French Income Tax Withholding at Source – New Rules Effective 1 January 2018

Very significant changes were announced by the French Minister of Finance and Public Accounts and the Secretary of State for the Budget on Wednesday 3rd August 2016.

With effect from 1 January 2018, French income tax withholding at source will be implemented. This reform will affect more than 98% of households in France as income tax withholding will now be required in respect of private employees, civil servants, beneficiaries of replacement income (pensions, unemployment benefit), independent (tradespeople, liberal professions, farmers) and owners of property income.

As far as employees are concerned, with effect from 1 January 2018 the employer will be required to calculate the French income tax withholding due from all employees, withhold the appropriate amount from each employee’s earnings and report and remit the French income tax withholding amounts to the French income tax authorities.  This will obviously increase the administrative burden on employers in France. 

Further communications and updates will be provided in the coming months however at this point we understand that the French tax authorities will provide at some point during the summer months of 2017, an estimated tax rate to all employees and employers.  This estimated tax rate will be based on the employee’s taxable income received and reported for the 2016 French tax year and this is the French income tax withholding rate that will be applied to the employee’s salary with effect from 1 January 2018.

The French income tax withholding rate may vary during the French income tax year if an employee’s earnings increase or decrease during the year whilst the employee can also request the rate to be amended to take into account a change in circumstances (marriage, divorce, birth of dependent etc.).

The automatic withholding of French income tax represents a very significant change in process for the majority of individuals in France and much more clarity on the transition from the current payment on account process to the automatic withholding process will follow in due course however for the moment, noted below is a high level timeline of the key dates to be aware of.   

2017

APRIL: Submission of French personal income tax return for 2016.

SUMMER: Estimated French income tax withholding rate is issued to all relevant individuals.

OCTOBER: The agreed withholding rate is submitted to the employer for action.

2018:

JANUARY: French income tax withholding is automatically deducted from an employee’s salary and reported and remitted to the French income tax authorities.

APRIL/JUNE: Submission of French personal income tax return for 2017.

SEPTEMBER: Employee French income tax withholding rate is automatically adjusted (if necessary) as a result of 2017 French income tax return submission.