Residency & Tax Returns in France
During May, I always receive lots of questions from people about French income tax returns. The most common ones are – should I complete a French tax return, do I have to declare that tiny bit of bank interest on my savings outside of France, do I have to declare dividends even if these are re-invested? If you are French resident, the answer to all of these questions is “YES”. In addition, depending upon the value of your assets, you may need to complete a wealth tax return.
Whether or not French tax returns should be completed is always a popular subject at social gatherings of expatriates and I have heard many people say that they “choose” not to be French resident. Well French residency is a fact and you only have to satisfy one of the following conditions and you will be resident in France:
- France is your ‘home’. If you have property in France and in another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.
- France is your ‘centre of economic interest’. Generally, this means where your income arises. In addition to pension, salaries, etc., this can include bank interest and other investment income.
- France is your place of ‘habitual abode’. Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.
- Nationality. If your residency has not been established by any of the above conditions, then it will be your nationality that determines your residency, however, this is very rare.
So with residency established, when completing a French income tax return, you must declare all your worldwide income and gains, even if some of this is ultimately taxable in another country. If there is a Double Taxation Treaty (DTT) between France and the country where the income arises and that other country has the right to tax certain income, your French tax bill will be reduced to reflect this. If there is no DTT and you pay tax in the jurisdiction where the income arises, then this will result in you being taxed twice. Although France has many DTTs, this is not so with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man.
For those of you who have completed the French tax returns this year, if you had to complete the pink 2047 form, this means that you had foreign income and/or gains to declare. If this is for any reason other than pension income, earnings or perhaps property rental income from outside of France, then you may benefit from a discussion to check that you are not paying unnecessary taxes on any investment income. For example, it may be better to invest your financial assets in an assurance vie, which is more tax-efficient for French residency, when compared to foreign bank interest and dividends.
Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France (except for anything that might be exempt as a result of a DTT), where the tax rates depend upon your relationship with your beneficiaries. However, by investing in assurance vie, in addition to the personal tax-efficiency for you, this type of investment also has the advantage that you can create valuable additional inheritance allowances for your beneficiaries.
If you would like to have a confidential discussion about your financial situation, please contact me by telephone on 04 68 20 30 17 or by e-mail at firstname.lastname@example.org.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter