END OF SOCIAL SECURITY CONTRIBUTIONS FOR NON-RESIDENTS

The Conseil d'Etat has just confirmed once again the exemption of non-residents from social security contributions, thus putting an end to a tax and social security dispute.

Do non-tax residents have to pay social security contributions in France on their wealth and investment income? This is the question that has been at the heart of debate since their liability was introduced by the 2012 Finance Act.

Social security contributions are used to fund the French social security system. In fact, a nonresident enrolled in a mandatory social security program Since they live outside France and are therefore not covered by the French social security system, they logically should not be required to contribute by paying social security taxes in France.

The central issue in this debate—as in many European legal matters—is how to classify these deductions: Are social security deductions a tax or a social security contribution?

This seemingly insignificant classification represents a financial stake worth several billion euros for the French Treasury.

So, what are the rules?

From the very beginning, France has considered that the CSG/CRDS is a tax, not a social security contribution, it subjects the investment income of non-residents regardless of their country of social security affiliation.

• For French tax residents, social security contributions are due on all income from assets and their investment returns.

• For non-residents, social security contributions are due only on their income from French-sourced assets.

This rule, which has been in effect since the 2012 Finance Act, quickly led to a legal dispute initiated by non-residents who, on the contrary, considered that social levies were social security contributions and that EU directives and regulations providing for single enrollment in an EU country precluded their payment in France.

This contradiction has given rise to a wealth of case law not only in domestic law but also at the EU level, which has confirmed that social security contributions are, in nature, social contributions.

The Court of Justice of the European Union did in fact uphold this classification as a social security contribution, even though the Council of State and the Constitutional Council had ruled otherwise. This demonstrates the European Court’s complete independence, even with regard to the constitutional case law of Member States.

Spend your retirement in the sun—as long as you stay within the European Union

The consequences of these court rulings and this new state of domestic law naturally give an advantage to EU countries and the legal protection that results from them.

Retirees living in EU countries—where local tax systems are so favorable that one might question their compatibility with EU law—will therefore be able, under certain conditions, to avoid paying social security taxes on their investment income. From a French source. Bingo, then.

On the other hand, it is better to choose Portugal rather than Morocco, since Morocco is outside the EU and does not allow you to benefit from the exemption.