all the incomes accumulated by the household.
- Tax reductions or the granting of tax credits will be maintained.
- The employee bears the responsibility to declare revenues and act upon tax notification will be maintained.
What do I need to think about as employer?
- Inform your employees about the changes and about the fact that they are responsible of accuracy of their respective tax rates.
- Check that you have an impot.gouv.fr account open for your company
- Check that the bank account registered on impot.gouv is the same account that you have communicated for the payment of social charges.
The income tax collection system pre-2019
Before January 2019, French tax residents paid income tax on their wages via self-assessment. French income tax was payable after completon and submission a French tax return. The French tax bill was issued by the French tax authorities in the year following that during which the income is earned. Employers were not involved in this collection; they simply paid a net salary to their employees each month, who in turn were responsible for filing and paying their own income taxes.
So for example income tax for the year 2017 was filed and paid in 2018 i.e. the year after the income was received. The tax was then to be paid either in one payment, 3 payments or 10 monthly payments depending on agreements with the tax authorities.
However, from January 2019, this is no longer the case.
Who is liable to pay tax in France?
You’re liable to pay taxes in France if:
- France is your main place of residence or home – if your spouse and children live in France and you work abroad, you may still be considered a French tax resident.
- You are resident in France for more than 183 days in a calendar year – not necessarily consecutively.
- Your main occupation is in France.
- Your most substantial assets are in France.
Where can I get more information?
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