Here is a complete sum up of French tax brackets. 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.
French tax brackets : Income Taxes
The Income tax is 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 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 Article 197 of the French General Tax Code sets the minimum tax threshold and the applicable tax brackets for the 2022 income tax in France.
The 2022 Schedule of Income Tax is as follows:
|Up to €10,225||0%|
|From €10,225 to €26,070||11%|
|From €26,070 to €74,545||30%|
|From €74 545 to €160,336||41%|
However, the tax calculation method is not simply limited to net taxable income in euros. Here are a few steps to understand the process.
First, divide the net taxable income by the number of shares of the “family quotient”.
First, divide the net taxable income by the number of shares of the “family quotient”. In France to calculate the tax we consider the family situation. Is the taxpayer single, in a civil union, with children, taking care at home of 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”(civil union) taxpayers, each member counts for “one share”. The family quotient will then be equal to 2 shares. If the couple have children, the first two dependent children each account for half a share, then a full share per child is counted from the third. Minor children are automatically taken into account ; same for children with a handicap. For children over 18, they can be a part of the family quotient (under conditions) until they’re 25.
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 family quotient represents 3 shares. The couple forms 2 shares, the two children contribute an additional share (0.5 per child). The calculation will be as follows: 58,500€/3 = 19,500€. In both cases, the progressive tax scale must then be applied to the result obtained (see scale above)
Example: Your net taxable income is €90,000 for 3 parts (a couple with 2 children). By applying the quotient, the result is 90,000 €/3 = 30,000 €.
The first 10,225 € of this quotient are taxed at 0%, i.e. 0 € to pay.
From 10,225 € to 26,070 €, the tax rate is 11%. This represents 15,845 € * 11% = 1,743 €.
And finally, from 26,070 € to 30,000 €, the tax rate is 30%. This represents 3,930 * 30% = 1,179 €.
The total is 0 € + 1,743 € + 1,179 € = 2,922 €.
This is multiplied by the number of units in the tax household (3 units). This gives a tax liability of 8,766 €.
If the couple had no children, their tax liability would be 90,000/2=45,000 €, i.e. 0+1,743+5,679=7,422 € multiplied by 2 parts, i.e. 14,844 €.
If we look at the difference between those two amounts, the children allow to reduce the taxation of 6,078 € (14,844 – 8,766).
However, there is a capping mechanism : 1,592 € per additional half of a share to the original 2 shares of the couple.
The difference between the tax with two parts and 3 parts can therefore not exceed 3,184 euros (1,592*2).
Since 6,079>3,184, the mechanism applies.
The new tax is therefore 14,844 – 3,184=11,660 €.
You will have to pay €11,660 in taxes. From this figure, you will then deduct your possible tax reductions and credits.
French tax brackets : Tax on real estate wealth
The property wealth tax (IFI) replaced the wealth solidarity tax (ISF) on January, 1st 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 as historical monuments
- Buildings under construction at January, 1st 2019
- Undeveloped buildings
The shares of co-ownership real estate companies which represent buildings or parts of building.
Some investments are considered to be real estate and 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 €). 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 €. 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 €.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 tax schedule in 2022 :
|Lower to 800 000 €||0 %|
|From 800 000 € to 1 300 000 €||0,50 %|
|From 1 300 000 € to 2 570 000 €||0,70 %|
|From 2 570 000 € to 5 000 000 €||1 %|
|From plus de 5 000 000 € to 10 000 000 €||1,25 %|
|Higher to 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
Junior Tax Advisor
Cabinet Roche & Cie, Chartered Accountant in Lyon, France.
Specialist in non-residents’ real estate taxation.