Overhaul of the tax system for non-resident French citizens

Reorganization of the tax system for non-resident French people, what's going on?

The French government has just published the latest finance law which abolishes the withholding tax on Non-resident French. Coupled with the increase in the minimum tax rate, this is detrimental to many taxpayers, particularly those with low incomes.

The taxation of non-resident French citizens is subject to specific tax rules. Salary, wages, pension and life annuity from French source. These revenues, received on French territory, give rise to the application of a withholding tax (RAS) by the paying entity (employer, pension fund, etc.). This withholding tax is paid directly to the Treasury. This withholding tax is, until the end of 2019, partially in full discharge of income tax.

In an effort to simplify and harmonize tax rules with resident French, the government has introduced provisions in the 2019 Finance Act that modify the taxation of non-residents.

Income received in 2019

Income received in 2019 is subject to a withholding tax, calculated according to a three-tiered scale

Fraction of the amounts subject to withholding tax	Rates
Less than $14,839	0%
Between 4 839€ and 43 047€.	12%
More than 43 047€.	20%

The rates of 0 % and 12 % are so far in full discharge of income tax, i.e. the fraction of income up to €43,047 is excluded from the calculation of income tax and not included in the tax return. In other words, only income above €43,047 is subject to income tax, and €43,047 is deducted from the total income to determine the taxable base.

Income Tax 2019

Only the fraction of income above the €43,047 threshold is subject to income tax, with application of the progressive scale up to 45 % and the family quotient. With a minimum rate of 20% or 30% as specified in the following table:

Fraction of net taxable income	Minimum IR rate
Less than $27,519	20%
More than 27 519€.	30%

After calculating your income tax, the tax authorities will deduct from the withholding tax that has not been paid in full (i.e. the 20 %).

The finance law for 2019 has introduced provisions to bring the taxation of non-resident French citizens closer to that of French residents.

Completely eliminating the final character of the withholding tax as of 2020 income and increasing the minimum tax rate from 20 % to 30 % in certain cases as of 2018 income.

Taxation of non-resident French, when is it for income received from January 1, 2020

Withholding tax as of January 1, 2020

For income received as of January 1, 2020, the amount of withholding tax will be determined by applying the default rate (called the neutral rate) applied to French tax residents.

Here are some examples to better understand.

• for an annual income of €25,000, the default rate will be 7.5 %
• for an annual income of 50.000 €, the default rate will be 16 %
• for an annual income of 75 000 €, the default rate will be 20 %
• for an annual income of 100.000 €, the default rate will be 24 %

This withholding will no longer be in full discharge of income tax. The total amount of income will therefore have to be taken into account for the calculation of the income tax and the withholding will be fully chargeable to the amount of this tax.

Income Tax 2020

Previously, the withholding tax paid partially relieved non-resident taxpayers from paying income tax. From now on, they will have to pay a tax calculated at a minimum rate of 20 % from the first euro.

Whereas previously the withholding tax paid partially relieved non-resident taxpayers from paying income tax (with a maximum withholding tax rate of 12% up to 43,047 euros), from now on they will have to pay a tax calculated at the minimum rate of 20 % up to 27.519 €. of net income and 30% beyond.

The abolition of the withholding tax for non-residents, coupled with the increase in the minimum tax rate, is detrimental to many taxpayers, especially those with modest resources (this is the case for many pensioners who receive modest pensions).

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Important to know

A non-resident taxpayer may not be taxed at the minimum rates of 20% and 30% if he or she demonstrates that the use of the progressive scale on all of his or her worldwide income would result in the application of a lower rate.

The reform aimed at bringing the taxation of non-resident French people closer to that of residents, applicable to income as of January 1, 2020, thus appears largely unfinished, with a certain number of households being clearly penalized.

The end-of-year finance bill, which we hope will finally allow non-resident taxpayers to benefit from tax credits and reductions on the same basis as residents, will therefore be carefully examined by parliamentarians.