Deduction at source: impact on non-residents in France

Currently, in France, taxpayers are taxed on income received during the previous year (for example: the tax you pay in year N is calculated on income earned in year N-1).

Deduction at source compulsory as of 1 January 2019

From 1 January 2019, the deduction at source system will close the one-year gap between receipt of income and taxation, and make it possible to react more quickly to changes in the financial and family circumstances of taxpayers.

Deduction at source will not affect either the income tax base or the methods of calculation, but new recovery methods will be implemented to better suit the situation of users.

The tax will be levied directly on income at the time it is received. This deduction at source will be mandatory and not optional for the taxpayer.

Deletion of regular income for 2018

To avoid a double deduction in 2019, regular income for 2018 will be cancelled and an exceptional tax credit will be granted.

Non-resident taxpayers will be eligible for this tax credit if they receive regular income in 2018, such as property income or other types of income such as ‘BIC’ (industrial and commercial profits), ‘BNC’ (non-commercial profits) and ‘BA’ (agricultural profits).

Payment by instalments

Non-residents who receive real estate income that is taxable in France will also be affected by deduction at source as of 2019; in other words, those in receipt of income from property will pay their income tax by instalments calculated by the authorities on the basis of the previous year’s tax return and deducted monthly or quarterly (at the option of the taxpayer).

Terms and rates of the instalments

The instalments will be collected automatically by the tax authorities to simplify matters for taxpayers.

The tax will be collected from a bank account opened by the taxpayer in France or in the Eurozone (with a SEPA identifier) ​​in accordance with Article 1680 A of the French Tax Code (CGI). It will therefore be necessary to provide a ‘RIB’ (document containing bank details) to enable this deduction to be made.

So, for example, the 2019 instalments will be calculated and deducted automatically from your bank account on the basis of your income tax return filed in the spring of 2018.

These monthly instalments will now be spread over a twelve-month period (previously spread over 10 months) unless quarterly instalments are opted for (15 February, 15 May, 15 August and 15 November).

In the event of a large variation in income, the taxpayer may opt to update the instalments during the year.

No particular steps need to be taken with the tax authorities in relation to income subject to deduction at source, except for continuing to file a tax return for taxable income in France.

Example of a non-resident taxpayer subject to deduction at source:

Take the example of a non-resident taxpayer subject to the new tax system:

Last year, Mr X declared a net income of € 3,000. His income tax will be equal to € 3,000 x 20% (minimum rate for non-residents) = € 600, together with CSG/CRDS social security contributions at a rate of 17.2%, ie € 3,000 x 17.2% = € 516

TOTAL: €  600 + € 516 = € 1,116

Tax deducted at source will therefore be € 93 per month (€ 1,116 spread over 12 months).