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France: Personal Taxation

Individual Non-Resident Taxation

An individual is deemed to be tax-resident in France if:

  • he has a home in France; or 
  • if France is the place of his principal abode; or 
  • if France is the place where he performs his principal professional activities; or 
  • if France is the centre of his economic interests.

These definitions are unusually wide, so that establishing non-residence after a period of residence will probably involve demonstrating that a residence has been established somewhere else.

Tax is due on French income and assets for non-residents. Non-residents remain obliged to declare their French source income and may be required by the French tax authorities to appoint a representative in France authorized to receive all correspondence relating to tax matters. Profits or gains derived from trades, professions or vocations carried out in France including self-employment are subject to tax whether or not the individual is resident.

There are gift and inheritance taxes in France which are not easily escaped, although within a family the rates are quite low. If a non-resident legatee has been a resident of France for six out of the previous ten years, the tax applies to worldwide assets transmitted, regardless of the residence status of the deceased.

General anti-avoidance legislation has not progressed far in France, and holdings in offshore or foreign assets other than trusts taken on before residence finishes will probably be subject only to income taxation. For an individual who knows he is going to leave France, there is therefore a case for switching income-generating assets into capital appreciation assets outside France, or at any rate for ensuring that gains are not made during French residence which could incur capital gains tax. Gains which crystallise after residence has finished will escape French tax.

Once French residence has been terminated, and if non-residence is expected to be permanent, then an ex-French resident is free to invest offshore in order to obtain the best possible returns.

(N.B. France does have general anti-avoidance rules in place regarding transactions with jurisdictions which have 'offshore' tax systems, and all foreign bank accounts must be disclosed to the authorities on an annual basis).

As part of its proposals for pension reform, the French government announced in its 2011 finance bill an increase of 1% to 41% to the top rate of income tax. Individuals with income (including capital gains) of between EUR250,000 and EUR500,000 are subject to a 3% tax on net income within this range. Net income above EUR500,000 is subject to a 4% tax. The surtax will apply until the French deficit is eliminated.



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