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Investment Taxation for Expats in France

Submitted: January 2014

Taxable income in this category includes:

  • interest from bank and building society deposits
  • interest from government and corporate stocks (bonds)
  • rental income from properties both in France and abroad
  • dividends, and
  • capital gains.

 

Interest

For residents, interest income from French sources is assessed with other income at the progressive income tax rates; normal social contribution taxes are also payable. Interest payments are subject to tax at source in the form of a deposit of 24% , which can be later offset against income tax payable. If you earn less than €25,000 (€50,000 for a couple), you can request an exemption from this deposit. If you earn less than €2,000 in interest, you can opt for a flat rate of tax of 24%. As a resident you will also have to pay tax on interest from outside France, and may be subject to withholding taxes in the country of origin, though these may be reduced if a suitable tax treaty is in place.

Generally there is no withholding tax on interest sent abroad from France, apart from the 75% rate mentioned below, apart from a special 75% withholding tax is levied on interest sent to tax jurisdictions that are deemed to be non-cooperative on tax matters (mainly tax havens).

 

Rental income

For a resident, rental income worldwide is taxed as ordinary income and must be reported with your tax return on a special form. There are various expenses that can be set against rental income including repairs, maintenance and improvement costs, management fees, real estate taxes and insurance costs. If you are a resident receiving rental income from a tax treaty country outside France, you may be able to offset tax paid abroad against your French tax liability. Foreign rental income from a non-treaty country can be reported on your tax return net of any withholding tax paid abroad.

For non-residents, only rental income that is from a French source is taxable.


Dividends

For residents, dividend income from French sources is assessed with other income at the progressive income tax rates; normal social contribution taxes are also payable. They are subject to a tax at source in the form of a deposit of 21% , which can be later offset against income tax payable. If you earn less than €50,000 (€75,000 for a couple) you can request an exemption from this deposit. Shareholders benefit from a 40% allowance on the distributed amount.

Dividend payments to non-residents are subject to a withholding tax of 30% (21% for residents of other EU countries, Iceland, Norway or Liechtenstein) though this can be reduced by suitable tax treaties. A special 75% withholding tax is levied on dividends sent to tax jurisdictions that are deemed to be non-cooperative on tax matters (mainly tax havens).


Capital gains

For residents, capital gains from the sale of real estate are generally taxed at a rate of 19%. Capital gains of €50,000 or more are subject to additional tax of between 2% and 6%. Normal social contribution taxes are also payable. Once a property has been held for longer than five years, the tax base is progressively reduced by a certain percentage each year, until after 30 years it is exempt from capital gains tax. Capital gains on a principle residence of a taxpayer are exempt, subject to certain conditions. This exemption can also apply to second homes, again subject to certain conditions. Expats who become resident should be aware that capital gains realised abroad after becoming resident are taxable, even if the asset was acquired before becoming resident. In addition taxpayers who leave France to move to another country may be immediately liable for an exit tax on unrealised capital gains. Capital gains on securities such as shares and loan stock are taxed at the progressive income tax rates. There are tax allowances for certain securities which are held for longer than two years. There is a flat rate 19% tax on certain shares subject to several conditions. Normal social contribution taxes are also payable.

For non-residents, capital gains on property are subject to a withholding tax of either 19% (for EU residents) or 33.33%. The tax must be paid to the notary before the deed can be executed.

 

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