UK residents who have income generated in France, have to complete an annual French income tax return, as do French tax residents. In addition, they may have to complete a healthcare return, if they are not covered under either the UK or French social security systems, and also a wealth tax return if their net assets (French assets only for non-residents, worldwide assets for residents) exceed the wealth tax exemption limit (currently €760,000 [£515,394] in 2007).
French source income for non-residents covers rental income on a French property, regardless of where you receive the income. Gains must be reported at the same time as income (although a separate tax return form is required).
It is important to provide documentary evidence of income, particularly if you are running a business, and French law is very specific about the way accounts and bookkeeping need to be prepared.
The French tax year runs from 1 January to 31 December. Normally, income tax returns have to be submitted for the previous tax year by the following 30 April for French non-residents and for French resident self-employed individuals, owner managed businesses (OMBs), individuals assessed under the ‘régime réel simplifié’ and company directors taxed under ‘taxes sur les revenus’.
For salaried French residents, pensioners with no business income and some company directors, the deadline is 30 March. Usually, the tax forms are issued during late February or early March but in 2007, the main tax return for 2006 income was redesigned and was not issued until 4 May. Failure to submit a tax return on time incurs a flat 10 per cent penalty, plus a penalty for each month or part of a month that the return is late (currently 0.4 per cent per month), so it is important to check the deadlines each year.
Income tax is payable in arrears and, as tax is not deducted at source from earned income in France (ie UK pensions, employment income etc.), it is prudent to set aside the funds to pay your tax bill. There is no PAYE system in France for those who are employed and tax is not deducted at source from most forms of income as it is in the UK. Tax due can be paid either in ten monthly instalments from January to October, or in three equal instalments on 15 February, 15 May and 15 September.
Wealth tax returns are due by 15 June for the previous 1 January and payment is also due by this date. There is no provision to pay wealth tax liabilities in instalments.
When submitting a capital gains tax declaration, non-residents of France must employ a fiscal representative accredited by the French tax authority if you dispose of any French assets; including if your French SCI (société civile immobilière) disposes of a property. Capital gains tax is usually calculated by the notaire and deducted from the purchase price and paid over to the tax authorities by the vendor/notaire.
If you are liable to pay French tax, it is your responsibility to obtain and complete a tax return each year; you should not wait to be given one by the tax authorities, although normally once on the list you will automatically be sent a form.
Apart from various allowances for the taxes due, deductions can be made; for example, for home help such as for domestic work, childcare or gardening. There are tax credits for installations in the main home such as low temperature boilers, condensation boilers and equipment for regular heating. There are also tax credits available for equipment to help the elderly and disabled and for the purchase of an environment friendly car.
The main income tax return is Form 2042. If you are in the French tax system, the forms will be pre-completed with details of French earnings, pensions and benefits as well as your name and address. It is estimated that 85 per cent of households have some income that can be pre-entered.
As well as the main tax return form, there are supplementary forms for various taxes and tax regimes covering areas such as furnished and unfurnished lettings, foreign income, capital gains. In addition to these forms, French residents must declare all non-French bank accounts opened, closed or used during the year on a separate form when submitting their tax return; failure to do this results in a €750 (£508) fine per undeclared bank account. The wealth tax return (Form 2725) is separate from the main tax return.
Non-residents of France have to submit their tax return to the Centre des Impôts des Non-Residents in Paris: 9, Rue d’Uzes, 75094 Paris Cedex 02. French residents have to make their declaration to the Centre des Impôts in the area in which they live.
French residents who marry or enter into a PACS (pacte civil de solidarité) during a tax year have to complete three income tax returns for the year: one each for the period of the tax year before marrying or entering into a PACS, and one joint return for the portion of the year remaining after the PACS was set up.
French residents also have to pay social charges, or social contributions, which is another form of tax on income and capital gains and not to do with social security contributions. There are three rates, depending on the type of income: 11 per cent on investment income (including rental income) and capital gains; 8 per cent on earned income, and 7.1 per cent on pension income. A proportion of social contributions paid on income taxed at the scale rates is tax-deductible. No separate tax return is needed for social contributions, as these are calculated on the main tax return. The taxable base is different for income tax and social charges, so the figures used to calculate each are different.
Credit can also be claimed under the UK/France double tax treaty. Where income and gains are subject to tax in both France and the UK, any tax paid in the source country may be offset against the tax liability in your country of residence.
The French tax system is very complicated and unless your tax affairs are simple (and even then, the tax return is not always simple to complete), I advise you to consult an experienced accountant (expert comptable) or tax advisor, (conseiller fiscal), dealing with French tax matters, who is both familiar with expatriate issues and with your local tax office. There is a considerable degree of inconsistency between the approach taken in respect of taxation of expatriates due to the autonomy enjoyed by the various regional tax offices in France.
A local professional tax adviser will be familiar with the attitude of the local tax office, but it is unlikely they will be experienced with expatriate international tax planning and in this case it is advisable to use a financial services company that offers a French tax return service. You will be required to fill in an annual questionnaire about your tax affairs and provide documentary evidence where requested. This could be well worth doing, for aside from not having to worry about completing your tax return correctly and on time, you would receive expert guidance on where tax can be legally reduced.
There are some UK companies offering this sort of service, the main advantage being that they can correspond with you in English and explain complex tax concepts to you. It is worth bearing in mind, however, that some French accountants can also speak English.
Bill Blevins is Managing Director of Blevins Franks International, one of the largest independent financial advisers, which specialises in advising retired expatriates in southern Europe