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January 3, 2019

2019 in France - What you should know to start the New Year

1.  Implementation of the PAYE system as from January 1, 2019

  • Taxpayers receiving non-French source income will pay their French income tax as from January 2019 under automatic monthly debit on their French bank account. These installments are automatically calculated by the tax authorities, based on your latest (2017) income tax return. The amount is specified on your latest tax bill you received in 2018.

  • French tax filling requirements will be maintained in May 2019.

BREXIT: Because of the lack of visibility, we can assist the UK citizens who have moved to France during the year 2018 to enter the PAYE system as from January 1, 2019.
This proof of residency in France and registration with the French tax authorities may facilitate the process to apply from March 2019 (in the event of no deal) for the new registration system which will be brought in and which will replace the “cartes de séjour” under the existing EU system.
 

2.  Important for S1 holder – Reduction of the social taxes from 17,20% to 7,50% for taxpayer, resident or non-resident in France, who is affiliated with a     social security regime of a European country as well as Island, Norway, Liechtenstein and Switzerland 

  • As from January 1, 2019 for investment and passive income, and mainly interest, income deriving from withdrawals from « Assurance-vie » , dividends,

  • As from January 1, 2018 for rental income deriving from unfurnished rental properties, capital gain on sale of stocks and capital gain on sale of real estate.
    (Loi de Financement de la Sécurité Sociale pour 2019.
     

3.  Non-disclosure of the non-French bank accounts and non-French life insurance policies. The sanctions have been drastically reinforced

In case of non-disclosure :

  • The statute of limitations is 10 years (starting in 2009 for bank account held in European countries).

  • The fines or “amendes” are 1500 € per bank account and life insurance policy undisclosed, with no maximum, for the last three years: 2016, 2017 & 2018.

  • The funds can be considered as taxable to income tax if the origin of the funds cannot be provided and that it cannot be demonstrated that the funds have already been taxed or were exempt of tax.

  • The income deriving from the bank accounts and the life insurance policy are fully taxable.

  • Late filing tax penalty of 40% and since 2018 of 80% on the income is assessed. The 80% penalty should normally be avoided in the course of a spontaneous disclosure.

  • The interest rate imposed for late payment is 0.40% per month on the tax due (income tax and wealth tax) with no maximum.

  • Since 2018, criminal sanctions can be imposed by the French tax authorities of 500 000 € of financial penalty and 5 years imprisonment if it is demonstrated that the bank accounts have been intentionally undisclosed.
     


Caution - With the automatic exchange of information between countries which is now quite active and efficient thanks to the new technologies, it is strongly recommended to regularize spontaneously to show the good faith, and at least to avoid the criminal sanctions and the 80% penalty, when possible.

The law against fraud (Loi de la lutte contre la fraude) enacted in October 2018 requires that the non-active non-French bank accounts must also be disclosed.
 

4.  EXIT TAX – Reduction of the holding period from 15 years to 2 years

Taxpayers who transfer their tax residency outside of France are liable to the French exit tax if the following conditions are met :

  • They have been considered as French tax residents for a period of at least 6 years during the 10 years preceding their departure from France, and

  • They own, directly or indirectly, at least 50% of the capital of a company or holdings which are worth more than 800 000 €.

The holding period giving right to an automatic tax cancellation or reimbursement of the exit tax has been reduced, as from January 1, 2019, from 15 years to 2 years, and 5 years for assets exceeding 2 570 000 €.

 


New for non-residents in France

1.     The minimum tax rate applicable for non-residents on French source income will be increased from 20% to 30% on French yearly taxable income exceeding 27 519 €.

On income under 27 519 € the minimum tax rate will remain 20%

Applicable as from January 1, 2018.
 

2.     Reduction of the social taxes from 17,20% to 7,50% for non-residents, who are affiliated with a social security regime of a European country as well as Island, Norway, Liechtenstein and Switzerland

Applicable as from January 1, 2018.
 

3.     Full Exemption of the capital gain on the sale of the French principal residence for
non-residents until the end of the year following the departure from France

Applicable as from January 1, 2019.

 

 

This summary should not be considered as exhaustive.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.
No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Catherine Terry, Avocat, does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

This publication (and any extract from it) must not be copied, redistributed or placed on any website, without Catherine Terry prior written consent.


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