The new French Pay As You Go system, known as “prélèvement à la source”, will enter into force from 1 January 2019.   The source deduction of the income tax is intended to adopt the recovery of the tax for a year to the actual situation of the user (income, life events) for the same year, without modifying the calculation rules. It aims to eliminate the one-year gap between revenue collection and the payment of income tax.

The vast majority of income tax assessments were issued in August with any balance due in September or spread over the last months of 2018 for those who elected to pay monthly.

Liabilities exceeding €1,000 must be paid electronically online in the “espace particulier”, by TIP or direct debit.

The final 2018 tax payment for nonresidents may be due at any time between September and December 2018, depending on when their returns have been processed. Those who do not have a French or SEPA zone bank account have no choice but to pay by bank transfer. This will trigger a charge of €15 or 0.2% of the tax due if above €15.

As previously announced, the new French Pay As You Go system, known as “prélèvement à la source”, will enter into force from 1 January 2019.  The resulting withholding tax (“prélèvement à la source” or PAS) is applied to gross salaries, pensions and pension annuities and paid by the employer or pension provider. The tax payment in relation to the employment of self-employed personal staff is organised through the chèque-emploiservice “CESU” or Pajemploi systems and payable by the individuals using these services. Further information is expected in respect of this.

The tax administration calculates the PAS rate based on the previous year’s income and tax thereon. Since, in theory, it is possible for employers or pension providers to work out the household’s total income from the rate thus determined, taxpayers may opt for a set rate but will need to ensure that any excess due is paid. Penalties will apply for underpayments.

There is also a provision for a compulsory default rate in some situations (where the income is unknown for previous years for instance).

The withholding tax in respect of self-employed commercial, industrial, noncommercial (services), agricultural, artisanal, commercial annuities, taxable alimonies, and non-French earnings or pensions taxable in France is calculated and levied by the tax administration directly from the taxpayer’s account. It is usually determined by reference to the previous years’ income and is differentiated from the PAS under the names of “acompte” or “retenue à la source” (RAS). The RAS also applies to

French rentals received by nonresidents of France.

Investment income and gains or gains on stock options are not subject to the “Pay As You Go” system. Instead, they may be subject to the standalone tax on account, known as the prélèvement forfaitaire non libératoire or PFNL (see below). This is payable by the 15th of the month following receipt of the income, and applies if the household’s total taxable income in the previous tax year exceeds the

following limits:

  • For a single person, the limit is €25,000 for the PFNL on interest and €50,000 for dividends.
  • For couples, the limit is €50,000 for the PFNL on interest and €75,000 for dividends.

Any excess paid will give rise to a tax credit, subject to the final assessment and whether the barème rates apply or not. In theory, households who apply for the 30% default flat rate on their investment income and gains will, in fact have paid up their liability.

Some banks and French investment establishments automatically apply the PFNL and this is usually stated on the pre-completed tax returns, along with the amount to be applied as a credit. The credit avoids a double charge on these sources of income when the final assessment is issued. Nevertheless, in the case of investment income originating from non-French establishments, the onus is on the taxpayer to file the relevant PFNL forms and pay the charge.

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