Significant changes in the tax regime for the French income of non-residents

As every year in France, autumn means finance bill and finance bill means innovations. One of this year’s innovations concerns a significant change in the tax regime of non-residents who receive income generated on French territory.

Whether or not a French tax resident.  Anyone who generates income in France is required to declare it to the tax authorities. Taxation has traditionally been subject to different rules and scales depending on whether or not the taxpayer has elected tax residence in France.

The new finance bill for 2020 proposes a major reform of the taxation of non-residents and you may not be exempt from it.

What  to expect from Changes In The Tax Regime? Higher taxation.

The bill provides that, as from next year, French-source income generated by non-residents would now be taxed at 20% from the 1st euro, 30% from €27,520, etc., (against 0% to €14,839, 12% between €14,839 and €43,047 and 20% above at the moment).

This situation could therefore lead, depending on the case, to significant penalties for some taxpayers.

Objective? Standardization of tax systems between residents and non-residents.

The principle is to converge the taxation of non-residents with that of French residents. Today, the rules for non-residents are so complex that the tax authorities are overwhelmed by the number of phone calls,

Explains Anne Genetet (LREM), deputy for the French abroad.

Who is being affected? The French but not exclusively….

This significant changes in the tax regime for French income of Non-Residents, concerns all persons who do not have their tax residence in France .This is because they generate income in France, regardless of their nationality.

By application, any tax resident in Spain who receives income in France will be affected by this bill. Nevertheless, let us keep in mind that the tax treaty signed between France and Spain could still mitigate the effects of this reform.

As a reminder: Since 10 October 1995, there has been a tax treaty between France and Spain to combat double taxation. This sets up a system of deduction(s) and exemption(s) to regulate and limit cases of double taxation.

Consequently, taxpayers who have elected tax residence in Spain, but who still receive income generated in neighbouring France, could benefit from this treaty and thus mitigate the effects of this reform. It remains to be seen to what extent the French legislator has taken into account the existence of this bilateral tax treaty aimed at combating (and this is the case, to say it) double taxation…

What are the next steps? Wait and stay alert

The finance bill was presented to Parliament on Friday 27 September for review.

We hope that this review will clarify the new tax regime for the income of non-residents in France and its intertwining with the international legal order.

Lexidy will continue to monitor, for you, the evolution of the 2020 finance bill.

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