France's social charges: more tax?
What exactly are these charges? Here we explain
FRANCE’S social “charges” or “contributions” often cause confusion to newcomers. These charges are levied on income from work, from pensions and from certain types of investment. Here we explain some of the key points.
THE social contributions are a speciality of France and levied on many kinds of income, they are halfway between a “tax” and an ordinary “social charge”.
The best known are the CSG (Contribution Sociale Généralisée) and CRDS (Contribution pour le Rembourse ment de la Dette Sociale) but they have multiplied over the years, as have the rates at which they are charged.
Some people consider them to be a way for the government to increase tax revenue without putting up the more visible income tax.
What are the social contributions
Officially referred to as prélèvements sociaux or contributions sociales, these levies are made on income from work, such as salaries and sole traders’ incomes, as well as on pensions and on income from various investments.
For workers they are lumped together as part of the levies paid by employers on workers’ salaries, which also include the cotisations paid towards workers’ social security benefits such as the state old age pension, state healthcare rights, the right to family allowance and unemployment benefit.
Although all of these levies are often referred to as “social charges,” it is debatable whether the contributions sociales are really a social charge (which usually confers identifiable benefits) or just a tax. The Franco-British double tax treaty takes the latter view, explicitly listing the CSG and CRDS among types of “French tax”. In fact these contributions do not give direct benefits, but help to finance the French social security system in general.
What income are they levied on?
The social contributions can be levied on pension and investment income and capital gains and the list currently includes, as well as CGS and CRDS: Prélèvement Social, Prélèvement de Solidarité and Contribution Additionnelle.
The latter three are levied on income from capital only. As mentioned, they are all also included among charges paid by employees and the self-employed on income from work.
As of April, 2013, there is also Casa, funding autonomy measures for the elderly, at 0.3%, taken off French pension income at source apart from certain exonerated groups. Investment and rental income will give rise to social contributions at 8.2% (CSG), CRDS (0.5%), PS (4.5%), PdS (2%), CA (0.3%) – a 15.5%.
Pension income attracts CSG (6.6%), and CRDS (0.5%) - a total 7.1%.
How are they paid?
Apart from where they are deducted at source (eg. for work income) the bill for these is annual and, as of 2013, is combined with that for income tax, although the part of the bill relating to them should be itemised on the avis d’imposition you receive around August - September time. They are therefore also paid in one of the same, numerous, ways as income tax, including the possibility of paying several instalments during the year.
They can be controversial
They used to only apply to residents, however non-residents’ French rental income and property capital gains have been subject to them as of January 1 or August 17, 2012, respectively. This is being questioned by the European Commission, because non-residents do not benefit from social security.
Equally controversial is the fact that some French residents in recent years reported being levied social contributions on some UK income types which should not attract them, notably UK rental and government pension income. However last year tax officials confirmed to Connexion the exoneration for these incomes, which is allowed under the double tax treaty.
This states that a tax credit should be given for them for French tax which would be otherwise payable, along with a credit for French income tax.
Note that all UK pension income of people with British state pensions, who are not a burden on the French health system because the UK pays for their healthcare via European S1 forms, should benefit from exoneration from the social contributions. In some cases it has reportedly proved to be necessary for readers to show a copy of the S1 form to their Cpam to prove entitlement to this.
A proportion of the CSG that has been paid in one year is in some circumstances deductible from the next year’s taxable income.
In practice, for British expats this mainly concerns levies paid on income from capital (eg. rental income, interest and dividends).
This is not applicable to income taxed at source under the prélèvement libératoire system.
The figure deductible is equal to 5.1% of the income which gave rise to the social contributions and can be found on your avis d’imposition – eg. for declarations this spring of 2013’s income, you would look at the avis received at the end of summer last year. The sum may in fact already been inserted by the tax office on your printed or online form.
Tax-free bank accounts such as the Livret A, Livret d’Epargne Populaire, LDD and Livret Jeune are free of the social contributions. This is important to remember when comparing these with other investments which appear to have a better interest rate, but are subject to the social contributions and tax.
Photo: Nyul/ Fotolia.com