Tax implications for individuals moving to France

Tax implications for individuals moving to France: If you are planning to relocate to France, it is crucial to understand the tax implications of becoming a fiscal resident. France has a comprehensive tax system that includes obligations related to income tax, social contributions, and the wealth tax on real estate. Here’s an overview of what to expect:

Income Tax:

Tax Residency: Once you become a tax resident in France, you are subject to French income tax on your worldwide income, under the provisions of tax treaties that aim to prevent double taxation, along with specific French tax laws.

This status is typically determined if you live in France for more than 183 days in a calendar year, have your main home in France, or if your primary economic interests are located in the country.

Filing Obligations: New residents must file an income tax return in the year following their arrival. Tax returns are generally submitted in May each year.

Declaration of Foreign Bank Accounts, Life Insurance, and Digital Assets:

French tax residents must declare their foreign bank accounts, foreign life insurance policies, and digital asset accounts opened, held, used, or closed abroad, alongside their income declaration.

This requirement is fulfilled by completing the 3916 form for each account or life insurance policy held.

Failure to comply results in a fine of €1,500 (or €10,000 if the account or policy is in a country that has not signed a cooperation agreement with France to share banking information).

Tax Rates and Brackets:

France uses a progressive tax rate system for individual income. Rates and brackets can change annually, so staying informed or seeking advice from a tax professional is important.

For 2024, the tax brackets are:

• Up to €11,294: 0%
• From €11,294 to €28,797: 11%
• From €28,797 to €82,341: 30%
• From €82,341 to €177,106: 41%
• Over €177,106: 45%

Some income, such as investment income (12.80%) and real estate capital gains (19%), is taxed at a fixed rate.

Social Contributions:

Scope: These contributions apply to income generated from capital and property, including dividends, interest, and rental income.

The general rate for social contributions on capital and property income is 17.2%. Individuals covered by a compulsory health insurance scheme in another EU country, or in Iceland, Norway, Liechtenstein, or Switzerland, may qualify for a reduced rate of 7.5%.

For employment income or replacement income (like pensions), the general rate is 9.7%, though some conditions may apply for a lower rate.

Wealth Tax on Real Estate (Impôt sur la Fortune Immobilière - IFI):

Applicability: If the net value of your real estate assets in or outside of France exceeds a certain threshold, currently set at €1.3 million, you may be liable for IFI.

This tax replaced the former wealth tax (Impôt de Solidarité sur la Fortune - ISF) and now focuses solely on real estate.

Tax rates range from 0.5% to 1.5%.

Exemptions:

Certain assets, such as business properties, may be exempt. Additionally, foreign real estate may be excluded from IFI either due to the general exemption for new tax residents (for the first five years) or specific provisions under a tax treaty between France and the country where the property is located.

It is advisable to consult a tax expert to understand the potential exemptions and deductions available, as some rules, particularly around debt deductions, can be restrictive.

Declaration:

The French wealth tax is declared and paid annually. The value of your real estate as of January 1st is used to determine your tax liability.

Conclusion:

Becoming a tax resident in France can have a significant impact on your financial situation. Understanding your tax obligations and planning accordingly is essential. Founded in 2007, CM-Tax, with its team of English-speaking tax lawyers based in Lyon and Marseille, offers comprehensive support and guidance for individuals moving to France, ensuring compliance and optimization of their tax position.