Busting French finance myths cited at summer soirées

Robert Kent of Kentingtons explains.

24 July 2019
By Robert Kent

SUMMER evening soirées of simple but good food, wine and conversation are a great way to spend time and gain important insights into how things work in France. But do wine and wisdom always go together? Such an event’s value should be limited to the joie de vivre and not for stocking up on the many financial myths that one can hear.

Here are six popular French finance myths we come across:

1. France is a high tax country

We have covered this before but it is impossible not to mention it again in this list.

It depends on your situation – given that over half of the population do not pay any personal income tax, it is not true for all. If you are retired or running a micro business in France, you should be counting your blessings.

Even a married salaried person is feeling positive about their tax. Even more so if they have dependent children.

Sadly, this good feeling does not extend to corporations, which can count themselves among the most highly taxed on the globe, especially when it comes to the cost of employing people. It is one of many reasons for France’s stubbornly high level of unemployment.

In conclusion, if you are not a corporation, then France is not that scary for tax.

2. I can choose where I pay my tax/it is based on my nationality

Where should I pay my tax? This has got to be one of the most asked questions. Where you pay your tax is based on the reality of your situation. There is no choice, other than to choose your situation.

3. If I spend 91/183 days in the UK, then I’m UK resident and nothing to do with France

There is a very common tendency to define the residency of another country using the laws not of that country but their own. “HMRC rules say that I am UK resident if …” is very common.

No matter what some people tell you (I’m keeping away from politics), the UK government and its legislation is not supreme. French law comes into play and, often more importantly, the UK/France tax treaty, which is not dominated by HMRC residency rules.

4. Income already taxed at source in the UK does not need to be declared in France

Indeed, there is a UK/France tax treaty, thus you cannot be taxed twice (the common reasoning). In most (not all) instances, tax is payable in France and so the HMRC has to pay you back and stop taking tax at source.

In any case, all income, no matter what the source or where in the world, must be declared, even if exempt from taxation.

5. I declare my income from all sources, but my savings and where and how I keep them have nothing to do with the French authorities

Sadly, this is not true. You are obliged to declare all your savings details, not just the income. You need to detail where it is, the company/bank’s name, address, account number, nature of account, its use, etc.

This is for anywhere that can hold money, so trying to argue that “it’s not actually a bank account” does not excuse you.

The penalty for not reporting is €1,500 per account not declared, for each year not declared. It is €10,000 per account for accounts held in countries with no reporting connection with France.

6) I’m better off leaving all my savings in the UK or offshore

I have had debates along the lines of “well, my money is offshore, so I achieve gross rollup”, that is to say that the money grows tax-free.

The issue is that when you do use the money, the treatment is less than favourable in France.

I have seen people set up life assurance bonds in the UK before leaving, stating that “it is just an assurance vie” and they had read about them and they are great for French tax.

Sadly, a UK bond pays corporation tax at source, which cannot be reclaimed. This is 20%. The French then apply up to 45% income tax and then 17.2% in social charges.

Gross rollup, special low rates of tax reducing what is deemed taxable, is all possible using French structures, which comply with French tax rules.

There are many more, but I will sign off by saying I hope that you all have a great summer. Enjoy those soirées – and avoid the inebriated French myth experts.

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