14 November 2018
Introduction 'French withholding tax deduction at source'
Introduction 'French withholding tax deduction at source'

Introduction 'French withholding tax deduction at source'

Do you have employees on a French payroll? Then you might have to take into account a new payroll obligation as of  January 1, 2019: Prélèvement à la source, or the deduction of withholding tax at source. This measure derives from a French tax reform and affects wage administration. Jeroen Janssen, Legal Consultant at ACERTA, gives his detailed comments on this new obligation.

Prélèvement à la source?

Until now, there was no monthly deduction of French taxes via the payroll for French nationals working in France. Such employees pay their taxes via their annual French income tax return.

On January 1 2019, this will change. From next year, income tax will be deducted by the employer in the payroll from the taxable salary of the employee. The employer will need to deduct this withholding tax for the first time in the course of January 2019. This deduction will also appear on the French payslip.

What changes as of January 1, 2019

The following items are important:

  • The French tax authorities determine the rate of the withholding tax based on the employee's personal situation;
  • You must apply the percentage of the withholding tax on the taxable salary of the employee, like you already do for social security contributions on the gross salary. Are you using a French payroll office? In principle, they will apply this automatically;
  • You should pay the French withholding tax to the French tax authorities.

Different rates are possible

The French tax authorities will determine the withholding tax rate (taux réel) for each employee individually. This rate takes into account  the employee's entire income of the previous year. In case the employee desires to implement a different rate, he/she can request this to the tax authorities.

There are 2 alternative rates possible:

  • Personalised rate (taux personnalisé): Specifically for married or registered cohabiting persons with a common tax assessment, and with a difference between the income of both partners. It is possible to opt for an allocation of tax between spouses in line with their income.
  • Neutral rate (taux neutre): This is the rate applied on the net taxable salary of the employee as a single tax payer without dependants (regardless of the actual situation).

In case your employee addresses questions to you about the tax rate, you should refer him/her to his/her tax office.

Attention: Not applicable for each employee

For French non-residents (e.g. Belgian residents working in France) who already make use of the existing system of quarterly tax declarations, Rétenue à la Source (RAS), nothing changes.

And no Prélèvement à la source should be applied for French cross-border workers working in Belgium for a Belgian company under the special cross-border workers regime either. Cross-border workers transfer  their own monthly tax amount to the French tax authorities. This amount corresponds with the amount the employer would have deducted in Prélèvement if the employer would have been located in France.

Would you like  tailor-made advice in this respect? Contact ACERTA Tax & International for more information.

Need more information?

Contact us.