Are there French tax implications when detaching employees on a temporary basis to France?

For the detached employee there is a risk that she or he could be held to have become tax domiciled in France. By virtue thereof, she or he could be subject to French personal income tax on net worldwide income.

For the detaching company, and depending upon the role and responsibilities of the detached employee, there is a risk that the employer be considered to have a permanent establishment in France and therefore liable for French corporation tax and for complying subsequently with French reporting obligations.

It is thus possible to detach an employee to France, but considerable circumspection (prior to doing so) on the tax front should be shown.

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Does ownership of a residential property in France generate any tax liability?

Ownership in France of real estate gives rise to payment of French local land tax (Taxe Foncière) and French local occupancy tax (Taxe d’habitation).

In addition there is a 3% annual withholding tax (on the market value of the real estate) if the property is held through a company on the one hand and wealth tax if the net value of the property exceeds 800 000 Euros on the other.

There are however a certain number of possible palliatives in respect of both taxes from the perspective of non-French nationals.

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Am I liable to French tax if I rent out my property in France?

Income from the rental of French real estate is taxable in France subject only to the provisions of certain applicable bilateral tax treaties. Rental income would thus be liable to French personal income tax, applicable at progressive rates up to 45% as well as French social charges or contributions.

The taxation regime will depend whether the rental property is furnished or unfurnished.

Moreover there are optional simplified tax regimes are applicable when gross rental income does not exceed certain thresholds.

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Can I claim back French social charges paid on rental income or capital gains from French real estate?

If French social charges of this nature were settled before the end of 2015, European case law has held that such charges are not compatible with EU law and are thus refundable to EU residents.

However, the validity of refund claims is subject to strict conditions and notably the statute of limitations, therefore it is advisable to file a claim as quickly as possible.

Should such social charges have been paid from 2016 onwards, and due to recent changes in French law, the government does not consider that French social charges on such income are refundable.

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When is a trust subject to reporting requirements in France?

A trust is now subject to French reporting requirements if the settlor, or one of the beneficiaries or one of the trustees, is resident in France, as well as when the trust holds taxable assets situated in France.

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What are the reporting requirements in France for trusts?

Trustees are under an obligation to file a return when a trust, subject to French reporting requirements, is either constituted, terminated or when the terms of the trust are modified.

In addition, trustees are required to file an annual return detailing the persons who are parties to the trust (trustees, settlor and beneficiaries) and setting out details of its main terms as well as a valuation of the trust assets as at 1 January in the year considered.

Moreover, if the settlor or beneficiaries are liable to French wealth tax on the trust assets, these need to be declared in the relevant French annual wealth tax return.

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What are the penalties for non-compliance with French reporting requirements on trusts?

The trustees, as well as the settlor and beneficiaries, who are jointly and severally liable, are subject to a penalty of up to 5% of value of the trust assets. This penalty is applicable as many times as the appropriate return is not filed. In addition, trustees run the risk of criminal prosecution.

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When is French wealth tax applicable?

For non-residents, French wealth tax is applicable when the net value of assets situated on French territory, excluding certain prescribed financial investments, exceeds 1.3 million Euros

For new residents, there is an exemption of the first five years of French tax residency during which liability only arises on French situated assets, rather than worldwide assets.

Thereafter French wealth tax rates are progressive, ranging from 0% up to 1.5% for taxable net wealth over and above €10 million on worldwide assets.

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When moving to France do I need to file a French income tax return with the local tax authorities?

Yes – if you are a considered a French resident for tax purposes.

Income is declared in April/May of the year following that of receipt of income, i.e. income received in year N is declared in April/May of year N+1.

The onus for making and filing the first income tax return is solely on the taxpayer. You will not receive any formal request from the French tax authorities but failure to file is subject to penalties.

Thereafter, once you are known to the local tax authorities, an official reminder of when and how to file your French income tax return will be sent to you each year.

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Is registration for French VAT mandatory when carrying out VAT taxable transactions in France?

In addition to EU rules allowing for the reverse charge of VAT, France has a domestic reverse charge mechanism in place which can very often avoid the extra administrative burden and cost of registering for French VAT.

A preliminary analysis and mapping of prospective transactions in France can enable operators to make the most of the French VAT reverse charge mechanism opportunities, thereby simplifying logistics and administrative processes and avoiding unnecessary cash flow issues.

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