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Roche & Cie

French tax brackets

10 Apr 2019

You are a foreigner and wish to settle in France but the tax system in France seems complex to you?

This article will help you to better understand the rules for income tax and taxation on real estate assets.

Income Taxes

The Income tax is a tax calculated at the level of the tax household. Note that a single person may constitute a tax household. The tax is levied by the French government and concerns all the income received by the member or members of the tax household (salary, property income, etc.).

To be liable for income tax, you must be domiciled in France for tax purposes. Persons domiciled abroad for tax purposes may be liable to income tax in France when they receive income from French sources.

the Income-tax is progressive in France, the higher the income, the higher the rate increases. This tax is calculated on the basis of a scale updated annually. The scale consists of 5 brackets.

The following is a summary table of the different tax brackets for income for the year 2018.

Net taxable income in euros (€)Tax rate
0 to 9 9640%
9 964 to 27 51914%
27 519 to 73 77930%
73 779 to 156 24441%
Beyond 156 24445%

However, the tax calculation method is not simply limited to net taxable income in euros.

  1. First, divide the net taxable income by the number of shares of the “family quotient”. Indeed, in France to calculate the tax we take into account the family situation. Is the person single, in a couple, with children, dependent parents? The number of people in the tax household determines the family quotient.

    A single person, divorced or widowed, counts for a single part in the calculation of the family quotient.
    For married or “pacsed” people, each member counts for one part. The family quotient will then be equal to 2 shares.

    Where there exist dependent children, the first two dependent children each account for half a share, then a full share per child is counted from the third.

    Examples :

    – For a single person with a net taxable income of 30,000 €, the family quotient is on one share. The calculation will be as follows: 30 000/1 = 30 000€.
    – For a couple with two dependent children with a taxable income of 58,500 €. The couple forms 2 parts, the two children contribute an additional part (0.5 per child). The calculation will be as follows: 58 500€/3 = 19 500€

  2. The progressive tax scale must then be applied to the result obtained (see scale above) 

    Examples :

    For a single person
    With an income of 30,000 €, they will be taxed in 3 installments.- Up to 9,964€ tax = 0% tax
    – Between 9,964 € and 27,519 € tax (27,519 – 9,964) = 17,555 taxed at 14% i.e. 2,457.70 €
    – Between 27,519 € and 73,779 € taxation (30 000-27 519) = 2,481 taxed at 30% i.e. 744,30 €.The single person’s marginal tax rate is 30%, but the first 27,519 € is taxed at 14%.

    The result will then be 0 + 2 457,70 + 744,30 = 3 202 €

    For a married couple with two dependent children

    We will use the result obtained when calculating the family quotient, i.e. 19 500€.

    Up to 9 9 964 € tax = 0% tax
    Between 9,964 and 27,519 € taxation (19,500-9,964) = 9,536 € taxed at 14% i.e. 1,335.04 €

    The marginal tax rate for this family is 14%, but the first €964 is not taxed.

    The result will be 0 + 1335,04 = 1 335,04€

  3. Finally, multiply the result obtained by the number of shares of the family quotient
    Once the progressive tax scale has been applied to the result obtained when calculating the shares, it must be multiplied by the number of shares.Example:

    For a single person
    As seen above, the latter has only one share , so the calculation is 3 202 x 1= 3202€
    This single person will, therefore, have to pay a tax of €3,202

    For the married couple with two children
    As seen above, this family has 3 parts, because each of the spouses counts for one part and the children for 0.5 parts.The calculation will be 1,335.04 x 3= 4,005.10€
    This family will then have to pay a tax of 4,005 €

Tax on real estate wealth

The property wealth tax (IFI) replaced the wealth solidarity tax (ISF) on 1 January 2018.

This tax is due when the net value of the real estate assets of the tax household exceeds 1.3 million €.

What is a real estate property within the meaning of French regulations?

  • Buildings
  • Listed buildings as historical monuments
  • Buildings under construction at 1 January 2019
  • Undeveloped buildings
  • The buildings or parts of buildings represented as part of the shares of co-ownership real estate companies.
  • Some investments are considered to be real estate that must be reported to the IFI, in particular:
    – The shares and dividends of companies if you hold at least 10% of the company’s capital
    – Property and real estate rights transferred or placed in a trust

When you are domiciled for tax purposes in France, all property, real estate law, company shares or shares in real estate partnerships held in France and abroad are included in the IFI.

Please note:

Even if your property is located abroad and is taxed in the other country, you must still declare it in France.
When your tax residence is abroad, you are liable to the IFI only on your property located in France (if its net value exceeds the tax threshold of 1.3 million €).

Here is the scale applicable in 2019:

Base in eurosApplicable rate
<800 000€Exonération
Entre 800 000€ et 1 300 000€0.50%
Entre 1 300 000€ et 2 570 000€0.70%
Entre 2 570 000€ et 5 000 000€1.00%
Entre 5 000 000€ et 10 000 000€1.25%
>10 000 000€1.50%

The IFI trigger threshold is 1.3 million €, but the calculation of the tax starts at 800,000 €.

For example, you have a real estate portfolio of €1.3 million, the IFI will be calculated on the portion between 800,000 € and 1.3 million €.

Good to know,

Temporary exemption “impatriates”: new impatriates benefit from an exemption on their real estate located abroad until the end of the 5th year following their installation in France. Contact us  for more information.


CONTACTS


Cabinet Roche & Cie, English speaking accountant in Lyon, France.
Specialist in Real-Estate and Non-resident taxation.