Britons, among other nationalities, are used to a situation in which most people do not have to submit an annual tax declaration as tax is deducted at source on most common income types including salaries, pensions and bank interest.
Apart from simplicity, one advantage of ‘tax at source’ is immediacy. Until a few years ago, in France residents had to wait until the following year to pay related tax after the whole year’s income had been declared.
Since 2019 a wide-ranging tax-at-source system is in place in France – known as PAS (Prélèvement à la Source).
However, despite this, a quirk of the French version is that an annual tax declaration is still required in the spring for most residents.
Why is an annual tax declaration still required for most French residents?
An annual tax declaration is still required for most residents because the French system is now a hybrid setup involving tax-at-source alongside some older tax mechanisms.
Older tax mechanisms in France’s current tax system include the taxation of the household unit as a whole, with relative tax reductions applied depending on family size, as well as various niches fiscales (tax breaks) ways of investing or spending which allow people to benefit from reductions to their declarable income or to obtain deductions from their tax bill.
This means the annual requirement of a tax declaration is still in place for most people apart from a minority with very simple tax affairs who can take advantage of a tacit declaration scheme.
This is so the tax office can calculate your real overall situation to make sure you have paid the right amount of tax-at-source. It is also so it can take into account and check your eligibility for any tax credits.
Who does tax-at-source apply to?
Tax-at-source applies to everyone, whether you are employed, self-employed, a pensioner or you have income from renting out a property.
Those under the income tax threshold pay nothing under the system because they are given a 0% rate. In theory, at-source taxation helps with cash-flow and it appears to function fairly well, without significant issues being reported.
How does the tax system work for people with French employment?
Those with French employment income will find their French salaries have been pre-filled on their paper and/or internet tax declaration forms, although this is not for them to be taxed again – it is so that officials can see if your PAS taxation rate is correct.
Any required amendment to the amount of the tax paid at source over the year – refund or top-up demand – will be made once your declaration has been made and your avis d’impôt sur le revenu tax statement has been issued in the summer.
How do you establish your tax rate when it can’t be taxed-at-source?
One challenge is how to establish your tax rate for prélèvement à la source (PAS) and setting up estimated instalments from your bank account on a monthly or three-monthly basis if you have regular income of a kind that France cannot directly tax-at-source.
Examples of the latter include rental income or foreign state and private pensions (but not so-called ‘government’ pensions such as those paid to former civil servants as these are usually taxed at source in their country of origin).
The rate applied is based on your last tax declaration, so for 2023 it is based on your 2022 declaration (relating to 2021 income).
In May – June 2023 you will submit your income return for 2022 in the usual way and you will then be given a new rate which applies from September until the end of August 2024.
The tax authorities will forward this to your employer/s or French pension bodies where appropriate and in this case there is nothing in particular that you have to do.
If you are due to have instalments taken, the tax office should deduct these from any bank account detailed by yourself on a previous tax return.
If your circumstances change significantly during the year, you can ask for your new situation to be taken into account and the rate to be changed to make sure at-source payments remain appropriate and there are no large amendments needed later on.
What income is affected?
Income from French employment and from French state pensions are the main sources of income taxed by prélèvement à la source (PAS) in a literal sense (ie. the tax is taken off before you receive the money).
Other incomes are paid ‘on account’ based on estimates and then checked with balancing payments or extra demands as required.
For French employment / pensions it is the employer or pension body which deducts the tax.
This tax deduction is then paid over to the state services that collect in tax (Trésor Public).
Unemployment benefit is also dealt with in this way. The introduction of PAS brought changes to the way tax from French property income is collected and tax on the earnings of self-employed workers, or regular pension alimentaire payments (ie. support payments from an ex-spouse).
For these, as for regular and recurring taxable income from abroad such as pensions taxable in France, there is a system whereby regular estimated direct debit instalments are taken from your bank account, based on your last income tax declaration.
This year these instalments are initially calculated based on your 2022 declaration relating to 2021 income.
They are then reassessed as of September 2023 based on your declaration of 2022 income.
Make sure bank details are completed, or updated, on your tax declaration as it may be necessary to make reimbursements to you or to take an instalment.
You can check or change your registered bank account at any time via your space at impots.gouv.fr.
What income is not affected?
Among the income types which fall outside the PAS system is that from shares and investments, capital gains and certain other so-called ‘one-off incomes.’
Income from French shares and investments is subject to a 30% ‘flat tax’, other than for declarants who opt for the ordinary income tax bands to be applied.
Assurance vie (life assurance) and French shares savings plans (plan d’épargne en actions) benefit from specific tax rules.
Ordinary capital gains on shares (classed as ‘one-off income’) are declared in the year following the gain and are subject to the flat tax at 30% (barring the option for the normal income tax bands).
French property capital gains are taxed immediately, with the notaire collecting this amount.
Are French social charges deducted at the source?
French ‘social charges’ have always been deducted directly from French salaries.
Social charges payable on French pensions are also deducted at source by the pension caisse.
Income from most French investments will usually have social charges deducted by the bank/provider.
In the case of bank interest subject to the 30% ‘flat tax’ (PFU) social charges at 17.2% are part of this.
Note that the main tax-free savings accounts (Livret A, LEP and LDDS) do not have social charges applied.
In the case of regular incomes from abroad subject to direct debit instalments, social charges are also factored into these.
As with income tax, your avis d’impôt (income tax and social charges assessment) at the end of the summer will indicate any remaining social charges that are payable, including on incomes that cannot have the charges taken at source.