Last Spring, the French Government announced an income tax reduction on 2020 income. This has now been voted as part of the 2020 Budget measures. This tax break mainly benefits households whose taxable income sits within the first income band as its rate was reduced from 14% to 11%. Other taxpayers will also benefit but to a lesser degree.
As a result, individuals may have already received a reduction notification for the 2020 “pay as you go” rate applicable from January 2020. This way, the tax benefit is immediate and taxpayers will not have to wait until their 2020 return has been processed1.
Changes to the décote will also benefit lower income taxpayers. It is a tax reduction for households with a gross income tax liability up to EUR 1,717 (single) or EUR 2,841 (couples) for 2020. This was previously fixed at EUR 1,611 and EUR 2,653 respectively for 2019.
The 10% pension allowance cap has been updated to EUR 3,850 with a minimum deduction of EUR 393.
The capping of the 10% deduction on salaries is now set at EUR 12,627 with a minimum of EUR 441.
Taxpayers who house a dependant aged over 75 benefit from an allowance of EUR 3,535.
Mandatory taxation based on “unexplained” external signs of wealth is means-tested using deemed income streams for each “sign of wealth”. If these exceed a total annual “deemed income” of EUR 47,109 it triggers a mandatory assessment.
The tax abatement for households with one taxpayer who is over 65 years old or disabled has been increased to EUR 2,442 if their total taxable income is below EUR 15,300, and to EUR 1,221 where the income is between EUR 15,300 and EUR 24,640. This is doubled for couples.
The monthly “pay as you go” (“PAS”) payments for January to August 2020 are established on the basis of the reported 2018 income and assessment thereof. Payments for September to December 2020 will be adjusted based on the taxpayers’ 2019 income and assessed in Summer 2020 and based on the returns filed in May 2020.
The “pay as you go” system now allows the tax authorities to treat certain taxpayers as having tacitly approved the tax information disclosed by their employers or pension providers, if they have no other sources of income. Taxpayers in this situation will receive a notification of the tax information that will be processed by the authorities. In the absence of any corrections or any reply, the authorities will automatically accept and process these details. The taxpayers will be deemed to have thus fulfilled their reporting obligations. All other taxpayers must continue to report their taxable income and gains before the filing deadline, which is usually around mid-May every year.
The 20% minimum income tax rate applicable to French source income or property gains received by non-residents of France is set at 20% up to EUR 27,794 and 30% thereafter.
The net taxable income is determined according to the French tax computations rules applicable to each type of income. Nevertheless, non-residents do not benefit from certain tax deductions allowed for residents at the level of their global taxable income (such as reductions for dependants, employment of home help and certain principal residence equipment) except certain alimonies as from 2018. The tax liability cannot be lower than the above minimum rates. However, non-resident taxpayers may claim a lower taxation rate but only if they can demonstrate that the average tax rate would be lower if assessed in France on a worldwide basis. This requires full annual disclosure of worldwide income and gains to the French Tax Authorities, so this option is rarely taken up.
Households which include married or pacsed children, or children with dependants, may benefit from an annual tax-free allowance of EUR 5,947. The same amount is awarded as a tax deduction if a taxpayer provides support (food allowance) to a child over 18. The deduction is doubled, i.e. EUR 11,894 where the child is married/pacsed or a single parent.
The PUMA is compulsory for any French tax-resident who is not affiliated to any other French or EEA social security system. Post-Brexit, this may affect anyone who can no longer be registered to continued UK health cover under form S1 or any other means.
This is quite significant since it can lead to compulsory PUMA contributions assessed on the taxpayer’s income and gains generated from private assets.
Computations of the PUMA contributions apply by reference to the “Plafond Annuel de la Sécurité Sociale” known as PASS, and fixed at EUR 41,136 for 2020 (updated every year).
In summary, the PUMA health cover is compulsory for:
Exposure to the PUMA triggers the application of the CSG and CRDS at 9.7% on non-French investments income and gains. In the absence of any other health cover, the PUMA contributions are deductible from the taxable income.
Cyril Klajer
cyril.klajer@avocats-bdo.fr