As a general rule, if you are resident in France you are subject to French income tax on your worldwide income.
However, in order to avoid the double taxation of income from abroad, there are tax treaties (conventions fiscales) in place between France and many other countries.
In the absence of a tax treaty, the income is taxable in France, without eliminating any possible double taxation.
According to the applicable tax treaty, income from abroad may be either:
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Taxable in France but subject to a tax credit or;
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Exempt from French income tax.
The table below shows the method of eliminating double taxation for salaried and business income provided for with different countries, either using the tax credit method, or where the income is exempt. Different rules can apply to pension and rental income, as well as investment income. You can find all of the tax treaties at Liste des conventions fiscales conclues par la France*.*
Income Taxable in France
Where the treaty provides that foreign income is taxable in France, the individual is entitled to a tax credit, which is either equal to the French tax, or equal to the tax actually paid abroad (limited to the amount of the corresponding French tax taxable income abroad) when it has already been taxed in the country from which they originate.
- Tax Credit = Amount of French Tax
Irrespective of the amount of tax actually paid in the foreign State, this method caps the tax credit at the amount of tax that would otherwise be payable in France if the income had been earned in France. Any excess paid in the country of origin is not tax deductible in France.
French tax is defined as income tax plus social charges (prélèvements sociaux).
This is the main method of taxation used in most treaties.
- Tax Credit = Amount of Foreign Tax
Where the tax credit is equal to the amount of foreign tax, once again French tax is understood to mean income tax plus social charges.
If the foreign tax is higher than the French tax calculated on the foreign-source income, it is not possible to offset this tax credit against the tax due in respect of the other income of the household. Similarly, if the tax credit is higher than the tax due, the excess is not refundable.
Exempt From French Income Tax
The treaty may otherwise provide for exclusive taxation of the income in the foreign State, with a complete exemption in France. Thus, rental income earned in a foreign country is almost exclusively taxable in the country of origin.
Nevertheless, where the income is exempt from French income tax the income from abroad is used to calculate the rate that applies to other taxable income in France. That is why this method is also known as the ‘effective rate mechanism’.
With some exceptions, this exemption avoids double taxation in particular to income from real estate, income from agricultural holdings, business profits and salaries, public pensions, private pensions and certain capital gains.
For other categories of income, these agreements provide for generally the granting of a tax credit equal to the foreign tax.
Non-Residents
Non-residents with French taxable income are covered by double taxation treaties, which generally means that a tax credit will apply on French earned income, such as rental income, which is normally only taxable in the country of origin.
Cross-Border Workers
There are specific provisions applicable to persons who have the status of ‘frontalier’, as defined in tax treaties or agreements concluded with Germany, Belgium, Spain, Italy and eight cantons of the Swiss confederation which provide that their wages are taxable in the country of residence.
Tax Declaration
The fact that the income may not be taxable in France grants no exemption from the requirement to make a tax declaration.
Likewise, the fact that an individual will have declared foreign income in the country from which it originates grants no exemption from declaring the income in France. That applies even though the income may not be repatriated to France.
The declaration of foreign income is by no means self-evident, due to the tax treatment of different types of income. Most income will be taxed according to the applicable rates and bands, whilst investment income may be taxed using a flat-rate tax. There will also be allowances applied to the income.
In addition, a minimum of three forms must be completed. Whilst the software programme links the varies forms and boxes, it does require you choose the correct starting point.
For most revenues, the income can be declared after deduction of expenses, but not for salaries and pensions, which must be declared before the 10% flat-rate allowance available in France
When the revenues have been received in the currency of a foreign country, they should be converted into euros according to the euro rate on the date of receipt. However, although much is often made of this issue in social media, an average rate for the year is rarely questioned by tax offices.
The method of collecting the tax is normally by advance payment on account, with a reconciliation made at the at the end of the tax year.
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