QROPS Advice: Taxation of ‘Non-Residents’ Living in France

If an individual is deemed to be a non-resident for tax purposes, they are subject to income tax on their French-sourced income
only. However, a basic distinction is made depending on whether or not the non-resident taxpayer has a dwelling at his
permanent disposal in France. If not, the general rule is that he/she is taxed exclusively on French-sourced income using the
same income tax rates as residents. However, the rate must not be less than 20% of income, unless it can be proven that the
overall rate of French tax on his worldwide income would be lower than 20%, in which case the tax liability is reduced
accordingly. If the non-resident taxpayer has one or more dwellings in France, and subject to large exceptions, he/she is taxed on
a deemed income equal to three times the annual rental value of his/her residence(s). If their French-sourced income exceeds
this deemed income, they are subject to tax on the basis of their French-sourced income. In general, this flat tax does not apply
to residents of countries which have concluded a tax treaty with France.
Non-residents who are liable to French personal income tax on employment income are subject to withholding tax. Following
deduction of the mandatory French employee social security contributions and the standard 10% salary deduction, employment
income is then subject to withholding tax at source by the employer, at the rates of 0%, 12% and 20%. The withholding tax at
0% and 12% frees the corresponding portion of net annual salary from further income tax. The French complementary personal
income tax is computed on the part of the remuneration liable in the 20% band. It is computed based on the French normal
income tax rates, with a minimum of 20%. If the resulting tax is lower than the withholding tax already paid at a rate of 20%,
the total withholding tax is the final tax liability of the employee. If the resulting tax is higher than the 20% withholding tax, the
20% withholding tax levied by the employer is offset but an additional income tax is due by the employee.
In respect of social security contributions, France has entered into agreements with more than 40 countries. Under these
agreements, where expatriates are temporarily transferred to France, they may remain under their home country’s social security schemes.

http://www.ailo.org/common/externalPage.asp?intURL=/publications/default.asp&extURL=/downloads/France 2009.pdf