If you have employees in France, you're no doubt starting to worry about this key change to the way personal income tax is collected. What does it mean for your staff, finance and HR department? What will be the cost to your business?
The good news is that the French Government has been very proactive in flagging the upcoming change, including posting a mandatory educational video on their website that all employees needed to view, before filing their annual personal income tax.
What does the new Pay As You Earn (PAYE) system mean for employers in France?
First and foremost, that you don't need to turn into a helpline for your staff. But you will need to be ready to meet some new obligations. TMF France is staying on top of the latest developments in order to prepare our clients for the change. You can make an enquiry to find out how we can help your business too.
So what's changing exactly?
After some delay, withholding tax will be implemented for French salaries (also pensions and French property income) from 1 January 2019.
It's a significant change from the country's current system, whereby tax centres collect personal income tax directly from employees one year in arrears. Employers are not involved in this collection; they simply pay a net salary to their workers each month, who are responsible for filing and paying their own income taxes. However from next year, this is no longer the case.
The French government is now ready to roll out withholding tax at-source. The 'source' being employers, who must make this deduction based on the employees' individual levy rate and reflect it in monthly employee payslips. At the end of each month, employers must complete an e-filing with their local corporate tax centre.
Essentially, companies with employees in France will be obliged to:
- Apply their employees' tax rate as provided to them by the DGFiP (Direction Générale des Finances Publiques)
- Collect the necessary monthly withholding tax on employee net salaries and declare the amounts on payslips accordingly
- Pay these amounts monthly to the DGFiP via DSN, several days after making salary payments. Repayment dates are specified according to company size (number of employees).
When will I know the tax rates for my employees?
These rates will be provided to both employees and their employers for sampling purposes between September and October 2018. Due to privacy concerns, employees will have the option of choosing to have a non-personalised tax rate shared with their employer.
What if I make a mistake?
The French tax administration takes responsibility for providing companies with the correct tax rate for each employee, however it is the responsibility of the employer to correctly calculate personal income tax deductions from payslips, and transfer the correct amount to the DGFiP.
It's important to note that the employee holds no obligation for the deduction of personal income tax under the new system, and any failure to collect and transfer the necessary amounts will see the tax authority pursue the employer.
Working with a professional payroll services provider in France – such as ourselves – is an optimal solution to help you mitigate the risk of payroll errors and subsequent consequences.
What about employee privacy?
There has been some concerns around the sharing of individualised tax rates with employers – as this is seen as personal data in France. However, the tax department is stressing the point that employees don't need to provide any additional information to their employers as 'tax collectors' and that their confidentiality is guaranteed. Employers themselves will only be given withholding tax rates, which of themselves provide no specific information about employee finances. The vast majority of taxpayers in France (90%) will reportedly have a withholding tax rate of between 0% and 10%, despite many different personal finance situations.
Will employees be taxed twice?
No, as in 2018, employees will pay their tax due on their 2017 income as usual. Then in 2019, monthly withholding tax 'at source' will begin, and the tax due on 2018 earnings will be calculated based on the usual filing, but then cancelled via a special tax credit (CIMR) which is due in Spring 2019.
This tax credit does not apply however, to any out-of-scope income such as from movable capital, real estate gains, capitals gains from disposals of securities or capital gains from disposals of tangible assets. The aforementioned remains subject to income tax, as does 'exceptional' income such as a departure retirement.
What will this change cost me / my business?
No special investment is needed by employers if they use a payroll services provider, however they should expect some increase in fees for the additional processing work. There are three scenarios where some businesses in France may find they encounter extra costs:
- Employers with expat employees. It's suggested these businesses seek advice from a tax lawyer or an expat agency in order to review the tax status of their non-resident employees and check their eligibility for the new PAYE system. It should be noted that payroll vendors cannot do this analysis.
- Employers that don't have a SEPA-ready bank account. If this is the case, the business will need to open a SEPA bank account or use the services of a payroll provider to handle the payment to DGFIP. SEPA direct debit is the only method of PAYE payment allowed by DGFIP.
- International employers from a country without a tax treaty with France. Depending on the country, it may be necessary for the business to appoint – and pay – a tax representative.
Talk to us
TMF France's HR and payroll experts can provide guidance on the practical aspects of implementation, including what to communicate to your employees and when, and assist in communication and coordination with relevant tax centres.
Need more information? Get in touch with our team in France.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.