Explained: Will you pay more tax if you move to France?

France is well known to be a high-tax country – but it doesn’t necessarily follow that people moving here will see a huge jump in their tax bill.

Accès restreint – Le Monde

When deciding whether to make the move many factors come into play, but for a lot of people tax is an issue.

In fact, when we asked readers of The Local for their biggest concerns about moving to France, taxes came out as among the top issues. Many people – especially retirees or those on a fixed income – were worried about how big their tax bill would be and whether they could afford it.

But while France is in some ways a high-tax country, not everyone will see an increase in their bills. In truth, it all depends on your personal circumstances.

France consistently tops the league tables for having the most highly taxed citizens in Europe, but for people moving here it’s all about tax treaties, as well as income streams.

Retirees – retired people were the group most likely to worry about tax increases, but are in fact the group least likely to be affected.

In most cases, people who retire and then move to France will be living off overseas income – ie their pension, which is paid in their home country. They may also have other income streams in their home country, such as rental income or income from investments.

All overseas income must be declared in France, but when it comes to paying tax on it, tax treaties rule.

France has bilateral tax treaties with most countries in the world, and although the details vary, the general principle is to avoid double taxation – so that if a person has already paid tax on their income in the country where it is earned, they do not pay tax on it again in France.

Therefore, most retirees will continue to pay tax in their home countries rather than in France. The tax treaty is important though, as it lays out the precise details of how such income is taxed, and getting professional advice on this topic is definitely recommended. American retirees are particularly well served by the US-France tax treaty, which has been dubbed “the bees’ knees for retirees”.

It’s important to note, however, that even people who owe no tax in France must complete the annual tax declaration.

Employees – those employed by a company in France will pay tax in France on their income, and for salaried employees, this will be deducted from their salary each month (prélèvement de la source).

Income tax rates might be lower than you would expect – for a worker on €26,000 a year (the average annual salary), the first €11,000 is tax free and after that income tax is charged at 11 percent.

However it’s important to also factor in social charges – these are also deducted from wages and include things like payments into the health and unemployment systems, as well as the compulsory contributions to your pension. In general social charges make up a bigger monthly deduction than income tax, and people on an average salary can expect roughly one-third of their gross income to disappear into various deductions.

Some of this money will come back to you later in the form of a French pension (and also, perhaps more indirectly, through the health, social security and unemployment benefits as and when you need them).

Despite having taxes deducted automatically, employees must also complete the annual tax declaration.

Self-employed/freelance/contractor/sole trader – self-employed people pay the same income tax and social charges as employees, but these are not deducted at source.

Instead, income tax is billed annually after the completion of the annual tax declaration. Social charges are dealt with via URSSAF, which all self-employed workers must register with.

They may also be charged business taxes, depending on the scale of the enterprise – the micro entrepreneur status is for people who earn below a certain threshold and it provides a simplified business registration system as well as a VAT exemption.

Remote workers/digital nomads – in some ways, remote working is a bit of a grey area in France, especially for foreigners who live in France but do all of their work remotely for companies in another country.

However when it comes to tax, the tax office is clear that what they consider important is where you physically are when you are doing the work. Therefore, if you and your laptop are in France, that’s more important than the location of the company you are working for.

Income should therefore be declared as French income as either an employee or a self-employed worker, as above.

Employers – it’s when you start employing other people that the tax burden becomes more noticeable, because many of these social security contributions that are deducted from salaries must be matched by the person’s employer.

Depending on the size of the business, you will also be paying extra business taxes, in addition to your own personal income tax and social contributions.

Running a business in France also comes with a lot of rules and regulations, and anyone planning on doing this is strongly advised to consult an accountant.

What about the other taxes?

So that’s income tax covered, but what about the other types of tax?

VAT – When it comes to VAT (TVA in French), it is charged at the standard rate of 20 percent, which has been unchanged since 2014, with lower rates for essentials like food and transport. The rate is the same in the UK and similar in most other EU countries. The US instead imposes a Sales Tax, which varies by state.

Property tax – since 2021, property taxes have only been charged to homeowners, so tenants no longer have anything to pay.

All property owners pay taxe foncière, while second-home owners pay both taxe foncière and taxe d’habitation. Second-home owners in an area with a housing shortage may also be charged a local surtax.

Property taxes vary a lot because they are calculated based on both the value of the property and the local rate decided by the commune; the average yearly bill is just under €1,000 for taxe foncière.

Local taxes – some communes add their own local charge for waste collection to taxe foncière bills (paid only by homeowners), which usually amounts to below €200 a year. However there is no standardised local tax.

Previously households also paid an annual TV licence of just over €100, but this too has now been scrapped.

Wealth tax – France does have a wealth tax, known as the Impôt sur la fortune immobilière (IFI). This takes into account only real estate holdings (not income) and kicks in once a person has real estate assets worth more then €1.3 million.

The crucial thing for foreigners is the ‘five-year rule’ – you can find a full explanation here but briefly for the first five years in France, only French assets are counted for this, and after that it’s based on global assets.

Therefore foreigners who might not think of themselves as especially wealthy but who own property in cities where prices have soared in recent years – such as London, New York or San Francisco – might find themselves affected by this.

Inheritance tax – not strictly a problem for you as you will no longer be around to deal with bills, but potentially an issue for heirs is the French system of inheritance law and inheritance tax.

The most quoted figure when it comes to inheritance tax is 60 percent – however only a tiny fraction of people end up paying the top rate, and inheritance is tax-free for spouses, while children have a generous tax-free allowance.

The top rate of 60 percent is only charged on people who have no family connection to the deceased – but this can create problems for unmarried couples, stepchildren or blended families, so it’s a good idea to get some professional advice on this topic.

This article is intended as a general guide to the French tax system, rather than individual advice. Those considering a move are advised to seek professional advice on financial matters

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