Taxes in France: System and Features
France is famous for its high level of welfare and social support for its citizens. Its tax system, which is a multi-level progressive taxation system, is one of the most humanistic in the European Union. It plays a key role in ensuring social stability and financial security of the population.
Who is liable to pay taxes:
In most cases, taxes in France must be paid by tax residents. Non-residents may also be liable to pay taxes if they own real estate in France or receive income from French sources.
A resident is a person who has lived in France for more than 183 days a year and who has lost his or her residence in another country. This means that the person's center of economic interest is in France.
Residents, like non-residents, must pay property taxes and income taxes on income inside and outside France. Social security contributions must also be paid.
Progressive Rate:
The French tax system uses progressive income tax rates. The tax rate depends on the level of income.
Income up to €10,000 per year is not taxed. Between €10,000 and €26,000 is taxed at 11%. Income between €26,000 and €74,000 is taxed at 30%. Income over €74,000 is subject to a tax rate of 41% and income over €160,000 is subject to a tax rate of 45%.
Spouses cannot elect separate taxation and the tax is calculated for the entire family as a household.
Social contributions:
Residents are obliged to pay social contributions that finance pension funds and the health care system.
Social Security contributions also provide access to health insurance and benefits.
Double taxation:
In order to avoid double taxation, conventions have been concluded between France and other countries which define the rules for determining the place of taxation and granting deductions.
Dynamism of the tax system:
The French tax system is dynamic and rates can change depending on the economic situation and the government's strategic objectives.
The system supports low-income segments of the population, ensures social equality, while restricting the incomes of the upper classes.
France pays great attention to supporting its citizens and ensuring social stability. Its tax system plays a key role in achieving this goal by ensuring financial sustainability and support for different segments of the population.
Real Estate Taxes in France
Investing in real estate in France is considered a reliable way to preserve and grow capital and can also serve as a basis for obtaining a residence permit. However, in order to effectively manage your investment, you should carefully consider the tax obligations associated with acquiring and owning real estate in this country.
Notary Expenses:
When buying real estate in France, a notary handles all the necessary documentation, registration in official registries and interaction with the city administration and banks.
Notary costs are 2.5% of the value of the primary residence and 7.5% for secondary residences. These costs include various administrative costs.
Real Estate Ownership Tax:
Once you buy a property, you must pay an annual property tax (taxe foncière) regardless of where you are located.
The rate of this tax is determined by local authorities and depends on the cadastral value of the property. The factors affecting the rate are the area and region of the property.
Generally, the more developed the region and city, and the more businesses located in the area, the lower the property tax rate.
Accommodations Tax:
Occupancy tax is paid by the persons living in the purchased property. If the property is rented out, the tax is paid by the tenant.
The rate of this tax is also determined by local authorities and depends on the economic condition of the particular city. In 2023, an exemption from the tax was introduced for households where the property is considered a principal residence. However, the tax remains in place for all properties that are not a primary residence.
Luxury Tax:
If the value of the purchased real estate exceeds the established threshold of 1.3 million euros, French law provides for a luxury tax (impôt de solidarité sur la fortune) with a progressive rate of up to 1.5% of the value of the property.
Apartments, private houses, garages, land plots without structures and other real estate objects are considered subject to the luxury tax.
French residents and foreigners who have their center of economic activity in France must pay luxury tax on all real estate worldwide. However, there is a legal way to avoid this tax: register the real estate to a legal entity, such as a SCI family company, with shares of participants not exceeding a threshold of 1.3 million euros.
Investing in French real estate can be lucrative, but requires careful planning for tax liabilities to ensure financial efficiency and legal compliance.
Tax on Rental Income:
When renting property in France, there are two categories: furnished and unfurnished.
In unfurnished premises, there is no list of necessary furniture, such as bedding, kitchenware, etc. Income from renting out such properties is subject to a simple income tax at a progressive rate.
For furnished premises, rental income is subject to tax on industrial and commercial profits (BIC). Rental can be classified as professional or non-professional.
Non-professional rental is possible if the annual rental income does not exceed 23,000 euros or if the income from renting furnished premises is less than the total household income.
Professional rental is subject to income tax at a progressive rate, depending on the total income amount.
Tax on Unoccupied Housing:
In some regions of France, there is a tax on vacant housing (la taxe sur les logements vacants) for unfurnished properties that have been left empty for more than a year.
The tax rate is 12.5% after the first year of inactivity and 25% for each subsequent year.
Tax on Profit from Real Estate Sales:
When selling real estate in France, the difference between the sale price and the purchase price is subject to capital gains tax (Plus-value immobilière).
The capital gains tax consists of income tax on profits and social contributions, and it depends on the residency of the seller at the time of the sale.
Residents of France pay an income tax rate of 19%, while non-residents pay 30%. Social contributions are 17.2% for residents and are determined by international tax agreements for non-residents.
After 5 years of owning property, tax rates gradually decrease.
Inheritance Tax:
When transferring property rights to heirs in France, inheritance tax rules apply.
Inheritance tax is mandatory for residents living in France for more than 6 years. It depends on the degree of kinship of the heirs and the value of the inheritance.
Residents of France are entitled to benefits and deductions every 15 years when inheriting through a legal entity, such as a family company SCI.
Filing the Declaration:
Taxpayers are required to submit declarations of their income and tax obligations. Initially, it is necessary to register with the local tax authorities.
Declarations can be submitted in person or online, and taxpayers must provide information about their income, including rental income, both within France and abroad.
Fines
A delay or incorrect representation of data in the declaration can lead to penalties. The fines can vary depending on the nature of the violation and can be substantial.
All tax obligations in France are subject to changes, and it is recommended to consult with professional tax advisors or lawyers to accurately determine tax obligations and benefits according to your specific situation.
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