The increase in the minimum tax rate for non-residents has been the subject of much debate on blogs and expatriate forums. The Finance Law for 2019 having been published on 30 December last year, it is now time to take an interest in what was finally voted.
Until 2018, people not domiciled in France were subject to the minimum tax rate of 20% on their French-source income. With the draft Finance Law for 2019, MEPs wanted to raise this rate to 30%, probably to compensate for the loss due to the reduction in social security contributions for European residents.
But at the end of November, the senators adopted an amendment to delete this provision, wishing to maintain the rate at 20%.
Finally, the National Assembly, in its last amendment to the text at the end of December, opted for an intermediate solution: non-residents will be charged the minimum rate of 20% on the portion of their net taxable income less than or equal to the upper limit of the second bracket of the income tax scale, and a rate of 30% on the portion above this limit. In other words, and to clarify things:
|Taxable income per share||Minimum tax rate|
|From 0 to 27.519 €||20%|
|More than 27.519 €||30%|
In France, the calculation of income tax is based on the family quotient mechanism. For the purposes of the above scale, the net taxable income is to be divided by the number of shares representing the family quotient:
If you are single, divorced or widowed: you record a share;
If you are married, you count 2 shares with your spouse;
A married couple with one child has 2.5 shares (the first two children each have ½ shares).
The final tax is obtained by multiplying the tax determined “per unit” by the number of shares of the family quotient.
Smith family: married, 2 children, non-residents within the meaning of French tax regulations.
Number of shares of the family quotient: 3 shares (1 share for each spouse, and ½ share for the first two children)
- Income from French sources: €60,000
- Net taxable income per unit = 60,000 / 3 units = 20,000 €
- Minimum tax rate applicable under the new provisions of the Finance Act for 2019: 20% (see table above)
- Income tax = €20,000 x 20% x 3 shares = €12,000
Consequently, the reform introduced by the Finance Act for 2019 will have no impact on the taxation of the Smith family’s French source income, they will remain subject to the minimum rate of 20%.
Finally, it is always possible for non-resident taxpayers to benefit, under certain conditions, from the “classic” income tax scale (the one applicable to French residents). Indeed, if the taxpayer can justify that the rate of French tax on all his French AND foreign income would be lower than the minimum tax rate, he will be able to benefit from the classic scale for the taxation of his French income.