Taxes anywhere in the world could be a complicated and annoying matter. Even though there has been a simplification during last years, France remains as one of EU countries with higher rate and complex tax rules. Do not worry, we will explain in this blog our understanding and key points about income tax in France.
Let’s start!
Table of Contents
What is income tax (Impôts sur les revenus) in France?
In France, the Income tax is a progressive system. Which means that the more you earn, the higher the percentage of tax you will pay. It is sometimes deducted at source (Pay as you earn). Here some examples of taxable income:
- Salary as an employee,
- Pensions for retirees,
- Capital gains or dividends from investments (stocks, real estate, etc)
- Bank account interests
- Rents from real estate properties
- Business income
For all income individuals will be required to declare them on an annual tax return and pay the corresponding tax – if it has not been already withheld at the source.
The fiscal year is from January to December and the deadline for filing your tax return depends on whether you file online or on paper (usually around May or June each year).
Taxes due corresponds to the previous year income. It means the tax return declaration for 2023, corresponds for income generated during 2022, as an example.
In addition to income tax, there are also other taxes that individuals may need to pay in France, such as social security contributions, and local taxes on property (like ‘Taxe Foncière’).
Withholding income tax
Also known as “Prélèvement à la Source” (PAS), is the system through which income tax is collected directly from employees’ salaries or pensions by their employers or pension providers. This system was introduced to simplify the tax process and to align the payment of income tax with the timing of income receipt.
In few words, if your income comes from salaries, pensions, rentals (fonciere), interests then your tax will be withheld.
Tax withhold does not apply for income from stock (dividends, capital gains), crypto currencies gains, real estate capital gains.
Notice that your custom withholding tax rate will be calculated by the tax authorities every year (after tax return). This rate will be communicated to your employer and pension providers. Your bank and brokers will apply the ‘flat tax’ (30% during 2023) for stock related income.
Income tax vs VAT vs social contribution tax in France
There are different things. VAT stands for ‘Value Added Tax’ applicable to goods and services based on the cost of them.
Imagine an iphone would cost 1000€, then the VAT could be 20%. Which means a total cost for you of 1 200€. If you are not a french resident, you could claim this tax back at the airport when flying back home.
Social contribution tax (also known as ‘Prélèvement sociaux’, is a complement of income tax to fund pension system and to help low income families. Learn more about in our blog.
Who pays income tax in France?
In France, individuals who have an annual income above a certain threshold are required to pay income tax. This includes both French citizens and non-citizens who reside in France. Additionally, companies and other legal entities with business activities in France are subject to corporate income tax.
You will be entitled as ‘resident fiscale’ in France if your:
– home is in France (spending at least 183 days during the year or France is the country where you spend most of your time),
– professional activity is in France,
– main economic of financial interest is in France
All family members could be part of the same tax return file (foyer fiscal), depending if the couple is married or not.
Depending on conventions signed between France and other countries, there could be different rules. In case of doubt, you could get professional assistance or check the official government site for more details.
What is my taxable income?
The total taxable income will be the sum lump of all of your income, capital gains, dividends, minus the allowances and deductions (abattements, déductions). We will explain further the differences between deduction and reductions.
For example. Let’s say your salary is 100 000 € gross per year. Then you could deduct 10% (applicable for salaries) which will make 90 000€. Then say you donated 1 000€ to a charity organization, which under certain conditions, would entitle you up to 75% deduction (750€).
Finally, the total net taxable income will be 89 250 €.
It is possible to deduct other allowances like:
- Children care (from previous marriage) under 6 years old, limited to 3 500€ per children.
- School allowance per dependant children (ex: 183€ per children at university)
- Domestic worker (up to 50% of the salary but limited to 6k€)
- Donations ( 75% up to 1k€)
- Pensions to your parents (if you wire money home to your dependant parents)
You can read our blog Ideas to pay less taxes in France to understand more details.
Déduction vs Réduction vs Crédit d'impôt
There is a slight difference between each of them but with an important impact on outcome of your taxes.
‘déduction’ or ‘abattement’: means that you can deduct it from your income and therefore reduce your taxable income. Example the 10% for salaries
‘Réduction’ : means that you can subtract it from the income tax.
‘Crédit’ : same as ‘réduction’ but government could pay you back if the credit amount is higher than the income tax.
Deduction : Income – €
Reduction: Income tax – €
Credit = Income tax – € but surplus reimbursed if credit > Income tax
How to calculate my income tax?
In France, the tax system intends to be progressive based on your income level. The more you earn, the more % you pay. There are 2 key variables to understand:
1) The number of parts per fiscal family ‘quotient familial du foyer fiscal’
This is basically the ‘denominator’ of the equation. The more parts you have, the less you pay. The intent is to support large families – and to encourage having lots of babies 😉 Here the table:
| Number of children on charge | Married / pacs | Single / divorced & living alone | Single / divorced and living in pacs | Widower |
|---|---|---|---|---|
| 0 | 2 | 1 | 1 | 1 |
| 1 | 2,5 | 2 | 1,5 | 2,5 |
| 2 | 3 | 2,5 | 2 | 3 |
| 3 | 4 | 3,5 | 3 | 4 |
| Additional child | +1 | +1 | +1 | +1 |
2) The tax bracket or range (Tranche d’imposition – TMI). It represents the % of income tax corresponding to your accumulated revenue. Here the 2023 table:
| Range of taxable income | Tax % |
|---|---|
| <= 11 294€ | 0% |
| (11 295- 28 797) € | 11% |
| (28 798 – 82 341) € | 30% |
| (82 342 – 177 106) € | 41% |
| > 177 106 € | 45% |
Once you have your number of parts, and the tax bracket you would be able to calculate your income tax:
- Divide the total taxable income by the total number of parts
- Take this amount and check in the TMI table to check the max. tax range applicable to you.
- Calculate the total amount per each range up to the max level and multiple by number of parts.
Note: Data included in tables above are from September 2023 and not be up to date at the moment you are reading this blog. Please check the official government site.
Simple example of income tax calculation
Let’s say there is a married couple with 2 children with a taxable income of 45 000€. Then, the number of parts will be 3 (1 per each adult, 0,5 per each children).
Then, if we divide the taxable revenue (45k) by number of parts (3) then we get: 15 000€
if we refer to the 1st tax bracket, up to 10 776€ is 0€ taxes.
The remaining amount (4224€) will be taxed at 11% (2nd bracket), which means 464,64€ multiplied by the number of parts (3) then the total income tax amount will be 1 393,92€ for the family.
As there are multiple variables, depending on each individual situation, the best would be to use the ‘simplified’ government site to make this calculation. If you have multiple source of revenues or a complex personal situation, the best would be to ask to professional support.
Otherwise, we have explained here big lines that will help you calculating your income tax amount.
Closing thoughts
Declaring the tax return file could be as easy as 2 clicks effort, or a nightmare… depending on your personal and individual situation.
If you are an employee, single, no children, with no other source of revenue, then you will receive a pre-filled file from tax authorities which will automatically include most of your data. Then, it will be just matter of a digital signature … et voilà!
In the other hand, if you have business abroad, multiple investments, divorced with due children allowances, buying / selling crypto, etc etc… you would better request a professional support.
It could be cheaper to pay a professional rather than paying fines because you forgot to declare something or made a mistake. French tax authorities are constantly checking and you could be subject to an audit. So take it seriously.
Lastly, there are some opportunities around ‘defiscalisation’ or tax optimization but not all are worth it, due to complex conditions, high fees, low (or negative) return. Hence we prefer to focus on looking for high return investments opportunities instead.
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Bon chance!
Disclaimer
Please remember that we are neither financial nor tax advisors. We are just sharing our best understanding based in our own experience. This blog is for educational purposes only. Do not make investment decisions solely based on what you read in this blog. What works for us, may not for you. Do your own research and look for professional service if required. Read our full disclaimer in the ‘about’ page.
Woah! That’s a super simplified article on tax system here. Especially “Deduction” v/s “Reduction” v/s “Credit” 🙂
Can you also detail about what “Charges deductibles”, Is it part of “Deduction/ Abatement”?
I see this option “Checked” as default on my Tax report. However I am unsure what significance has it got on calculation of my annual income task