At N26, we’re all about helping you navigate complex financial topics and simplifying money management. We’ve put together a handy guide to help you better understand the French tax system. Ready?
8 min read
From direct and indirect taxes to income and property taxes, figuring out all the taxes you owe can be stressful. At N26, we’re all about helping you navigate complex financial topics and simplifying money management. So, we’ve put together a handy guide to help you better understand the French tax system, including the different types of taxes and who owes what. Ready? Let’s go.
The different types of taxes in France
Did you know that nearly 95% of government revenue comes from taxes paid by French taxpayers and businesses? What’s more, French taxes and social security contributions represent 47.4% of GDP—and they come in at number two of the OECD countries who levied the most tax revenue in 2019. This system allows the country to finance a wide range of public services, from education and health to justice, transport, and welfare. To guarantee the redistribution of wealth, France has opted for a progressive income tax system. This means that your tax rate increases as your earnings go up. The more money you earn, the higher your tax rate will be. Conversely, proportional taxes don’t vary according to the value (or price) of the good or service. Value-added tax (VAT) is a proportional tax because its rate is fixed—this means that the tax percentage stays the same regardless of the price. Taxes in France fall into two general categories:
Direct taxes. These include taxes on income, real estate, and corporations as well as property and residence tax.
Indirect taxes. These include VAT, taxes on petroleum products, and registration levies—as well as stamp and customs duties.
Let’s take a look at how each of these taxes work.
Direct taxes
A tax is direct when taxpayers—whether individuals or businesses—pay their contribution directly to the Public Treasury. Here are the different types of direct tax in France:
Taxes paid by individuals
Individual taxpayers in France pay two types of taxes: national and local.National taxes include the following:
Income tax. Anyone with a tax residence in France with earned income can be taxed on it. This applies to wages, as well as profits and capital gains.
Since 2019, income tax has been deducted at source, i.e. directly from a worker’s wages. Because this is a progressive tax, the rate varies from 0% to 45%. In 2020, income tax was owed for individuals earning at least €10,085 of overall net annual income. The average amount of tax levied in France is €4,529.
Taxes on real estate wealth. The successor to the Wealth Solidarity Tax (ISF) is the tax on real estate wealth (impôt sur la fortune immobilière, IFI). This tax concerns households with real estate assets, rights of use, usufruct, or investments related to real estate with a net value of greater than 1.3 million euros as of January 1, 2022. This is another example of a progressive tax. The rate varies from 0.5% to 1.5%, though some specific assets may be fully or partially exempt.
Local taxes include the following:
Property tax. This tax is only paid by owners of real estate. A distinction is made between property tax on built properties (housing, parking, building, land for commercial use, etc.) and property tax on unbuilt real estate (building plots). The rate is calculated according to the property’s cadastral value, and the tax rate varies among the different municipalities. Owners also have to pay the household waste collection tax.
Residence tax. This tax is paid by the person or people occupying a dwelling as of January 1 of the current year. It applies to both primary and secondary residences, and the rate is calculated on the same basis as property tax. However, it’s important to note that the residence tax will be fully eradicated in 2023 for primary residences. Your TV licence tax (redevance télé) is also due upon payment of your residence tax.
Taxes paid by businesses
It’s not just individuals who have to pay direct taxes in France—companies are also subject to taxes on the money they earn. However, contributions vary depending on the company’s legal status. The two types of business taxes in France are as follows:
Income tax. This must be paid by micro-enterprises, Limited Liability Sole Proprietorships (EIRLs), general partnerships (SNCs), professional civil partnerships (SCPs), and single-owner limited liability companies (EURLs). Limited liability companies (SARLs), public limited companies (SAs) and simplified joint stock companies (SAS) can opt to pay income tax.
Corporate income tax. This must be paid by SARLs, SAs and SAS and—optionally and under certain conditions—by EIRLs, SNCs, SCPs and EURLs. Microenterprises are not subject to corporate income tax. To pay the tax, the company's net profit must be reported once executive compensation has been deducted. In 2021, the rate is 26.5% for companies with a turnover between 7.63 million and 250 million euros, and 27.5% when the turnover is greater than 250 million euros. In 2022, the rate is set to drop to 25% for both brackets. SMEs with a turnover of less than 10 million euros pay a reduced rate of 15%.
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These are much less visible than direct taxes. However, they are hugely significant to government revenue. VAT—the indirect tax “par excellence”—made up nearly 38.1% of the government's gross tax revenue in 2021, compared to 23.7% for income tax. Here are the main indirect taxes in France:
VAT
Value-added tax is a general consumption tax created in 1954. It consists of a rate which is added to the price of a good or service to give a final price. In France, VAT is paid by consumers without them realizing it, since it is already included in the displayed price. VAT is an indirect tax, which means companies are responsible for collecting it on behalf of the government. There are four different VAT rates in France:
A standard rate at 20%. This applies to the majority of products and services sold in the country.
An intermediate rate at 10%. This mainly applies to restaurants and transport.
A reduced rate at 5.5%. This applies to basic necessities (food, non-alcoholic drinks, school canteens, cinemas, live show tickets, and energy sector works).
A super-reduced rate of 2.1%. This involves press publications and medicines reimbursed by the social security system.
Domestic consumption taxes on energy products (TICPE)
Formerly known as the domestic consumption tax on petroleum products, the domestic consumption tax on energy products (TICPE) is another indirect tax levied on petroleum products used as fuel or heating. The rates for this tax are set by Parliament and depend on fluctuations in oil prices.
Registration fees
Registration fees are paid when registering a legal instrument. This includes inheritance proceedings, donation duties, and real estate sales.
Stamp duty
Stamp duty is an indirect tax that you pay when you draw up (or renew) legal instruments or identity documents. Stamp duty is paid with so-called “tax stamps” which can be purchased here.
Customs duty
Customs duty is levied on products purchased in a country outside the European Union that have been brought back to France. Customs duty can be fixed, or it can represent a percentage of the value of the goods. This tax was introduced to encourage local consumption by making imported products more expensive.
Paying taxes in France
Here are the basics on payments to the French tax office.
Who pays which taxes?
Individuals earning a certain level of income pay income tax
Companies that earn a profit pay corporate income tax
Owners pay property tax, and some owners also pay wealth tax
Tenants pay residence tax (only until 2023 for primary residences)
Consumers pay VAT, customs duty, stamp duty, etc.
The French tax year
Nervous about missing an important tax deadline? Here’s a summary of the main deadlines that need to be met, based on information from 2021:
2nd quarter: Online income tax returns are due (end of May or beginning of June, depending on the departement you live in)
3rd quarter: Receipt of your income tax notice (end of July or beginning of August); payment of property wealth tax is due in September
4th quarter: Payment of property tax (October) and residence tax (November)
As for corporate income tax, this should be paid in four annual installments. The dates may vary according to the closing date of the financial year in question.
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On your way to becoming self-employed in France and wondering what taxes and contributions you’ll need to pay? Read on to find out what you need to know.
Confused about value-added tax in France? We answer the most common questions about VAT—how it works, how it’s calculated, and what the different rates are.
On your way to becoming self-employed in France and wondering what taxes and contributions you’ll need to pay? Read on to find out what you need to know.
Confused about value-added tax in France? We answer the most common questions about VAT—how it works, how it’s calculated, and what the different rates are.
