Taxation for work done outside France

I live in France but my wife works abroad. She had a three-year contract in the Middle East but was made redundant. She went to court for wrongful dismissal and won a sum which represented the full earnings she would have earned. Is this taxable in France if transferred? She was assessed locally but had nothing to pay. Now she works in Central Asia. Will the French tax her? It has been suggested to me that she has to be out of France for six months in the year to avoid it. She pays tax there at 12%.  P.F.

25 December 2019
By Hugh MacDonald

You live in France but the issue is whether your wife is also considered a fiscal resident. 

Each spouse can be resident fiscally in a different country and for some people being non- French resident may be more advantageous, considering French rates of tax and social charges.

This will not always be the case, bearing in mind, for example, your exemption to capital gains on selling what would be your home, but a taxable gain on your wife’s share as a resident abroad.

Were your wife French fiscally-resident, the French would tax worldwide income, especially if it has suffered no tax in another country, and probably also seek to levy social charges if none have been paid in the Middle East. 

The repatriation or not of the funds is irrelevant, according to French tax law (though there should be a tax credit for foreign tax paid, if any). However, it is necessary to distinguish between having been awarded income or a “compensation”, as only income is taxable.

French rules on becoming a resident refer to one or more of the following: having the “home” in France or spending most of the tax year here (eg. over six months, but a lesser period could apply if she spent more time in France than anywhere else); having one’s centre of economic interest in France (ie. one runs affairs from France, receives bank statements and bills in France, one’s will is French etc); or running a business in France.

Simply remaining outside of France for at least six months may not be sufficient, so it would be advisable to see a qualified professional in international taxation to take all relevant factors into account.

 

Reader's query answered by Hugh MacDonald

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