The French government has published a booklet in English setting out the way the French tax system works, and this can be downloaded from http://www.impots.gouv.fr. Although described as a brochure, this runs to 89 pages.
Every resident in France must make an annual Declaration de Revenue (tax declaration), whether or not they have any income. Your local Centre des Finances or Centre des Impôts, previously called Hôtel des Impôts (tax office) can give you details, and enter you into the system. You will receive the appropriate forms through the post in due course. It should be noted that in France, the tax year runs from 1 January to 31 December, unlike the UK. You can submit your declaration on the forms provided, or online. As in the UK there can be financial penalties for late submissions, up to 10% of the tax due.
Note that you must also show in your declaration any capital gains that you have made during the year. Capital gains on your house (if you are lucky enough to have made a profit) are dealt with directly by the notaire conducting the sale. He will retain part of the sale price until the exact amount due is calculated. If you are a resident, and this means someone who has registered as such with the centre des finances, you will be exempt. Note that work done and materials supplied by a registered artisan are deductible, but no deduction can be made for your labour or materials bought by you.
Note also that you must declare all income worldwide, even if it has already been taxed in another country. It may or may not be taxable here, but it must be declared.
In addition to taxes on income and capital gains, there are three other taxes that every resident in France may come across in their daily lives, whether they work or not.
Taxes foncières which are taxes on ownership of property, whether it is occupied or not. The tax is used to finance local services and consists of elements imposed by your commune as well as the inter-communal and departmental councils.
Taxe d’Habitation is a tax imposed on the occupier of property. It applies equally to principal residences and residences secondaires (second homes). The test of residence is NOT whether you actually live there, whether it be permanently or a few weeks a year, but whether the property can be occupied. Thus, totally unfurnished and derelict houses may be exempt. You will probably need a letter from your local maire stating that the house is unfurnished to claim this exemption. If you rent the house out on an annual basis, it is the tenant who pays. Owners over the age of 60, and widowed people are exempt if their income is below a certain threshold. The demand for this tax also includes what is called la redevance audiovisuelle, or TV licence. If you are exempt from the main tax, you are also exempt from this.
If you don’t have a TV on the 1st of January of the year in question you can notify the centre des finances, and this will not be charged. This doesn’t mean you can simply move it out of the house for a day. You still have a TV. Shops are required to take details of people buying TV sets to prevent tax fraud.
Others who are exempt from tax d’habitation include handicapped people receiving certain state financial assistance and those receiving Revenu de solidarité active de base (RSA), a state benefit paid to those with low or no income.
TVA (VAT) As in the UK, most goods and services in France are subject to TVA. Businesses with a turnover exceeding a certain threshold must register, and collect this tax as part of the overall price. They should provide you with a tax invoice for substantial services, but for smaller ie cheaper goods bought for example in a supermarket or shop this may not be the case.
Beware of firms that show TVA on their devis or invoice without showing their TVA number, as they may not be registered, and are simply loading the price for their own benefit.
Income tax Taxation on employment and self employment are different to the UK. There is no PAYE system in France, and the individual employee is personally responsible for paying his or her tax.
Self employment comes in various forms, and is not dealt with in detail here. Everyone registering under any of the schemes set out below will be given a SIRET number which should be shown on all devis (written quotatins) and invoices.
Generally, self employed people under the traditional scheme ie setting up a business with some form of legal status such as a registered limited liability company (SARL) or carrying on business as a sole trader, are charged periodic cotisations as determined initially by the authorities, which are contributions to tax and social charges. In the first year of trading the authorities anticipate the expected revenue of the business, and charge accordingly whether that level of income is achieved or not. You might therefore finish up being charged these cotisations before you make a penny (or should that be a centime). Thus a struggling new business can face crippling charges. Many new businesses fail for this very reason. In subsequent years the previous year’s income is used as a basis for these charges, and credit is given for overpayment in the first year.
The former auto-entrepreneur scheme for small businesses, which avoided some of the problems such as crippling cotisations in the traditional schemes, has effectively been merged with the micro-entreprise scheme. Both will now be called micro-entreprises. Certain activities are excluded from the scheme, such as estate agency and hire companies.
For them, the level of cotisations depends on the nature of your business, and is a percentage of the total of your invoices for the relevant period ie you pay after you have earned the money. If you are registered as a job seeker at the time you register your micro-entreprise, your cotisations may be reduced for a period of time – see ACCRE.
If you are simply providing services such as building, plumbing etc, there is one rate, based on the amount of your invoices for the period in question. I believe the rate is something like 23%, but check this with the authorities. It is therefore wise to keep materials off your invoice by, for example, asking your customer to pay these direct to the supplier (ie he buy the goods direct ). If you choose to show the cost of materials you have provided on your invoice, you need to mark up the price considerably to cover the increased cotisations. This pushes up the price significantly for customers.
If you are selling or manufacturing goods (and certain other activities) there is a lower percentage rate to take into account that you have to buy those goods or the materials to make them in the first place. At present it is around 13%. Again it is based on the total of your invoices to your customers, and not the profit you made, and does not take into account what you actually paid when you bought the goods or materials.
There are financial thresholds in the micro-entrprise scheme, and as your business reaches these it is necessary to change to one of the traditional schemes.
Under the new system, charges are paid on a monthly pay-as-you-go basis, based on your actual receipts as declared by you in your return . You may have the option to pay quarterly, but at a slightly higher rate. If you fail to file your return on time you can be charged a penalty of 49€. This applies even if you had no income for the period in question.
One of the downsides of the micro-entreprise scheme is that you cannot offset expenses such as purchase or hire of tools, machinery, etc against your income. Another downside is that artisans (eg builders, plumbers, electricians etc) setting up such a scheme must first attend and pay for a 5 day training course (which will be in French – I have no idea whether they will provide assistance for non-French speakers but think it unlikely) for which the fee at the time of writing is 260€. All micro-entreprises must have a dedicated business bank account, and therefore you face bank charges, which could be higher than for a personal account – shop around.
All artisan auto-entrepreneurs will also be required to register on the Répertoire des Métiers (RM) and those involved in selling will have to register with the equivalent Registre du Commerce et des Sociétés (RCS). More fees to pay. The requirement previously only applied to artisans, and only if the artisan work was their main activity.
They will also have to provide proof of professional insurance in sectors where it is obligatory, notably the assurance décennale for building sector artisans. This must also be mentioned on devis (quotes) and factures (bills), as must artisans’ qualifications.
It should be noted that anyone carrying out any trade or business without being registered officially and obtaining a SIRET number is working ‘on the black’ – a serious criminal offence in France. The courts or other authorities will estimate what someone carrying on that kind of business is likely to have made, and will charge accordingly. They will also estimate how long the illegal business has been in existence, and will charge for previous years. Offenders could face a fine or bill amounting to many thousands of pounds.
Customers employing such people are also committing an offence.