French Tax Returns

The French tax year is the calendar year and the deadline for returning your completed declaration of income earned in 2012 is the 31st May 2013. Those of you already in the system should receive your partially completed form (or “préremplie”) by the end of the first week in May.

However, for most expatriate taxpayers in France, the amount of data that has been pre-completed will actually be quite minimal, since for the time being only French earned and pension income is included.

Similarly to last year, the tax authorities, or the ”Fisc”, have granted extra time for those who make their declarations on line at French Tax Authorities, however, the amount of extra time you will have actually depends on which “zone scolaire” you are in so please check. Unfortunately, first time tax payers cannot use the online facility as the process requires your tax identification number. For existing taxpayers using this on line facility for the first time, there is also the bonus of a €20 tax reduction. There is also now an online facility.

For those of you who are about to complete your first tax return, nothing will be sent to you automatically and the onus is on you to collect a tax form from your local tax office (“Centre des Impôts”), or download one from http://www.impots.gouv.fr/ and send it off by the end of May. This may seem like a daunting prospect, but once you understand the system it can actually be a fairly painless experience.

What Forms will you need?

The Déclaration des Revenus is made up of a variety of forms, according to your circumstances. These are some of the main forms that apply to expatriates:

Form 2042

This is the main tax form, which those of you already in the system will receive partially completed, where you should declare your worldwide income and gains.

Form 2042C (“Complementary”)

This is an additional form which is required for a number of situations, including where you have received income from furnished letting or chambres d’hôtes, or where you have paid tax in the UK that needs to be offset against French tax.

Form 2047

This is an additional form for any income received from outside of France. Foreign income must be declared on this form, as well as on Form 2042.

Form 3916

This is for details of any bank accounts situated outside of France.

How will your existing income be taxed?

In France, income tax is calculated very differently than in the UK. In very general terms, once resident in France, you will be taxed as a household unit, with all of your household income added together and divided by the number of “parts” in the household.

Joint taxation does not apply to unmarried couples who are co-habiting unless they have signed a PACS agreement. Following recent changes, couples that have signed a PACS agreement (“Pacte Civile de Solidarité”) no longer have to wait two years before making their first joint declaration, and must declare jointly any income earned since the date they signed the PACS.

Once the household income has been divided according to the number of parts, each “part share” will then be taxed according to the French income tax bands, which range from 0% to 40% as follows:

IncomeRate of Tax
Up to €5,6870%
€5,687 to €11,3445.5%
€11,344 to €25,19514%
€25 195 to €67 54630%
€67 546 and above40%

So, for a married or PACS’d couple living together, the combined income is divided equally between them. Each half is then assessed for tax and this is added together (or multiplied by 2) to give the household tax liability.

A couple with children have the benefit of added “parts” in the household, which further reduces the tax liability:

Married couple: 1 part each
The first two children: 1/2 part each
Third and subsequent children: 1 part each

A couple with 3 children would therefore divide their household income into 4 parts, assess each part for income tax, then add their respective liabilities up together (or multiply one part by 4) to calculate the total household liability. This system obviously favours large households, but also reduces the tax burden where one partner earns the majority of the earned income (or pension income).

There are certain cases where extra “half parts” are granted, depending on special circumstances, so it is important to complete the section on your personal situation as fully as possible.

What to declare

As a French resident, you should declare all of your worldwide income and gains on your French tax return. Even if you pay income tax outside of France – such as on UK rental income or public sector pensions – the income will still be used to calculate your overall tax liability. Don’t worry, the Double Tax Treaty prevents you from paying tax twice on this income, but these figures are needed to calculate the rate at which your other income should be taxed.

What exchange rate to use?

This is a question to which thre have been varying responses from different tax departments over the years. For 2006 some tax offices were telling people to use the £/€ exchange rate at the end of the year. While this is not foolproof, it was actually quite close to the average exchange rate for 2006. However, the “Fisc” may not look too favourably on using the rate at the end of the year, where such a rate does not work in their favour. The alternative is to keep track of the exchange rates applicable to your Sterling income as you received it.

Wealth Tax (Impôt de Solidarité sur la Fortune or “ISF”)

This is a completely separate tax, which is based on a “snap-shot” of the assets of a household on the first day of the year. Unlike income tax, unmarried and “un-PACs’d” couples living together are considered a household for this tax by the “Fisc”. Wealth Tax returns are due by 15th June, just 2 weeks after the normal deadline for Income Tax returns.

You will be expected to complete a Wealth Tax return for the year if you had taxable assets in excess of €770,000 on 1st January (2006 figures) and were resident in France at that time. You will then be taxed on the value of the assets you declare as follows:

WealthRate of Tax
€770,001 to €1,240,0000.55%
€1,240,001 to €2,450,0000.75%
€2,450,001 to €3,850,0001.00%
€3,850,001 to €7,360,0001.30%
€7,360,001 to €16,020,0001.65%
Above €16,020,0001.80%

The principle of a tax on what you own, as opposed to what you earn, coupled with the occasionally sensationalist treatment of Wealth Tax by the British press, mean that it is often a subject of fierce criticism. In reality though, Wealth Tax should only be a real concern for the extremely wealthy. For example, a household with taxable assets of €1,500,000 would have a tax bill this year of €4,535, which is relatively reasonable, even if it must still be budgeted for each year. A household with taxable assets of €15,000,000 however, would have a bill of €198,000, which is obviously a little more difficult to live with!

To work out whether you are in the Wealth Tax bracket, you need to calculate the “sale” value of all assets on 1st January of that year. There are various exemptions for assets used in a business, antiques and fine art, and a 30% allowance is given against the value of your principal residence.

You will then need to complete form 2725 and its 4 annexes, on which you list all assets, add up their values and calculate the tax due. As the declaration should be based on the value of your assets at a specific date, there is no ambiguity as to the exchange rate which should be used to declare the value of any Sterling assets.

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