It is the dream of many of you: take advantage of your retirement to move to France! But a change of life is coming up and you would like to know more about the constraints, particularly tax constraints, of moving to France. Let’s clarify the situation about french taxation of retirement pension.
The main principles of international taxation
Taxation rules can vary considerably from one country to another and often contradict each other, so that an individual in an international mobility situation can find himself facing a double taxation problem. In order to avoid these contentious situations and to facilitate the free movement of goods, services, capital and even people, the OECD launched its first recommendations on double taxation in February 1955. Since then, agreements and initiatives have multiplied between countries and many of them have organised the signing of bilateral conventions. France is not left behind, and you will find here the list of tax treaties signed with France on the official website.
In order to determine how the french taxation for retirement pension will be applied to your incomes, and in particular your retirement pensions, the first step is to check the content of the tax treaty signed between France and the source country of your retirement pensions.
Example 1: English source pensions
Article 18 of the bilateral convention of 19 June 2008 states: “Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in respect of past employment shall be taxable only in that State.
In other words: A French resident receiving UK-sourced retirement pensions would be taxable in France.
However, the next article (i.e. Article 19) specifies that public service pensions paid by the State or local authorities remain taxable in the source country. Thus, for example, military pensions paid by the UK remain taxable in the UK only.
For each UK source pension received, it is therefore necessary to determine whether it is a “private” pension, taxable in France, or a government pension, taxable in the UK.
Reading tax treaties can be complex because the precise analysis of a tax situation may involve several articles. It is advisable to consult a tax specialist.
Example 2: US-source retirement pensions
Article 18 of the Franco-American Convention of … states that “Amounts paid under the social security or similar legislation of a Contracting State to a resident of the other Contracting State or to a citizen of the United States, as well as amounts paid under a pension and other similar remuneration arising in one Contracting State in respect of past employment to a resident of the other Contracting State, whether in the form of periodic payments or a lump sum, shall be taxable only in the first-mentioned State.
Decryption: US source retirement pensions received by an individual domiciled in France for tax purposes remain taxable in the US only.
The main rules of French taxation
Declaration of worldwide income
Persons domiciled in France for tax purposes must declare their income from French and foreign sources annually. You should therefore report all your income, including income that has been attributed to another country for taxation (see tax treaty). For this income in particular, double taxation will be avoided by the allocation of a tax credit or the effective rate mechanism.
Joint declaration by spouses and taking into account family responsibilities
Unlike in some countries, particularly in the English-speaking world, in France married couples or couples in a civil pact (known as a Pacs) must file a joint tax return. This is referred to as the “foyer fiscal” and “parts fiscales”.
In France, the income of the members of the “fiscal household” is aggregated before being subject to the income tax scale. But this scale is applied per “tax unit”. Example:
– a married couple has 2 tax units
– a married couple with one child has 2.5 tax shares
– a widow over 74 years of age is entitled to an additional half share, and therefore counts as 1.5 tax shares.
The calculation of the family quotient makes it possible to take into account the family situation of each person and to adjust the application of the tax scale accordingly (see above).
The tax base for pensions in France
Pensions are subject to tax in France after deduction of a 10% allowance for expenses capped at €3858 (2020 income) for all members of the tax household.
Tax scale in France
For the taxation of 2020 income, the tax scale is as follows
Progressive scale applicable to 2020 income Fraction of taxable income (for one part) Tax rate to be applied to the corresponding bracket
|Progressive scale applicable to income in 2020|
|Taxable income fraction (for one share)||Tax rate to be applied on the corresponding bracket|
|Up to 10 084 €||0 %|
|From 10 085 € to 25 710 €||11 %|
|From 25 711 € to 73 516 €||30 %|
|From 73 517 € to 158 122 €||41 %|
|From de 158 123 €||45 %|
Example: Mr and Mrs Smith, both aged 65, have been living in France since 2019 and receive a German pension of €50,000 (private pension taxable in France under the tax treaty). This is their only income. Their tax household has two units.
1. Determination of their net taxable income:
Gross income: €50,000
– allowance for expenses (-10% limited to € 3858): – € 3858
Net taxable income: € 46,142
2. Application of the scale
The scale is applied per “tax unit”, so the net taxable income must be divided by the number of units in the tax household: 46,142 / 2 = €23,071
Calculation of the brackets (2020 scale): 10,084 x 0 + (23,071 – 10,085 ) x 11% = €1,428
3. Calculation of the tax
To finalise the calculation, the result obtained is multiplied by the number of units in the tax household (2): 1,428 x 2 = €2,856
Are you planning to settle in France and would like to know more about the taxation of your foreign income? Do not hesitate to contact us, we can offer you a detailed study of your situation.
Expert-Comptable – Chartered-Accountant