On 1 January 2023, a significant change to the rules on French withholding tax occurred. According to the new provisions, in certain strictly defined cases, the withholding tax mechanism is replaced by the mechanism of deducting the advance directly from the taxpayer’s bank account. In this article, we will take a closer look at the new legal regulation.
1. What is the French withholding tax?
Withholding tax (prélèvement à la source – abbreviated: PAS) constitutes a method of collecting tax in France whereby the tax is withheld by the payer – usually the employer – when remuneration is paid to the taxpayer – mostly the employee. It’s deducted from salaries obtained for the activity carried out in that country. The tax collected in this way goes to the local tax administration.
2. Who exactly is affected by the withholding tax reform?
As noted in the introduction, the withholding tax mechanism described above was modified at the beginning of 2023. However, this change didn’t cover all employees and employers. Indeed, the need to switch from the current withholding tax mechanism to the advance payment system applies to salaries originating in France and taxable there under the cumulative fulfilment of the following conditions:
- the employer is a company established in an EU Member State other than France or in another country or territory that has concluded with France a convention on administrative assistance for the purposes of combating tax evasion and tax avoidance and a convention on mutual assistance for the recovery proceedings similar in scope to that provided for by Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures. At the same time, it can’t be a non-cooperative country or territory within the meaning of Article 238-0 of the French Tax Code.
Therefore, these amendments to the provisions apply to the following countries: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, Greece, Spain, Netherlands, Ireland, Iceland, Lithuania, Luxembourg, Latvia, Malta, Germany, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Sweden, Hungary, United Kingdom, Italy. Nevertheless, in the case of the UK, it should be noted that it’s about workers – French tax residents – who were covered by the British social security system before 1 January 2021 and remained in it without interruptions; - the employee is a French tax resident who:
- isn’t covered by the mandatory French social security system,
- carries out a paid activity in at least two Member States of the EU or the EEA,
- works in France on an occasional basis, i.e. performs an insignificant part of his/her activity there (e.g. in the form of telework).
3. Principles of the advance payment system
Foreign employers, who no longer have to collect French tax in the form of withholding tax from 1 January 2023, have instead been required to report annually to the French tax administration, using stantard reporting procedures, the salaries taxable in France and paid to workers fulfilling the conditions indicated above. The income tax will be paid by the employees of these enterprises in the form of an advance payment. However, the tax authorities will collect the tax directly from the bank accounts of these workers.
Accordingly, employees are obliged to generate the so-called advance withholding payment in their profiles on the portal for settlements with the French tax office at www.impots.gouv.fr . Thanks to that, they will avoid having to pay the entire income tax for 2023 in the summer of 2024. In order to do this, it’s necessary first of all to log into your own account (“Votre espace particulier”) and then access the “Manage my withholding tax” tab (“Gérer mon prélèvement à la source”) and update the relevant data (among others, information related to special situations or estimated income). In the same place, it’s also possible, if necessary, to check or change the bank account number from which the appropriate deductions are to be made.
As a general rule, advances are collected on a monthly basis. This takes place on the 15th of each month. If the 15th falls on a Saturday, Sunday or holiday, advance payments are collected on the next working day. However, it’s possible to select quarterly deductions, falling on 15 February, 15 May, 15 August and 15 November. In this case, the deadline is also postponed to the next working day if the 15th day of a given month is a Saturday, Sunday or a public holiday. The quarterly advance option is valid for the entire year and will take effect on 1 January of the following year, provided you indicate it before 30 September of the current year.
4. Legal notice
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