An Overview of Tax Compliance Services in France

In France, 95% of the government revenue is generated comes from taxes paid by the taxpayers and businesses. Taxes and social security contributions, contribute to about 47.4% of the GDP. The government of France finances a wide range of public service such as education, health, justice, transport and welfare. To ensure the re-distribution of wealth, France has opted for a progressive income tax system which means that the tax rate goes up with income level. Taxes in France are of two types:

1. Direct Taxes
2. Indirect Taxes

Let’s have a look at these taxes in detail.

Direct Taxes

A direct tax is a tax where the taxpayer whether individual or business directly pays the taxes to the Public Treasury. The different types of direct taxes in France are as follows:

Tax Paid by Individuals

1. Income Tax: An income tax is taxed on the income earned by tax residents in France. It applies to wages as well as profits and capital gains. The income tax is directly deducted at the source from the working wage. Due to the progressive tax, the rates vary.
2. Real Estate Wealth Tax: The Real Estate Wealth Tax is the successor of the Wealth Solidarity Tax (ISF). This tax is applicable to households with real estate assets, usufruct, rights of use, or investments related to real estate with a net value greater than 1.3 million euros as of 1^st January 2022. The rate of taxes varies from 0.5% to 1.5% though for some specific assets it may be fully or partially exempt.
3. Property Tax: The Property tax is paid by real estate owners. There is a difference between the property tax levied on built properties and the property tax on unbuilt properties. The tax rate is calculated as per the property’s cadastral value and varies from municipality to municipality. In addition to the property tax, owners also have to pay household waste collection tax.
4. Residence Tax: Residence Tax applies to people occupying a dwelling or a residence, whether primary or secondary, as of 1^st January of the current year. In 2023, the residence tax has been done away for the primary residences. Further, the TV license tax becomes due only on the payment of the residence tax.

Taxes paid by businesses

Two Types of taxes paid by businesses in France are as follows:

1. Income Tax: It is mandatory for micro-enterprises, Limited Liability Sole Proprietorships, General partnerships, Professional Civil Partnerships, and single-owner limited liability companies, whereas Limited Liability Companies, public limited companies, and simplified joint stock companies can voluntarily choose to pay income tax.
2. Corporate Income Tax: This tax is paid by Limited Liability Companies, Public Limited companies, and simplified joint stock companies. However, Limited Liability Sole Proprietorship, general partnerships, professional civil partnerships, and single-owner limited liability companies can choose to pay corporate income tax under some conditions. No corporate income tax is levied on micro-enterprises. The company has to report its net profit to pay the tax.

Indirect taxes

Indirect taxes are a significant source of government revenue. The main types of indirect taxes in France are:

1. Value-Added Tax: It is a general consumption tax that is added to the price of the goods and services to come to the final price. The amount of VAT is inclusive in the displayed price and is paid by the consumers without realizing it. The companies are responsible to collect taxes from the consumers and pay it to the government. The different types of VAT rates in France are as follows:
2. A standard rate of 20% applicable to the majority of products and services sold in the country.
3. An intermediate rate of 10% applicable to restaurants and transport.
4. A reduced rate at 5.5% applicable to basic necessities.
5. A super-reduced rate of 2.1% applicable to press publications and medicines that are reimbursed by the social security system.
6. Domestic Consumption Taxes on energy products (TICPE): This is an indirect tax applicable of the petroleum products such as fuel and heating. The tax rates are set by the government and it depends on the fluctuations in oil prices.
7. Registration fees: It is a fee paid at the time of registration of a legal instrument. It includes inheritance proceedings, donation duties and real estate sales.
8. Stamp Duty: It is an indirect tax that is paid at the time of drawing up or renew of a legal instrument or identity necessary papers.
9. Customs Duty: It is levied on products purchased from outside the European Union being brought to France. The Customs Duty can either be fixed or it can represent a percentage of the value of goods. The imposition of customs duty encourages the consumption of local goods by making imported products expensive.

Time Frame for filing tax in France

The main deadlines that need to be met are as follows:

1. Online income tax return is due in the 2^nd quarter i.e., by the end of May or beginning of June.
2. Income tax notice is received and property wealth tax is due in the 3rd quarter i.e., in September.
3. Payment of property tax and residence tax is due in the 4^th

The corporate income tax is paid in four annual instalments but the date may vary depending upon the closing date of the financial year.