A new tax measure to be applied…are you ready?

Under the Presidency of Emmanuel Macron, the French government will introduce a withholding tax on income with effect from 1 January 2019. Until now, France has remained one of the few European countries not to have applied this method of taxation.

It is important to note that this reform only concerns the method of income tax recovery and not the calculation method. The objective is to eliminate the delay of one year that currently exists between revenues earned and the actual payment of the corresponding income tax.

As from 1 January 2019, amounts will be withheld either by the employer or by the Tax Administration (for non-employee income) corresponding to the income tax for the year 2019. These deductions from salary will not be considered as a full contribution as each taxpayer will still have to file an annual tax declaration and pay in full any remaining balance due as previously done.

What are the advantages and disadvantages of this new measure ? 

For the employer : the employer will have to implement this measure and to collect the amounts due by withholding them at source on the payslip (as is already the case for employee social contribution charges).

The measure has provided different possibilities for employees to manage their tax rate for the fiscal year 2019, based on the tax declarations of 2018 for the year 2017. The employer will not know the total revenues of its employees either on an individual basis or at a household level, and will only know the tax rate to apply on the incomes of the physical and tax-paying person. 

For the taxpayer : the French tax administration has proposed to fix an average rate on the taxable household, or alternatively to select a differentiated rate for each of its members once the 2017 data has been validated. Modifications could be made by taxpayers through their individual taxpayer account until 15 September 2018. Following this, the rate will be communicated by the Tax Administration to the employer (for employees), or will be directly used by the Tax Administration for bank account deduction purposes on non-employee revenues (self-employment income, rental income, employment income paid by non-French employers…). 

The Tax Administration will remain the sole point of contact for the taxpayer for any changes in the individual’s situation or amounts to be deducted. Employees should not communicate with their employer on this subject.

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