Withholding tax in France for individuals

9 January 2019

After several years of discussions and postponements, withholding tax is for individuals has come into effect in France on 1 January this year. Althought this is common practise in for many countries worldwide, it is a big change for France and a major stake for the French administration. Prior to 2019, the tax was settled on 10 months (January to October) in case of monthly instalments, or by provisional 1/3 instalments in February and May with a balance in September.

As of now, the tax is collected at the same time as the corresponding income. For employees who receive income every month, the tax will now be spread over 12 months and it will adjust immediately and automatically to the amount of income earned. The new withholding tax regime, while significant for employees, has a major impact on French employers. From January 2019, they are responsible for collecting tax on employee wages (withholding tax) and then for remitting the withheld taxes to the French tax authorities. We propose you hereafter some synthetic guidelines in order to take full grasp of your new obligations whether you are already established in France or plan to set up a new business there.

3 potential tax rates

On last year personal income tax returns, your employees had to opt for a tax rate method:

  1. The “taux personnalisé”: calculated according to the global income of the tax household
    declared on the personal income tax return. Each member of the family is charged based on
    this single rate.
  2. The “taux individualisé”: it considers the differences of income in a tax household. Each
    member has his own tax rate calculated based on his personal income.
  3. The “taux non personnalisé” (or “taux neutre”): if your employee does not want you to be
    aware of his global personal tax situation, a tax rate based only on his revenues from your
    company is applied. At year end your employee will have to regularize his situation directly
    with the French tax administration.

Responsibilities for the employer
Most importantly, employers need to ensure the necessary technology infrastructure to gather and report the correct information is in place. The employer has to collect the withholding tax and from now on, you have to apply the tax rate given by the French Tax Administration on the payroll . The tax withheld on the payroll of your employees is paid to the French Tax Administration by direct debit. It is necessary to check that the bank account of your French entity is duly registered on the eportal of the administration and that a direct debit authorisation has been implemented. The tax should be paid the month after the payslip : on 5th for companies with more than 20 employees and on 15th for companies with less than 20 employees.

Contact HLB’s Global Accounting & Compliance Services team. We can help businesses with employees in France through the transition and  guaranty that our payroll software considers the new withholding tax rules.

Laurent Capbern, HLB Global Compliance & Accounting Services Leader

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