In order to protect against the risk of non-recovery of taxes, the tax administration requires that the organization which pays certain income from French sources to persons not domiciled in France, to carry out withholding at source or a specific sample.
Thus, companies which carry out an activity in France and which pay certain sums to persons domiciled or established outside France are subject to withholding tax. This concerns in particular the salaries paid to employees posted abroad. It should be added that this deduction can also concern non-commercial activities and artistic or sporting performances.
I – Definitions of important terms
Definition and mechanism of withholding tax
Non-residents in tax matters who receive salaries in France taxable in France must in principle pay withholding tax deducted by the employer. The employee must then declare this deduction on his income tax return.
The calculation of this deduction is based on the net amount of salary after application of the 10% deduction for professional expenses. It is not possible here to opt for a calculation according to actual costs.
The amounts withheld by the employer must be paid to the business tax service no later than the 15th of the month following the calendar quarter during which the salaries payment took place.
This withholding tax is then deducted by employee from French income tax.
However, the fraction not exceeding the limit beyond which the rate of 20% is applicable is exempt from income tax (this is the levy taken at the rate of 12%). The corresponding fraction of salary is therefore not taxed on the scale and the corresponding deduction is not attributable.
It is not discharging for the fraction which exceeds the limit of application of the rate of 20%. This fraction of income is therefore taken into account for the calculation of the tax and the withholding tax already paid is then attributable to the amount due.
When the overall amount of withholding tax paid exceeds the amount of tax, the taxpayer can request reimbursement of the excess.
Definition of an employee posted abroad
Article 182 A.I of the General Tax Code stipulates: “With the exception of salaries falling within the scope of article 182 A bis (concerning artistic services provided or used in France, by a debtor who exercises an activity in France), salaries, wages, pensions and life annuities, from French sources, paid to persons who are not tax domiciled in France give rise to the application of withholding tax.”
In return, article 81-A of the CGI specifies: “Employees who are posted abroad by their employer and who maintain their tax domicile in France benefit from special tax rules (total or partial exemption of their salary) under certain conditions and limits.”
Thus, withholding tax only concerns employees whose tax residence is abroad. To determine the place of tax residence, it is necessary to find out if there is a tax convention between France and the employee’s host country. International tax conventions between States set the taxation priority of one country over another (principle of single tax residence). They set criteria which go beyond those of the internal legislation of the States. Their essential purpose is to avoid double taxation of income.
In the absence of an agreement between the two countries concerned, the internal law of each country applies.
II – The scope of application of withholding at source (R.A.S.)
Seconded employees retaining their tax domicile in France
These are the people concerned by article 81 A of the CGI who meet four cumulative conditions:
- be tax domiciled in France;
- exercise a salaried activity (holder of an employment contract);
- be employed by an employer established in France or the European Union, Norway, Iceland or Liechtenstein;
- be sent to a State other than France and the State where the employer is established.
These employees are not affected by the R.A.S. in the following cases:
- When the tax in the country of activity is greater than or equal to 2/3 of that which would have been borne in France, there will be a total exemption from this remuneration. Other household income is taxable in France according to common law rules.
- The tax in the country of activity is strictly lower than 2/3 of that which would have been borne in France, the remuneration received for the activity abroad is taxable at the level of that which would have been received in France for the same activity. Other household income is taxable in France according to common law rules.
- Total exemption from salaries derived from certain salaried activities carried out abroad which are:
- Activities carried out for a duration greater than 183 days during a period of twelve consecutive months when it relates to the following areas:
- Construction or assembly sites, installation of industrial units, their start-up, their operation and the related engineering;
- Research or extraction of natural resources;
- Navigation on board ships registered in the French international register.
- Activities carried out for a duration of more than one hundred and twenty days during a period of twelve consecutive months when it relates to commercial prospecting activities.
- Activities carried out for a duration greater than 183 days during a period of twelve consecutive months when it relates to the following areas:
In other cases it will be necessary to check, by reading the international tax convention concerning the employee, whether his tax domicile is located in France to decide whether the R.A.S. is applicable or not.
Employees considered as non-residents of France
An employee considered as a non-resident is no longer considered a French taxpayer, he pays his taxes in his host country. If he retains income from French sources (subject to contrary provisions in the tax convention between France and the host country), he remains taxable in France only on this income corresponding to an activity carried out in France.
Salaries subject to income tax paid to taxpayers whose tax domicile is located outside France are subject to withholding tax when this income is actually taxable in France and is not already subject to another withholding tax at the specific source provided for by the CGI. Clarify that the foreign source income of people whose tax domicile is located outside France is not, in principle, taxable in France and therefore outside the scope of withholding tax.
Consequently, for taxpayers whose tax domicile is located outside France:
- Salaries from foreign sources are subject to withholding tax when they are paid by a debtor established in France and they are taxable in France in accordance with the provisions of international tax conventions without being subject to withholding tax specific source;
- Salaries from French sources are, however, outside the scope of withholding tax if they are subject to one of the specific deductions provided for by articles 182 A to 182 B of the CGI which we saw above.
III – The practice of withholding at source
R.A.S. calculation
As we saw in Chapter I-1, the basis of the withholding consists of the net taxable amount, determined in accordance with the applicable income tax rules. The base is therefore constituted by all the sums and benefits in money or in kind paid to the employees in return for their work, with the exception of allowances for exempt expenses. Salaries are taken into account for their net amount after application of the standard deduction of 10% for professional expenses. The employer cannot opt for the deduction of actual costs for the calculation of the withholding.
The withholding tax is calculated according to a scale of three brackets, to which the rates of 0%, 12% and 20% correspond (reduced rates in the French Overseas Territories).
The tranche limits are set according to the period to which the payments relate (year, quarter, month, week, day or part of a day).
Declaration and payment of the R.A.S.
The employer must complete a declaration 2494 (CERFA n°10325) in duplicate, showing in addition to the identity and address of the beneficiary’s tax domicile or head office (address abroad), the gross amount of the sums submitted withholding and the rate and amount of the withholding.
This declaration must be sent, accompanied by the corresponding payment, to the tax service of the debtor’s head office or establishment in France (or to the tax service of foreign companies when the debtor does not have an establishment in France-10 rue du Centre, TSA 2011, 93465 Noisy-le-Grand Cedex).
Payment of the amounts withheld must be made to the business tax service no later than the 15th of the month following the calendar quarter during which the payment took place. Withholding tax payments of an amount greater than €1,500 per due date and per reporting medium must be made by transfer to the Treasury account at the Banque de France.
There is, however, an exception to the R.A.S. payment deadlines: Agricultural operators who employ seasonal workers domiciled abroad are authorized to pay the deductions relating to payments made during a quarter, no later than the 10th of the 2nd month of the following quarter.
Don’t hesitate to contact the FBA team for more information!
