The connection asked me if I wanted to write something related to tax reporting, because that time has come again.
Usually I would decline the offer – I’m not in the tax administration business as my expertise is advice oriented.
A French accountant, meanwhile, will propose the tax administration.
However, they only offer help in calculating the invoice and reporting it, without the absolutely necessary financial/tax planning.
The reason I decided to make an exception this year (hoping to avoid being inundated with requests to fill out tax forms) is that reporting has become increasingly complicated and we are seeing costly errors including in terms of investments.
I recently spoke to someone who told me in confidence about his own statement, which was dangerously inaccurate.
It made me realize that a lot of people could benefit from a steer.
What follows is not a “how to”, but rather a list of things to avoid.
1. Don’t report investment withdrawals as income
Don’t confuse pensions taken as a ‘drawdown’, such as those from a UK SIPP (self-invested personal pension), with investment withdrawals from schemes such as life insurance.
An SIPP may technically be a pot of invested money, but money taken out of it is still considered pension income, and any money taken out of it must be reported as such, as is the case for other pension income.
On the other hand, with the withdrawals of life insurance and similar investment schemes (which are reported in a different section, and not as pension income), only the “earnings” part of the withdrawal needs to be reported.
Usually, a large part of the withdrawal is considered a return of your capital and therefore not taxable.
A French provider will send you information detailing the taxable figure to declare, usually around March or April.
2. Don’t pay payroll taxes twice
With the advent of fixed tax rates under PFU (single lump sum direct debit), we have a fixed position, applied by default, which is 12.8% in taxes and 17.2% in social charges, making a total of 30%.
We have seen people enter their investment income on their declaration, without however mentioning that the payroll taxes had already been paid at source, so they are applied a second time.
If you make the two aforementioned mistakes in tandem, your tax bill will already be astronomically higher than it should be.
3. Obtain reduced social charges if not in the French social system
Since 2019, people covered by another state or not elsewhere in the French health system can be exempt from both the CSG and the CRDS.
On investment income, it is 9.2% and 0.5% respectively.
This means that payroll taxes are reduced to 7.5% – just the solidarity levy.
However, the system is still what can only be described as messy.
Some financial institutions seem able to accept proof of not being in the system and apply 7.5%, while others take the 17.2% as PFO (mandatory flat-rate deduction), offering to claim it from the tax authorities.
When the assessed value is low, a claim may not be worth it. However, it is good to know how much you lose if you do.
I mention this because one of my clients was very anxious about his claim.
When I told them that of their €10,000 withdrawal, only €800 was taxable and the extra 9.7% was only €77.60, they visibly relaxed.
Obviously, for substantial withdrawals, especially if it is not in a French tax structure, the debt is important.
4. Declare foreign accounts
New arrivals sometimes find out the hard way (expensive): it is a right that all accounts (of any kind) and life insurance investments abroad are declared each year.
Failure to comply will result in a financial penalty of €1,500 per account/contract per year not declared to French tax authorities, or €10,000 if the account is in a country with which France does not have an exchange agreement. information.
A few years ago we were contacted by someone who had 16 undeclared accounts in the UK…ouch!
It’s best to keep as few offshore accounts as possible.
This cuts down on administration (someone with 16 accounts has to fill out Form 3916 16 times) and reduces the risk of financial penalties.
These are the main problems we encounter, but there are many others.
If you are new to France, it is definitely worth having your first declaration completed by a French accountant.
If you’ve been here a while and doing them yourself, it’s always worth consulting a professional to make sure you’re not paying too much.
Typically, you can go back and claim the last three years, which means the amounts can be significant – and potentially more than the accountant’s bill.
Help guide: Income tax in France 2022 (for 2021 income)
Do I have to file a French tax return if I only receive a British police pension?
How to find and download the French income tax declaration form?