The introduction of French payroll taxes for French tax residents as of 1 January 2019 is a current eye catcher as it also impacts foreign based (e.g. Belgian or Dutch) employers. Indeed, these foreign based employers will have to be compliant with the new French payroll tax requirements (i.e. referred to as 'Prélèvement à la Source').
Who?
Foreign based companies employing French tax residents who are also (partially) active in France and therefore taxable in France on (part) their income. French tax authorities require a registration from these foreign based employers in order to start withholding French payroll taxes. The foreign based company has no such obligation when the French tax resident is working in France for a local (French) employer as well (e.g. 'formal salary split'). In such case, the French (local) employer will have to comply with this new payroll tax system.
Is local foreign (e.g. Belgian or Dutch) payroll impacted?
Yes. When withholding French payroll taxes, it is also important to adapt the employee’s payroll as the withheld French payroll taxes should be deducted from the income in order to determine the net payable income, i.e. the income after paying social security and payroll taxes.
Does the employee pay more taxes now?
No. Up till 31 December 2018, French taxpayers had to make tax prepayments in relation to their professional income which were offset against the tax assessment bill received following the filing of their French income tax return. The same offsetting system is maintained under the new payroll tax system.
Upon its registration, the foreign based employer will receive the payroll tax rate to apply from the French tax authorities. This tax rate will be based on the French taxpayer’s income as reported in his 2018 French income tax return (with respect to his 2017 income). Depending on his 2019 income situation, this applicable tax rate could be too high in which case an adjustment can be processed to obtain a tax rate which is more in line with the expected activity (i.e. income) in France.
Please note that the system of tax prepayments on professional income has ceased applying automatically as of 1 January 2019. A new system of tax prepayments is created for other (non-professional) income.
Are French non-residents active in France impacted by this payroll tax system?
No. For French non-residents taxable in France, France applied and continues to apply a withholding at source (i.e. referred to as 'Retenue à la Source'). Although nothing changes in this respect until 1 January 2020, it is recommendable to verify whether this obligation is complied with as in practice we often see this is not the case.
Action point(s)
- Check every ongoing situation in the (group)company(ies) with French tax residents taxable in France, who are not working for a local French employer.
- In the event a French tax resident is working for a foreign based employer in France, start the registration procedure with the French tax authorities.
