General Information
Country Name: French Republic
Currency: Euro (EUR, €)
Primary Tax Authority: Direction générale des Finances publiques (DGFiP – General Directorate of Public Finances)
Key Legislation:
- Constitution of the Fifth Republic: The French Constitution includes tax provisions in Articles 13 and 34, assigning Parliament the authority to impose taxes and set rules regarding their collection.
- Code général des impôts (CGI): The General Tax Code outlines the rules governing personal and corporate income taxes, VAT, and other taxes in France.
- Livre des procédures fiscales (LPF): This is the tax procedural code that regulates tax audits, assessments, and disputes.
- Code de la sécurité sociale (CSS): Governs social security contributions.
- Tax Treaties: France has an extensive network of Double Tax Treaties (DTTs) to avoid double taxation and prevent tax evasion.
Fiscal Authority Allocation
France operates a centralized tax system. Most taxes are collected by the central government, although local authorities levy and collect some taxes, particularly on property.
- Taxes Collected by the Central Government: Income tax, corporate tax, VAT, wealth tax (ISF), and excise duties.
- Taxes Collected by Local Authorities: Local authorities can collect property taxes (taxe foncière and taxe d’habitation) and some business taxes.
- Revenue Sharing: Some tax revenues, such as VAT and income tax, are partially redistributed to regional and local governments to fund local services.
Corporate Income Tax (CIT)
- Standard CIT Rate: 25% as of 2022, reduced from previous higher rates as part of ongoing corporate tax reforms. Small and medium-sized enterprises (SMEs) may benefit from a reduced rate of 15% on the first €38,120 of taxable income.
- Additional Surcharges: There is a 3.3% social surcharge on CIT for companies with turnover exceeding €7.63 million.
- Taxable Income Definition: Resident companies are taxed on their worldwide income, while non-residents are taxed only on French-sourced income.
- Deductions: Normal business expenses, depreciation, interest (with restrictions), and some R&D expenses are deductible. Certain non-deductible expenses include fines, penalties, and some entertainment costs.
- Loss Carryforwards/Carrybacks: Losses can be carried back one year and carried forward indefinitely, but only up to 50% of taxable income above €1 million.
- Tax Incentives: R&D tax credit (CIR) is one of the most generous in the EU, offering a 30% credit for eligible R&D expenditures up to €100 million.
Value-Added Tax (VAT)
- Standard VAT Rate: 20%.
- Reduced Rates: 10% (for certain services, such as catering and transportation), 5.5% (for essential goods like food and books), and 2.1% (for specific medical products).
- Scope of VAT: VAT applies to most goods and services. Exports outside the EU are zero-rated, and imports from non-EU countries are subject to VAT at the time of entry.
- Exemptions: Healthcare, education, financial services, and some insurance services.
Personal Income Tax (PIT)
- PIT Rates: Progressive tax rates ranging from 0% to 45%. The top rate applies to income over €160,336 (for 2023). A special “solidarity wealth tax” applies to wealth exceeding €1.3 million.
- Income Thresholds: The first €10,777 of income is tax-free (2023 threshold).
- Deductions and Credits: Childcare costs, charitable donations, mortgage interest (limited to certain periods), and pension contributions can reduce taxable income.
- Foreign Income Treatment: French residents are taxed on worldwide income. Non-residents are taxed only on French-source income, often subject to withholding taxes. Tax treaties mitigate double taxation.
Additional Mandatory Contributions
France imposes mandatory social security contributions in addition to income taxes. These contributions fund the social security system, including healthcare, pensions, and unemployment insurance. Both employers and employees are required to contribute.
- Social Security Contribution Rates:
- Pension Insurance: Around 15.45% total (split between employer and employee).
- Health Insurance: 13% (split).
- Unemployment Insurance: 4.05% (split).
- Other Contributions: Include accident insurance, family benefits, and more, bringing the total employer contribution to around 45% of gross salary, while employee contributions are roughly 22%.
- Contribution Thresholds: Social security contributions are capped, with different caps for various contributions.
- Tax Deductibility: Certain employee contributions are deductible from taxable income.
Withholding Taxes
- Dividends: 30% withholding tax (Prélèvement Forfaitaire Unique – PFU), which includes income tax and social levies.
- Interest: 30% withholding tax, reduced under most tax treaties.
- Royalties: 33.33% withholding tax, but reduced under tax treaties.
- Non-Residents: Non-residents are subject to French withholding taxes on French-sourced income, typically reduced by Double Tax Treaties (DTTs).
Transfer Pricing Rules
- Documentation Requirements: Transfer pricing documentation is mandatory for companies exceeding certain thresholds. France follows OECD guidelines.
- Arm’s Length Principle: Transactions between related parties must adhere to the arm’s length standard.
- Penalties: Non-compliance with transfer pricing rules can result in penalties, including adjustments to taxable income and fines.
Special Tax Regimes
- Patent Box Regime: France offers a reduced tax rate of 10% on qualifying patent income.
- Free Zones: Some businesses operating in economically disadvantaged areas may benefit from tax exemptions.
- Taxation of Foundations: Foundations and charitable organizations benefit from tax-exempt status under specific conditions.
Other Taxes
- Wealth Tax (Impôt sur la fortune immobilière – IFI): Applies to individuals whose total net property assets exceed €1.3 million. Rates range from 0.5% to 1.5%.
- Real Estate Transfer Tax: Typically 5.09% on the sale price of real estate.
- Capital Gains Tax: 30% flat rate (including social levies) on gains from the sale of securities.
- Inheritance and Gift Tax: Rates vary depending on the relationship between the donor and recipient, ranging from 5% to 45%.
Double Taxation Agreements (DTAs)
France has a vast network of DTAs, including treaties with most major countries, to prevent double taxation and ensure appropriate tax relief.
- Key Partner Countries: The U.S., UK, Germany, China, and Japan are among France’s major DTA partners.
- Withholding Tax Reduction: Dividend, interest, and royalty payments to residents of DTA countries often benefit from reduced withholding tax rates.
Compliance and Reporting
- Corporate Tax Filing Deadline: Corporate tax returns must be filed annually by May 31 of the following year.
- VAT Filing Requirements: VAT returns are typically filed monthly or quarterly, depending on turnover. An annual return may also be required.
- PIT Filing Deadline: Individuals must file annual tax returns, with deadlines varying by region (generally May to June).
- Penalties for Non-Compliance: Penalties for late filing or non-payment can be significant, including surcharges of 10% to 80% depending on the delay or severity of the infraction.
Recent Developments
- Corporate Tax Reform: The French government has been gradually reducing the corporate tax rate from 33.33% to 25% by 2022, making the tax environment more competitive in the EU.
- Digital Services Tax: France introduced a 3% tax on revenue generated by large tech companies providing digital services to French users. This tax has caused friction with the U.S. but remains in effect while global digital tax negotiations continue.
- Green Tax Initiatives: France is increasingly adopting green tax incentives, including tax credits for electric vehicles and energy-efficient home renovations, in line with its environmental policy commitments.
- Cryptocurrency Regulations: France has introduced stricter tax rules for cryptocurrency gains, which are subject to capital gains tax.
Subscribe to my free newsletter for regular updates on law, taxation and business worldwide.