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EXPLAINED: French tax – annual declaration rules and what if you’re not in the system?

It's nearly everyone's favourite time of the year - tax time! But who needs to file a return in France, what do they need to declare and what if you haven't been in the system until now? We asked French tax expert Alex Romaine for advice.

Published: 22 February 2020 10:00 CET

EXPLAINED: French tax - annual declaration rules and what if you're not in the system?

All photos: AFP

The annual French tax declaration is no-one's favourite task, but some foreign residents of France are under the impression that it doesn't apply to them or that they don't need to declare everything.

We look at some of the most common misconceptions about the French system.

Who has to do it?

This is the big one – there are many foreign residents or frequent visitors to France who are currently under the mistaken impression that they don't need to file the annual return.

Tax is complicated but the basic rule of thumb is that if you spend a significant amount of time in France – even if you don't earn an income here – you may have to file an annual return.

Even salaried employees – whose income is taxed at source – also have the file the annual return, at least for now.

French tax expert Alex Romaine, of Charles Hamer French Tax Services Ltd, said: “The first thing is to establish if you fall under French tax rules and this can be quite complicated so I would always suggest that people seek professional advice.

“Full time residents of France are – unless there are very unusual circumstances – likely to fall under the French system. For second home owners if they spend more than 180 days a year in France they could also be considered tax resident – so it's important to check and not simply assume that you don't need to file a return in France.

“And there are many people who fall under both the French system and the system in their home country. So if you're not filing a return in France you need to check that you definitely don't need to.”

And what do you need to declare?

Basically everything.

Alex said: “It's your entire worldwide income that must be declared on the French tax return – not just what you have earned in France.

“So common examples of that would include pensions from the UK, interest from bank accounts, ISAs, share dividends, pension lump sums, income from letting out property (even if your property does not make a profit) and any income earned from work outside France.

“All bank accounts that you have must be declared too – even if they're dormant.

“This is all connected to money laundering regulations and the fines for not doing so can be quite high – we've seen €1,500 per undeclared account per year. The regulation really encourages people to close down their dormant accounts and tidy up their affairs a bit.”

But in good news, double taxation agreements mean that you don't have to pay tax twice on the same income, you simply have to tell the French tax authorities about it.

Alex said: “To take the example of somebody working in France but getting income from a property in the UK.

“They would have to declare that property income in the UK through self assessment and pay tax on it. So when you come to fill in the French tax return you also declare the UK property income in the correct section, but you will get credits against the tax you already paid in the UK.”

So it's perfectly possible that you will file the return and end up with a bill for €0. If all your income comes from outside of France or if you are an employee with no other income whose salary has already been taxed at source you might not end up paying anything at all.

READ ALSO French tax calendar 2020 – what taxes are due and when

Most people can now file their return online. Photo: AFP

So you might have to fill in tax declarations in two countries?

Yes, many people will be filing in two countries.

US citizens are legally required to file a tax return in the USA wherever in the world they live, and many will also have to file in France.

What if I'm not in the system?

So what happens if you're reading this article with a growing sense of dread, realising that you should have been filing a French tax return for several years now, but haven't been?

Well the basic advice is to 'fess up.

Alex said: “Full disclosure at your local tax office would be the place to start.

“You don't need to wait until tax return time, you can go down to your local tax office, take all your documentation with you and explain to the official that you didn't realise that you needed to file a return in France.

“We find that generally if you hold your hands up to your mistake French tax offices are willing to help in most cases.

“However not all local tax offices have the expertise required to deal with incomes earned abroad, we have seen cases of people paying more tax than they needed to on foreign incomes, so it would be helpful to get professional advice too from a specialist.”

And if you're tempted to ignore it and wait for them to catch up with you? Don't – penalties are likely to be more severe if you have not made full disclosure.

Alex said: “The authorities tend to be more severe for people who are running a business in France – we have seen some eye-watering amounts for lettings clients – but even for residents they can impose unpleasant fines on people who have not been filing returns and are unable to fully justify why they believed they were not French tax residents.”

READ ALSO These are the French tax breaks you don't want to miss out on

Is there anything different this year?

Well it's less about the French system changing and more that – with Brexit pending – many British residents in France are getting their affairs in order and coming fully into the French system for the first time.

Alex said: “After December 31st this year – the current end of the transition period – we are probably going to see fewer of these cases of people either in a grey area tax wise or living under the radar.

“After Brexit, British people who want to spend more than 90 days out of every 180 in France will likely have to formally establish themselves as permanent residents of France and if you are a permanent resident you are also a tax resident.

“That should clear up some of the uncertainty but is also going to make it harder for people to live under the radar.”

He concluded: “In short – head in the sand is likely to make the problem far worse, especially after the end of the Brexit transition period.”

Alex Romaine is French tax agent at Charles Hamer French Tax Services Ltd.

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