France will be moving to a current year tax at source system starting January 2019: this was confirmed by the French finance minister and tax administration, after several weeks of mixed messages.
This historical change regarding the timing of the tax payments is paired with the transfer of the responsibility of calculating, collecting and paying the income tax due on the compensation and benefits from the individuals and the French tax authorities to their employers, French or foreign, provided that the employees receive compensation and benefits taxable in France.
These new obligations transferred on the employers are especially challenging for foreign employers of employees who are seconded to France.
The French tax administration is about to publish the registration forms for foreign employers, leaving approximately 2 months for these foreign employers to get ready before January 1st, 2019.
This article focuses on the obligations to be met by foreign employers of secondees to France.
Employers required to assess, collect and pay the withholding tax on the compensation and benefits paid to their employees
All employers, i.e. French and foreign employers, are subject to the new withholding tax obligations.
These obligations are applicable even if the employee is not under a French payroll.
French withholding tax process highlights for foreign companies
The French tax authorities will publish guidelines and relevant forms for foreign companies by mid-October 2019. Stay tuned for additional information when these are made available.
Foreign employers (not located in a EU country or in Iceland or in Norway) in the scope of the withholding tax have to appoint a tax representative for the withholding tax, if a representative has not already been designated for VAT purposes. Since the appointment has to follow a specific process with the French tax authorities involved, we advise to start this process as soon as possible
Foreign employers have to register their company in the French tax authorities records in order to obtain a “SIRET” number. This action has to be initiated as soon as possible (i.e. once the registration form is available)
All employers (French and foreign employers) have to ensure that their company portal on the dedicated website www.net-entreprises.fr is ready
The foreign employers have to ensure they hold a bank account in the SEPA (Single Euro Payments Area) zone since the French tax authorities payment system for the withholding tax will only allow payments from this zone
Initialization step for the withholding tax: all employers (French and foreign employers) need to send their employee list to the French tax administration to collect the applicable tax rates for their employees
This is sent either via:
- The “DSN” form (Déclaration Sociale Nominative”) for the employers subject to the French mandatory social security and retirement contributions
- The “PASRAU” form (Prélèvement à la source revenus autres) for the employers who are not subject to the French mandatory social security and retirement contributions
The deadline to file the DSN and the PASRAU forms in relation to the withholding tax due for January 2019 is in early December 2018 (December 10, 2018 for the PASRAU form and December 5 or 15, 2018 for the DSN form).
NB: going forward a DSN or PASRAU form will have to be filed each month (i.e. in December 2018, January 2019, February 2019, etc) in order to declare the withholding tax calculated and paid for the previous month, update the list of employees, and also to enable the French tax authorities to provide the employers with any updates of the tax rate.
Based on the DSN or PASRAU form filed, the French tax authorities will transmit to the employer the tax rate for each employee listed on the DSN or PASRAU form
The employers apply the tax rate received to the taxable basis of salary income they determined and calculate the withholding tax due
This withholding tax is deducted from the net pay by the employer and paid via an online wire transfer (SEPA zone company bank account used) made from the company portal on the website of the French tax authorities
The deadline for the payment of the withholding tax is the same as the one for filing the DSN or PASRAU form the following month (the 5th, the 10th or the 15th of the month following the month of payment of the salary income subject to the withholding tax).
Determination of net taxable remuneration for internationally mobile employees
The French tax authorities have listed some exclusions from the salary income subject to the current year general withholding tax which are of interest for the employers of internationally mobile employees.
The following income which may be received by internationally mobile employees are excluded from the basis for the calculation of the withholding tax:
- Tax-exempt allowances and benefits in application of the French tax regime for the “impatriates” (i.e. inbounds as defined by the article 155B of the French tax code) within the limits of the reference salary (technical concept which can limit the amount of ax-exempt allowances and benefits)
- Tax-exempt salary income or additional allowances in application of the French tax regime for the expatriates (i.e. outbounds as defined by the article 81A of the French tax code)
- Salary income related to non-French workdays taxed abroad and for which France allows a tax credit equal to the French tax due on this income in applicable of the tax treaty concluded by France with this foreign country
- RSUs and stock options vesting/exercise gain qualified from a French tax perspective
In addition, foreign compulsory social security and (up to certain limits) retirement contributions are deductible to determine the net taxable remuneration.
It is necessary to anticipate the flow of information and the various tax treatments to apply for French income tax withholdings purposes from January 1st, 2019.