After several delays, France will be implementing withholding tax (Prélèvement à la source) on salaried income from Jan 1, 2019. It is a significant change in the French tax system as currently personal income tax is paid directly by employee with no withholding at source by employers.
Beginning January 1, 2019, employers are required to deduct tax from the income of their employees, (which includes including salary, pension and property income) and to remit the deducted taxes to the French tax authority.
- All these deductions should reflect in the monthly payslips and employers must e-file the returns with the local corporate tax center.
- Tax authorities will calculate the tax rates for employees and inform the employers. The tax rates will be provided by the DGFiP (Direction Générale des Finances Publiques) (Employees can, however, request a change in the applicable rates).
- In France, businesses need to open a Single Euro Payments Area (SEPA) bank account or hire a service provider with a SEPA account.
- Employers should prepare for increase in calculations, paperwork, and overall administrative burden.
- Employees will also need to be informed timely about the change and impact on their salaries.
- To avoid double-taxation in 2019, the government will provide a tax credit to each French taxpayer, which will cancel out the outstanding income tax on non-exceptionalincome for 2018 with some exceptions.
- In case of Expat employees, Companies may need to review the tax status of the employees.
- The latest regulation is in line with Pay As You Earn or Pay As You Go (PAYE / PAYG) systems currently in use in several countries.