2023 Budget

2023 French Tax Budget

2023 budget – “Projet de Loi de Finances”

As expected, the draft 2023 French tax budget is proposing a higher revaluation percentage of the income tax bands so these are expected to rise by 5.4% to account for the predicted inflation. As a result, most tax breaks, allowances and income limits should increase by the same rate. The budget will undergo the usual reviews up to year-end before being formally voted in.

The new barème and set allowance limits applicable to 2022 income are expected to be as follows:

Barème applicable to 2022 taxable income:

Income Bands (€)	%
Up to 10,777	0
Between 10,777 and 27,478	11
Between 27,478 and 78,570	30
Between 78,570 and 168,994	41
In excess of 168,994	45

The tax benefit for each extra half family share is capped at €1,678 under the “plafonnement” rule. There are specific capping rules for half shares granted in respect of disabled dependants, parents who have brought up children on their own, war widows, and army veterans.
Households which include married children (or in a civil partnership) or children with dependants, may benefit from an annual tax-free allowance of €6,368. 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 (€12,736) where the child is a single parent or is married/Pacsed.
Capping of the 10% annual pension allowance: €4,123 per household, with a minimum deduction of €422.
Capping of the 10% allowance on salaries: €13,522 per person, with a minimum of €472.
Annual allowance for housing a person aged over 75: €3,786
The deemed total annual income which can trigger a mandatory taxation based on “unexplained” external signs of wealth is updated to €50,447. This is calculated through a notional means-test using deemed income streams and levels for each “sign of wealth”.
The means-tested tax abatement for households with taxpayers over 65, or disabled, will increase to €2,620, where the taxable income falls below €16,410 and to €1,310, for those with a taxable income between €16,410 and €26,400.
The maximum annual charitable donation eligible for a tax credit in respect of all donations made in 2023 to “organisations assisting people in difficulty” is set to rise to €1,000, instead of €562 for 2022.
The taxable income below which a taxpayer may benefit from a nil rate under the “Pay-As-You-Go” system between 01/01/2023 and 31/08/2023 would be €26,065.
The minimum income tax rate applicable to French source income received by non-residents of France is set at 20% up to €27,478 and 30% thereafter.
The withholding tax scale on 2023 French source salaries and pensions paid to non-French residents is updated as follows:

Income Bands (€) 2023	%
Up to 16,050	0
Between 16,050 and 46,557	12
In excess of 46,557	20

The annual turnover limits for small businesses taxed under the Micro regimes would be revised to the following:

€77,700 for the Micro BNC & services including furnished rentals.
€188,700 for sales of goods and hotel-like rentals including holiday lets of properties registered as meublés de tourisme classés.

The auto-entrepreneur regime applies if the household’s net annual worldwide taxable income (or revenu fiscal de référence as shown on the tax assessment) is below a certain limit. This limit would also be updated, and fixed at €27,478, plus an extra 50% or 25% applicable per half or quarter extra family shares applicable to the household.

Other News:

Social security “plafond” and PUMA (“Protection Maladie Universelle”) contributions

The draft social security budget, proposed to update the annual “plafond de la sécurité sociale” (“PASS”) to €43,992. This is used as an index for the application of a number of social security contributions including the PUMA.

As a reminder, the PUMA health cover is compulsory for:

- anyone who resides habitually in France, and

- who is not covered under an EEA NI regime (which may include certain British citizens living in France post-Brexit), and

- whose total 2022 annual professional earnings are below €8,227 (limited to €20% of the “PASS” – see below). The 2023 limit should be set at €8,798.

The contributions payable into the PUMA scheme, through the URSSAF, are calculated at a rate of 6.5% on net investment gains and income reported in the previous year. This total assessable base is capped at 8 PASS i.e. €308,520 (2022) and €351,936 (2023). There is also an abatement of 50% PASS i.e. €20,568 for 2022 and €21,996 for 2023. The maximum contribution to the PUMA is therefore €20,054 per person (€22,876 for 2023).

Exclusion of British employment contracts from the “detached employee” working abroad exemption

French residents who are sent to work abroad by and for their employer, and not directly for an establishment based abroad, may benefit from an income tax exemption in respect of the wages related to that work. This exemption applies provided the employer is established in France, in another EU State or an EEA State which has signed an agreement with France for assistance in combating tax evasion and avoidance.

The French Administration recently specified that since 1^st January 2021, the United Kingdom is a third-party state to the EU and the EEA. Consequently, French taxpayers working for British employers, and sent abroad, no longer fall within the scope of the exemption provided for in Article 81 A, I of the CGI. They also confirmed that there were no plans to alter this interpretation.

French Social Contributions (CSG, CRDS and PS) and Double Tax Treaties

Article 2 of the 10 September 1971 double tax treaty between France and Brazil which follows the OECD model, stipulates that the treaty applies to income tax as well as any other identical or similar future taxes which are added to, or replace, current income tax levies.

In a recent decision, yet to be published, the Conseil d’Etat confirmed that the 7.5% prélèvement sociaux are treated as akin to an income tax levy and should therefore be covered by the terms of the double tax treaty.

The administrative doctrine also considers that the CSG and CRDS should be assimilated to income tax and unless expressively excluded, these should be covered by double tax treaties.

In June 2019, the US tax authorities confirmed that they would include the 9.7% CSG and CRDS for foreign tax credits but sadly not the 7.5% prélèvement sociaux.

The UK on the other hand continue to reject all these charges for the application of any credit.

Therefore, the Conseil d’Etat’s approach is not always transposed and territories such as the UK continue to refuse treating any of the social charges as akin to income tax for any tax credit.

Impatrié regime

The “impatrié » regime outlined in Article 155 B of the French Tax Code, offers attractive tax breaks to individuals who are “called up” from abroad to work in France, at the initiative of a France-based business. Last June, the Paris Administrative Court of Appeal, ruled that, a person who had applied for a job in France while residing abroad could also claim these tax advantages despite the fact that this person had applied for the position on their own initiative.

Indeed, the Court considered that FTC Article 155 B should not exclude individuals who actively search employment in France or postulate to a job offer from outside France. In the case in question, it was ruled that, a person who had negotiated an employment with a French employer, ahead of settling in France, could claim the tax breaks even if they could not demonstrate that the employment had exclusively resulted from the employer’s initiative. This decision will need to be confirmed as it goes against the administrative doctrine and the commonly accepted interpretation of the concept of "employees called from abroad".

Paying your French liabilities

Paying your French local taxes can become a challenge for taxpayers who are not registered online for automatic monthly or annual “prélèvements” directly from their French bank account. Direct debits can usually be set up immediately on receipt of a tax assessment but may not take effect until the following year (if applied for too late).

Personal income tax liabilities are now mostly paid directly through the prélèvement automatique. It is therefore important to ensure that the French Tax Authorities have the correct bank details and that there are sufficient funds in the account. This can be checked online through the “espace particulier” using the tax reference and password.

When not registered for automatic online payments, French tax liabilities may also be settled via the Impots.gouv.fr website, by simply clicking on the blue box “espace particulier” on the right-hand side of the screen and then on the green “payer en ligne” box, on the left-hand side, and by following the online instructions, armed with your IBAN and swift code. Nevertheless, all transactions require a SEPA (Single Euro Payments Area) account.

Alternatively, liabilities can be paid using the QR code stated on the assessment. This method requires the downloading of the “impot.gouv” app so taxes can be paid by simply flashing the code and following the instructions on a smart phone or mobile device.

Bank account closures

Since Brexit, British banks are closing their French resident client accounts, leading to countless difficulties for those receiving a regular source of income from the UK. The same is applied by some French banks which are closing the accounts of their UK resident clients, causing major issues with the payments of utility bills, insurance premiums and taxes on their French second homes. Thankfully certain French establishments specialise in setting up French accounts for non-residents remotely, thus ensuring any payments linked to French property holders are secured.

TV Tax – Redevance Audiovisuelle

French TV tax is suppressed with effect from 1^st January 2022. As a result, the 2022 Taxe d’habitation assessments should no longer state the redevance. Those who pay their Taxe d’Habitation on a monthly basis should receive an adjusted assessment deducting the amount of redevance already levied from the remaining tax due. Those already exempt from the Tax d’Habitation will automatically receive a refund of the redevance they have already paid monthly.

Should you have any queries please contact Virginie Deflassieux or Catherine Le Pelley.

This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only. It cannot be relied upon to cover specific situations without obtaining professional advice.

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