Social charges for French residents

French social charges now raise more tax in France than income tax and are paid in addition to the scale rates or fixed rates of income tax. Social charges, which are not to be confused with social security contributions, are effectively another form of income tax in France, payable on all forms of income (and capital gains) received by French residents, including pension income. Non-residents of France are not liable to pay social charges, even on French-source income, such as rental income, or gains.

The rates of social charges are: 7.1% on 95% of gross pension income, 8% on 97% of earned (employment or self employment) income, and 11% on all unearned income (e.g. interest, dividends and rental income) and capital gains. A proportion (approximately half) of social charges payable may be tax-deductible, but it depends on the type of income. Social charges on income taxed at the fixed rates (e.g. French bank interest and capital gains) are not tax deductible at all, whereas those paid on income, taxed at the progressive scale rates, are tax-deductible.

A calculated move

Social charges are calculated based on the income declared in your tax return. The French authorities will send notification (avis d’imposition) of the amount payable in the autumn following the submission of your tax return. For example, a tax return for the French tax year 2008 will usually be submitted in May 2009 and you will receive notification of the social charges due in the autumn of 2009. The deductible portion of the social charges will be deducted from your earned taxable income for 2009 when the form is submitted in 2010, or from your unearned taxable income in 2010 when the tax return is submitted in 2011.

Social charges are made up of three elements: the CSG, CRDS and PS. The amounts are different for each type of income, and the position can be summarised in the table below. UK nationals moving to France may be exempt from paying French social charges on their UK pension income if they hold Form E106 or E121. Form E106 is available to those who have a recent UK Class 1 (employed) or 2 (selfemployed) National Insurance Contributions record, and is valid for a maximum period of two and a half years. Form E121 is available to those in receipt of their UK state retirement pension (or certain long-term benefits such as long-term incapacity benefit, severe disablement allowance, bereavement benefits or widow’s benefits) and is ongoing until either death or repatriation of the holder. The scope of the new UK/France double tax treaty signed in 2008 includes the CSG and the CRDS, while these charges are not specifically covered under the current treaty. They did not exist when the 1968 treaty was drawn up and their nature as a ‘substantially similar’ income tax under the terms of the treaty has never been clear.



Written by Bill Blevins.

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