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France would like to introduce income tax withholding as of 2018

Jan 4 2017
As part of the 2017 proposed budget, the French government has confirmed that an income tax withholding system would be introduced for individuals who are tax resident in France.

Not all income is subject to the new tax withholding rules. For example, investment income such as capital gains or net rental income are not subject to tax withholding.
Wage and pension income, however will be subject to withholding.

The withholding tax rate on wages would generally be provided to the employer by the French tax authorities on a monthly basis, through France’s new payroll procedure (DSN). The tax rate would be determined by the tax authorities based on the previous year’s tax return.

If the French tax authorities do not provide a withholding tax rate to the employer, the employer would apply a standard tax rate.

The standard tax rate would apply:

  • When the taxpayer has never filed a French income tax
    return (for example, an assignee arriving in France); or

  • When the taxpayer specifically requests the use of the
    standard tax rate (an available option).


For employees resident in France but on a foreign payroll system, as taxes cannot be withheld at source, the individual would be required to make payments directly to the tax authorities on a monthly basis.

From January 2018, the tax on employment income will be deducted at source by way of the withholding tax, which means that 2017 employment income may end up being partly or fully tax exempt. In practice, an income tax return must be filed in May 2018 in respect of a taxpayer’s 2017 income, however, taxpayers will benefit from a special tax credit called CIMR (broadly translated as “tax credit for modernization of the income tax collection”). This tax credit will cancel, at least in part, the French income tax due on non-exceptional employment income. For this purpose, types of exceptional employment income may include, but is not limited to, termination or severance payments, lump sum payments, or deferred compensation. Personal tax credits and tax reductions may be either offset against future liabilities or reimbursed over, or after, a couple of years.

This measure was adopted by the members of the National Assembly. However, the Senate has yet to cast its vote, and with a potential change of government in 2017, the outcome of this intiative remains unclear.

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