You are an employer and want to know about your obligations as a collecting third party.
You are a foreign company and want to know about your obligations in France.
You are an individual and want to know more about your withholding tax.
Taxation in France
A completely new payment system for income tax came into force on 1 January 2019. Tax is now deducted at the same time income is received by means of an advance payment system. Tax used to be deducted the year following receipt of income. The new system is called Pay-As-You-Earn (PAYE) withholding tax. The declarative tax system itself remains unchanged. Income must be declared in the year following its receipt.
What income is subject to withholding tax?
The following income is subject to withholding tax:
Earned income: consisting of salaries and related income, professional self-employed income (under various tax regime categories: BIC, BNC, BA) and replacement incomes (old-age pensions, unemployment benefits)
- Land income from property rental
How is withholding tax calculated?
- The calculation basis for withholding tax
Withholding tax is calculated on the basis of net earned income. For professional self-employed income, the advance payment is calculated on the basis of the previous reporting period or in certain cases on the basis of the last 3 reporting periods. Advance payments for land income are calculated on the basis of the entire land income of the previous year, reduced by previous taxable land deficits and excluding exceptional revenues.
- Tax rate
The tax authorities calculate the unique withholding tax rate applying to each household on the basis of the tax and income of the previous year.
It is possible to adjust the withholding tax rate in certain situations, in particular when married couples or those bound by a civil solidarity pact have wide variations in income (individualisation of the rate).
If it is not possible to establish a unique rate in accordance with the previous year, a default rate is applied.
It is also possible to update the withholding tax rate to reflect changes in the lives of the taxpayers such as changes in income or a change in family circumstances.
Who collects the withholding tax?
The withholding tax is collected and redirected to the tax authorities by third-party collectors (employers, pension funds etc.). For self-employed professionals, the withholding tax is paid directly from the taxpayer’s bank account without the assistance of any third-party intermediary.
How do you take into account the withholding tax paid in the income tax return?
As already mentioned, the introduction of the withholding tax system has not affected the rules regarding declaration of income. The taxpayer therefore has to submit a tax return every year in respect of income received the previous year. For example, income received in 2019 is to be declared in May/June 2020.
Once the annual income tax return has been submitted, the tax authorities calculate the final tax due in respect of the same year by allocating the withholding tax already collected from the taxpayer’s income. The issuing of the tax assessment notice is also an opportunity for the tax authorities to update the tax rate according to the declared income. If the taxpayer has paid too much, a refund is made. In the same way, if there is an outstanding balance to be paid to the tax authority, the taxpayer must settle this independently of the monthly tax deductions.
Does withholding tax apply to international situations?
The withholding tax also applies to international situations, in particular:
- If the employer is based outside France and pays a salary to an employee residing for tax purposes in France in return for work carried out in France;
- If the employer is based in France and pays a salary to an employee residing for tax purposes in France in return for work carried out on a one-off and temporary basis abroad (subject to international agreements);
- If the employer is based outside France and pays a salary to an employee residing in France in return for work carried out abroad.
Altexis offers you support in applying the withholding tax:
- If you are an employer, we can check that you are correctly applying the rules for withholding tax for your company.
- If you are a foreign employer, we can advise you on your obligations in France.
- If you are a taxpayer, we can help you file all your tax returns in France.