Banking In France
Even if you intend to live in France it is well worth considering retaining a British bank account – or at least until the UK embraces the euro. If nothing else, this will save the cost of currency exchange when visiting Britain.
Though it is theoretically possible for residents to manage without a French bank account, it is undoubtedly more convenient to have one. French banking rules are, however, rather different to those in most other EU countries. It is best to be aware of the way the system works.
Taxation
The basic taxes for individuals are:
- Income tax. This is divided in French law into earned income (impot sur le revenue) and unearned income (impot des revenues des capitaux mobliers).
- Land tax (taxe fonciere).
- Community tax (taxe d’habitation).
- Capital gains tax (regime des plus-values des particuliers).
- Death duties (droits de succession).
- Gift tax (droits de donation).
Registration
The ownership of all properties must be registered with the French tax authorities. Owners who are not resident have to register by 30 April following completion of the property purchase. Residents are expected to register immediately
with the local Centre des Impots. Non-resident owners should register with the Tax Centre for Non Residents at:
Centre des Impots des Non-residents
9 Rue D’Uzes
75094 Paris
Domicile
For international tax purposes the concept of domicile is important. Those who have their ‘fiscal domicile’ in one country theoretically pay tax in that country on their income. There is, however, some give and take on this. Some pensions, for instance, originating in the UK, are automatically taxed there.
Those considered to be domiciled outside France pay tax only on that portion of their income earned in France. You will be said to have a French fiscal domicile if:
- You have a home in France and spend more than 183 days in the country in any financial year.
- Your wife and family live in France for more than 183 days in any financial year, even if you spend most of your time out of the country.
- You work in France on either a salaried or self employed basis, unless you can prove that work is ancillary to your main employment.
- Most of your income is generated in France. This could for instance catch retired people who run a successful gîte business.
Income Tax
If you are domiciled in France you are liable to pay income tax. The French tax laws are complex and there will be winners and losers in comparison with the UK system.
Long term residents frequently choose to take French citizenship because foreigners are subject to an increasingly heavy burden of personal taxation.
There is an outline of the system below. Detailed information is available from a French government interdepartmental economic agency – Délégation à l’Amenage-ment du Térritoire et a I’Action Régionale (DATAR). Their UK address is:
21–24 Grosvenor Place
London
SW1X 7HU
020 7823 1895
Essentially DATAR’s UK office is intended to offer fiscal advice for anyone considering selling to the French market, or setting up a business in France itself. Their publications include helpful advice on personal taxation.
Their address in France is:
1 Avenue Charles Floquet
75007 Paris
01 47 83 61 20 or 01 40 65 12 34
French income tax is assessed on a family basis. The husband is responsible for the return which includes the income of his wife and children who are still in the educational system, or doing their military service. Divorced, separated or widowed persons claim allowances according to circumstances. Across the board allowances include:
- Money spent on major property repairs.
- Money spent on certain ‘green projects’ such as the installation of solar energy panels for heating.
- Payments for maintenance and dependent relatives other than children.
- Gifts to certain charities.
- Contributions to the Securité Sociale.
- Approved life assurance premiums.
- Interest payments on certain loans.
- Special arrangements for single parents with young children.
Taxable income is worked out by deducting allowances from total income and dividing the net figure by:
- One for a single person with no children.
- Two for a married couple with no children.
- 2.5 for a married couple with one child.
- An extra 0.5 for each additional child. A married couple with four children will divide by four.
When a taxable income has been worked out the rates that apply fall into a banded structure. The following are approximate figures for those incurring an incoming tax liability in France in 2002. They are based on indexing the tax authorities 2001 figures. The following bands should therefore be treated only as a rough guide:
The first €5,666 of taxable income is tax free
€5,666 to €6,166 – 5%
€6,166 to €7,000 – 10%
€7,001 to €10,833 – 15%
€10,834 to €14,000 – 20%
€14,001 to €18,333 – 25%
€18,334 to €21,333 – 30%
€21,334 to €25,334 – 35%
€25,334 to €41,000 – 40%
€41,001 to €58,000 – 45%
€58,001 to €67,166 – 50%
€67,167 to €77,333 – 55%
€77,334 and upwards – 58%
A married couple with no children, no allowances and a joint income of €41,666 would pay tax as follows:
Half of €41,666 is €20,833, so each has a taxable income of €20,833
On the first €5,666 no tax is paid
On the next €500 at 5 per cent €25
On the next €833 at 10 per cent €83
On the next €3,833 at 15 per cent €575
On the next €3,166 at 20 per cent €633
On the next €4,333 at 25 per cent €1,083
On the final €2,500 at 30 per cent €833
Total €3,233
Thus their joint tax bill would be (€3,233 x 2) €6,466
The same couple living in England would automatically have personal allowances of €7,384 each. Their tax bill would look like this:
Individual taxable income €20,833 – €7,384 = €13,499
Tax on first €3,072 @ 10% = €307
Tax on next €10,427 @ 22% = €2,294
Total = €2,601
Thus their joint tax bill would therefore be double €2,601 or €5,202.
The French tax system benefits large families and those on relatively low incomes. The tax year runs from 1 January each year and bills are paid in three equal instalments in the year following the liability.
Filling in a tax return is difficult because of the complexity of the system and the amount of technical language involved. English-speaking residents paying income tax in France invariably require the services of an accountant.
When the authorities suspect that tax declarations are inaccurate or fraudulent they will investigate. In certain
circumstances residents with complex tax affairs (including perhaps income from a number of sources outside France) will be assessed according to the punitive regime de d’imposi-tion forfaiture.
Using this system income is assessed according to arbitrary norms. This includes ascribing a letting value to all properties you own and multiplying it by a factor of three or five. Cars are valued and taxed at 75% of maximum new showroom value, servants are assumed to have massive salaries, and race horses are reckoned to be winners.
The system is rarely applied but it demonstrates what can happen to those who fall foul of the tax authorities.