France: A review of 2019’s new wage tax withholding system and its impact for foreign employers
On 1st January 2019, a new wage tax withholding system was implemented in France. This has meant employers are obliged to withhold personal income tax from their employees’ taxable salaries and pay it monthly to the French tax authorities.
This new system applies to all French tax residents receiving employment income, regardless of whether their employer is located in France or abroad, and involves a complicated identification procedure for foreign companies with no establishment in France.
Identification procedure – Appointment of a tax representative
Foreign companies with no establishment in France must appoint a tax representative, and have such representative accredited by the French tax authorities. This representative will be responsible for the company’s compliance with French regulations regarding the withholding and payment of personal income tax.
However, this obligation does not apply to companies established in an EU Member State, or in an EEA state which has concluded a tax treaty providing for mutual administrative assistance for the purpose of fighting tax fraud and tax evasion, as well as a mutual assistance agreement regarding tax collection with France. In such cases, the company may decide to give a simple mandate (without any necessary accreditation) to an intermediary to fulfill the withholding tax formalities on their behalf.
Other registration requirements
As a second step, foreign companies employing French tax residents must, through their tax representative or by themselves:
- apply for a SIREN/SIRET identification number in France;
- create a professional account on impots.gouv.fr (the French tax authorities’ website) in which they will declare the bank account to be used for withholding and payment of tax, which has to be in the SEPA (Single Euro Payments Area) zone; and,
- get a professional account on the net-entreprises.fr website in order to file the withholding tax declaration on a monthly basis.
Monthly declaration and withholding of tax
Employers are required to withhold personal income tax on a monthly basis, applying a specific individual rate provided by the tax authorities, computed on the basis of the employee’s last reported net taxable income. The applicable tax rate is provided monthly by the tax authorities following the filing of a declaration by the employer (DSN, which applies when the employee is subject to the French social security system, or PASRAU, which is the new declaration for employees who are covered by a foreign social security system).
For employees who are not yet registered with the French tax authorities, a standard tax rate based on the level of monthly taxable salary applies.
Tax withheld is paid to the French tax authorities through a monthly direct debit.
These new requirements have been in force since 1st January 2019. Although the French tax authorities currently seem to be adopting a tolerant approach to foreign companies’ compliance with this new withholding system, it is nevertheless incumbent upon all employers of French tax residents to ensure that they act in accordance with the new obligations at the earliest opportunity. Each step of the registration process takes between two and three weeks to be fully completed, and. although unclear, penalties for non-compliance are likely to apply at some point.