France: French residence for tax purposes

INTRODUCTION

If you are tax-resident in France, you will be liable to pay tax on your worldwide income. If you become a tax resident, it is your responsibility to make yourself known to the French tax authorities and to declare fully your income, capital gains and wealth. You become French tax-resident from the day after you arrive in France with the intention of settling there indefinitely. Your French tax return needs to be filed before the 15th March after the end of the calendar year in which you arrive in France.

Note that this is not a matter of individual choice; you either are, or are not, a French tax resident. The concept is quite different to the carte de séjour (the French residence permit) although the French tax authorities are alerted when you apply for the carte de séjour. Most EU nationals are no longer required to obtain a carte de séjour – see Section 4.8 for further details.

The French tax year is a calendar year. In France, taxes are declared a year in arrears. Thus income earned in 2006 is declared on your tax return due by 15th March 2007.

The taxes are administered by over 120,000 tax agents who function as part of the Ministry of Finance (Ministre de l’Economie et des Finances). The resident taxpayer will deal with one of the 800 or so Hôtels des Impôts whilst the non-resident will deal with the Centre des Impôts des Non-Résidents (see Appendix 1 for contact details).

For tax purposes, France consists of mainland France (including territorial seas within 12 miles of the coast); various small islands in French coastal waters (excluding the Channel Islands); Corsica, and those overseas territories known as Departement Outre Mer (DOM) and/or Territoires Outre Mer (TOM).

RESIDENCE

If you arrive in France with an intention to reside there indefinitely you become a French tax resident from the day after your arrival. Thus any gains made on worldwide income before arriving in France are tax-free (except for gains/income arising in France), but are taxable if they arise after you have arrived in France.

An individual is deemed to be a tax resident of France if at least one of the four following criteria is fulfilled.

1) France is your main residence or home. If your spouse and children live in France you will be considered a French tax resident even if you work abroad.

2) France is your séjour principal. This usually means spending more than 183 days in France per calendar year. However, an individual spending only four months in France, with the other eight months spread among up to six countries, would also be deemed to have their séjour principal in France. Usually, the French tax authorities will accept an individual as being a non-French resident if they have spent more days in any one single country other than France.

3) Your principal activity is in France, eg, your occupation is in France (whether salaried or not), or your main income arises in France (whether salaried or not).

4) France is the country where you have most of your substantial assets (known as your “centre of vital economic interests”). This means that France is where you have your principal investments, or where your assets are administered, or from where a larger part of your income is drawn. To put it another way, in order to show that you are not resident in France you must prove that:

5) Your principal residence is located outside France, and

6) You spend less than 183 days per year in France, and

7) Your main income is not in France, or

8) While a resident in France, under French law, you have been specifically deemed to be a non-French resident as you are a resident in another country with a Double Tax Treaty, and under the specific provisions of the treaty you are correctly deemed to be a non-French tax resident

183 DAYS IN FRANCE

If you spend 183 days or more in the tax year in France you will become a French tax resident regardless of where you stay. This does not have to be a continuous period of 183 days; this is a cumulative total assessed during the course of the French tax year (1st January 31st December).

Even if you spend less than 183 days in France, you may be tax-resident if you have spent more time in France than in any other country. If your spouse and children are French residents you may also be regarded as a resident for French tax purposes, even if you work abroad.

A day of travel to or from France is counted as a day spent in France.

EMPLOYMENT AND INCOME IN FRANCE

If you are employed in France (or are self-employed) you will be considered a French tax resident unless you can prove that the occupation is ancillary to your main occupation in another country. If your income is mainly from a French source, then you may be classed as a French tax resident.

YEAR OF ARRIVAL

In the tax year of your arrival, only the worldwide income received after the date of arrival is liable to French income tax.

It should be noted that once you have become a resident for French tax purposes you will be liable to pay tax on your worldwide income, capital gains and wealth, in addition to a number of ancillary taxes including gift and succession tax, and VAT. If you run an incorporated business in France, usually only the profits arising in France will be liable to corporation tax.

There is obviously an opportunity to save considerable amounts of French tax by disposing of assets before you arrive in France.

DOUBLE TAXATION

You can be resident in both the UK and France simultaneously. However, the UK/France Double Tax Treaty must deem you to be resident in only one country.

The UK/France Double Tax Treaty has a “tie-breaker” clause that comes into operation if you are resident both in the UK under UK domestic rules and in France under French domestic rules. The purpose is to determine in which country you will be regarded as resident for the purpose of taxes covered by the agreement – it cannot be both.

The agreement works as follows:

9) If you are resident in both countries according to each country’s domestic rules, you are deemed to be resident in the country in which you have a permanent home available to you.

10) If you have permanent homes available in both countries, you are deemed to be a resident in the country that is your “centre of vital economic interests”, ie, the country with which your personal and economic relations are closest.

11) If this test is indeterminate, you are deemed to be resident in the country in which you have a habitual abode, but if you have one in both countries, you are deemed to be resident in the country of which you are a national. UK nationals will at this point be regarded as UK residents for tax purposes.

HUSBAND AND WIFE HAVE DIFFERENT TAX RESIDENCES

When one spouse is living in a home in France, but the other is living mainly elsewhere, the question of whether the spouse living outside France is treated as a French resident depends on:

1) The application of any relevant Double Tax Treaty and, failing that, on

2) Whether the couple are “living together” (ie, they have a vie commune)

If the couple are married under a common property regime, it is likely that they will be regarded as living together, so that the absent spouse will be considered to have his or her “household” in France. However, if the couple is married under a separate estates regime (as most couples from common law countries such as the UK are) and they are living under separate roofs, the couple may be taxed separately.

1) If one of the spouses is treated as a non-resident, both are exposed to French income tax on:

2) The worldwide income, capital gains and wealth of the resident partner; and

The French income source of the non-resident partner

CARTE DE SÉJOUR

The carte de séjour (residence permit) is no longer required for UK nationals (or for nationals of other EU member countries, apart from those states which joined in May 2004).

If, under these rules, you are not exempted and if you are to stay in France for more than three months in a calendar year, you are required to obtain a carte de séjour. This does not necessarily mean that you are French tax-resident, but the tax authorities will be alerted to your presence. You will need to present your passport to the local prefecture and provide evidence of income (the tax threshold of which varies by region, but as a guideline is usually about €10,000 p.a.). The carte de séjour is usually issued for a five-year period but may be less if, for example, you are a student.

© Blevins Franks International Limited 2006

“Living in France” 5th Edition 2006, Bill Blevins & David Franks.
Reproduced with the permission of Blevins Franks.

Further information on this topic can be found in “Living in France”, 5th Edition by David Franks & Bill Blevins.