The operating of income tax in France

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The persons eligible for income tax in France are those persons whose tax domicile is in France, as well as persons not domiciled in France for tax purposes but receiving income in this country.

The concept of fiscal residence in France

The four main factors that determine the tax residence of a person are:

  • His place of residence (or that of his family home). Some taxpayers are taxed in France even if their occupation is abroad.
  • His principal place of residence (if, during the calendar year, the taxpayer has spent more than 183 days in France, it will be considered a French tax resident).
  • His place of work as their main occupation (which has no incidental to an activity carried out abroad).

Income tax only applies to « Personnes Physiques » (i.e. not companies with a legal person) . However, for the calculation of its income tax, the taxpayer is not considered as an individual, but as a fiscal household.

Income affected by the tax in France

According to their source, the concerned income undergo different treatments.

Thus, there are eight categories of income:

  1. Treatments, salaries, pensions and annuities
  2. Industrial and commercial profits
  3. Non-trading profits
  4. Agricultural profits
  5. Income from movable capital
  6. Land revenues
  7. Capital gains of individuals

The concepts of family quotient and tax part in France

The family quotient enables to determine the marginal tax rate of the household.

Example :

A married couple with 2 children has an annual taxable income of €30,000. The fiscal household has therefore 3 tax parts.

30 000/3 = 10 000 €

The family quotient of this household is €10,000, hence the marginal tax bracket of this couple is 5.5%.

The number of tax parts

The family quotient is determined by the number of people in the fiscal household. It is considered that an adult counts for 1 tax part and a child accounts for 0.5 tax part (from the third child, a child counts as one fully-fledged tax part).

Number of dependent childrenCouple married or PACSWidoweSingle & divorced

0

2

1,5

1

1

2,5

2,5

1

2

3

3

2

3

4

4

3

4

5

5

4

 

The fiscal household receives an additional part per disabled person.

The number of tax parts in case of joint custody

The number of parts shown in this table is added to the base part, which the taxpayer is a beneficiary of.

 

Number of dependent children

0

1

2

3

4

Number of children in shared custody

0

0

0,25

0,5

1

1,5

1

0,5

0,75

1,25

1,75

2,25

2

1

1,5

2

2,5

3

3

2

2,5

3

3,5

4

4

3

3,5

4

4,5

5

Thus, a divorced person with a dependent child and a child in joint custody, will receive one base part + 0.5 part for the child in sole custody + 0.25 part for the child in shared custody. Therefore, a total of 1.75 parts.

The capping of the French family quotient

The capping of the family quotient is a measure that seeks to limit the tax benefit granted by the family quotient.

Currently, this benefit is limited to €2,000 per additional half-share, but the finance bill 2014 aims to reduce the limit to €1,500 per additional half share.

Additional half shares are those that add to the first two tax parts in the case of a married or civil partnership couple and the first tax part for singles.

Example

Let’s take the case of the couple shown in the previous example (married, two children, taxable income of €30,000) .

With 2 additional half shares, the capping of the family quotient for this fiscal household is €4,000 (2 x €2,000).

30,000 x 0.055 – 327.97 x 3 = €666.09 *

30,000 x 0.055 – 327.97 x 2 = €994.06 *

994.06 – 666.09 = €327.97 The capping is therefore not exceeded.

* the formulas used are taken from the table in the section  » The applicable formulas « 

In addition, there are some specific caps in different situations:

  • For a single person raising a child, the family quotient cap is €4,040 for the additional tax part that represents the first child (and €4,672 for widowed).
  • For the disabled (or war veterans) the tax benefit is limited to €2,997 by additional half tax part.

The calculation of the French income tax

The 7 Steps

1 – Income declaration
2 – Deduction of deductible expenses
3 – Application of the rebates
4 – Application of the family quotient
5 – Calculation of the gross tax
6 – Application of discounts and tax reductions
7 – Payment of tax

The rates of income tax in France

The rates of income tax work by increments

Taxable incomeTax Rate

from 5 963 €

0 %

from 5 963 € to 11 896 €

5,5 %

from 11 897 € to 26 420 €

14 %

from 26 421 € to 70 830 €

30 %

from 70 831 € to 149 999 €

41 %

more than 150 000 €

45 %

It is important to note that this is a progressive scale: a taxpayer with a taxable income of €20,000 will not be taxed at 14% on €20,000, but as follows:

  • 0% to €5,963
  • 5.5% on €5,933 (€11,896 – €5,963)
  • 14% to €8,104 (€20,000 – €11,896)

In addition, it is not the income, but the family quotient that determines the marginal tax bracket of a fiscal household.

The formulas for calculating French income tax

To calculate the income tax, it is first of all necessary to determine the marginal tax bracket starting from the family quotient.
Then, apply to the household income (and not the family quotient) one of the following formulas depending on your marginal tax bracket.

Family quotientTranche marginal taxCalculation Formula

until 5 963 €

0 %

0

from 5 963 € to 11 896 €

5,5 %

(R x 0,055) – (327,97 x N)

from 11 897 € to 26 420 €

14 %

(R x 0,14) – (1339,13 x N)

from 26 421 € to 70 830 €

30 %

(R x 0,30) – (5 566,33 x N)

from 70 831 € to 149 999 €

41 %

(R x 0,41) – (13 357,63 x N)

more 150 000 €

45 %

(R x 0,45) – (19 357,63 x N)

R = net taxable income of the fiscal household

N = number of tax parts in the household

The social charges

These social charges apply to:

  • 97% of wages earned
  • Pensions and annuities
  • Industrial and commercial profits
  • Non-trading profits
  • Agricultural profits
  • Income from movable capital
  • Land revenues
  • Capital gains of individuals

The social charges are due in addition to income tax.

The rate of social security contributions is 7.1% for pensions and unemployment benefits, 8% for earned income, 15.5% for income from wealth and investments.

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