The withholding tax provided for in Article 182 B of the French General Tax Code (CGI) constitutes a specific tax mechanism applicable to certain non-salary income from French sources paid to companies domiciled or established outside France. This system aims to ensure taxation in France of income generated within the national territory, even when the recipient is a non-resident. This particularly concerns income derived from artistic or sporting activities, or certain commercial, industrial, or professional services. The withholding tax is made at the time the income is paid by the payer established in France.
We will examine its mechanism through the following points:
- What are the conditions for applying withholding tax?
- How to calculate it?
- Payment of the withholding tax
- Withholding tax on artists’ income
I – The conditions for applying withholding tax
Preliminary note: Withholding tax is applicable provided that the international agreement binding the two parties does not provide for an exemption from withholding tax. It is therefore important to check the content of this agreement before paying a service provider.
A withholding tax is applicable to services provided in France when the following three conditions are met simultaneously:
- The individual or company liable for the amounts in question carries out an activity in France;
- The amounts are paid to a beneficiary (individual or company) subject to income tax or corporate tax in another country and who does not have a permanent business establishment in France;
- These are amounts falling into one of the following categories:
- Amounts paid as remuneration for an activity carried out in France in the exercise of one of the professions whose profits fall within the category of non-commercial profits (liberal professions, offices and charges or any lucrative operations falling within this category of profits);
- Products received by inventors or under copyright as well as all products derived from industrial or commercial property;
- Amounts paid in remuneration for services of any kind provided or used in France (only services corresponding to actual operations are concerned);
- Amounts, including salaries, corresponding to sporting services provided or used in France.
Clarification: These benefits are subject to withholding tax on non-salary income even when they are salaries. In return, the withholding tax on salaries provided for in Article 182 A of the CGI does not apply to them.
Are short-term jobs that a foreign tradesperson carries out in France on behalf of a French company also subject to withholding tax?
This type of service falls within the scope of withholding tax provided for in Article 182 B of the French General Tax Code, unless an applicable tax treaty provides for an exemption or a reduced rate.
In principle, the withholding tax applies when the service is physically provided in France. However, services provided by non-resident operators that are not royalties are generally not taxable if they do not have a physical presence in France.
II – Withholding tax calculation
The taxable base
It’s made up of the total amount of sums or products paid, excluding turnover tax.
By way of exception, a representative reduction of charges equal to 10% of the sums paid applies when the beneficiary of the payments is a legal entity or an organization whose results are not subject to income tax in the hands of a partner and whose head office or permanent establishment is located in a Member State of the European Union, in Iceland, Liechtenstein or Norway.
Regarding sporting services, as we have specified above, they are subject to withholding tax on non-salary income even when they are salaries. For the withholding tax to be payable, the sporting service must be physically performed in France or actually used in France.
Withholding tax rate
For products referred to in Article 182 B (with the exception of sporting services), the withholding tax rate is aligned with the standard corporate tax rate, i.e. 25% for financial years beginning on or after January 1st 2022.
On the other hand, this rate is set at 15% for remuneration paid to athletes who do not have a permanent professional establishment in France.
These rates are increased to 75% when the sums in question are paid to persons domiciled or established in a non-cooperative State or territory, unless the debtor provides proof that these sums correspond to actual transactions not having the principal effect of allowing their transfer to such a State or territory.
When the paying party takes charge of the withholding, it thus becomes equal to 25/75ths of the amount actually paid to the beneficiary for sums and products subject to the rate of 25%.
III – Payment of the withholding tax
Obligations of the debtor
He is required to withhold the amount paid and remit it to the tax department responsible for collection by the 15th of the month following the calendar quarter in which the payment was made.
The payment must be accompanied by a 2494-SD declaration, available online at www.impots.gouv.fr, showing:
- the identity and address of the beneficiary’s tax domicile or registered office;
- the gross amount of the amounts subject to withholding;
- the rate and amount of the withholding.
This declaration includes all of the debtor’s beneficiaries and is accompanied by a single payment.
Payments subject to withholding tax on non-salary income must appear on the annual declaration of commissions, fees and royalties (DAS 2).
Withholding tax credit
Except when it is applied at the increased rate of 75% on amounts and products paid in non-cooperative states or territories, withholding tax does not discharge income tax (or corporate tax). The tax remains payable according to its own rules.
Withholding tax is credited against the amount of income tax assessed on the beneficiary’s net income from French sources.
When withholding tax is lower than the amount of tax payable, the beneficiary of the amounts is liable for additional tax.
Reimbursement of withholding tax
When it is charged on income tax (or corporate tax) and its amount is greater than the amount of this tax, the taxpayer can request reimbursement of the excess withholding tax.
IV – The particularities of withholding tax on artists’ income
Amounts paid, including salaries, in consideration for artistic services are subject to a specific withholding tax. It’s due when the services are provided or used in France and paid by a debtor who carries out an activity in France to individuals or companies that do not have a permanent business establishment in that country.
This withholding tax concerns sums paid to performing artists (film actors, lyric, dramatic and choreographic artists, variety artists, performing musicians, singers, supporting artists, conductors and, for the material execution of their artistic conception, directors), whether paid directly to the artist or to an agent.
The basis is the gross amount of the amounts paid, less a 10% allowance for professional expenses.
The withholding tax rate is set at 15%.
However, international double taxation treaties may provide for exemptions.
The obligations of the paying party and the corresponding sanctions are the same as for withholding tax on non-salary income (see above).
In conclusion, we remind you that before deducting tax from the foreign service provider’s invoice or paying the tax to the Treasury, it is essential to find out about the tax treaty that binds the countries of both parties to the transaction. If this treaty provides for an exemption from this withholding tax, there is obviously no amount to pay.
If you still have doubts about this subject, our entire team is here to help you, so don’t hesitate to contact us!
