There are a number of ways in which non-French resident companies or private individuals can become subject to tax filing obligations in France.Here is just a selection:
- With regards to French personal income tax – non-residents may have to file a French personal income tax return if they receive income of French source. This is notably the case in respect of rental income from real estate property situated in France, regardless of whether the real estate is owned directly by a private individual or through a commonly used French real estate company, the SCI (“Société Civile Immobilière”). Indeed even though the real estate is held through such a corporate entity, the shareholders remain liable to any French personal income tax and as such each shareholder is subject to file an annual tax return.
- For the purposes of French corporation tax – a non-French resident corporate entity would be liable to file French accounts and the subsequent French corporation tax returns if deemed to be carrying out a business activity via a permanent establishment in France. One situation which can often lead to having a permanent establishment in France is when the corporate entity has employees working from France whose powers and duties with regards to third parties are such to render the corporate employer liable to French corporation tax. In such cases care needs to be taken as to the definitions of powers and duties granted to the employee.
- Regarding the 3% annual real estate tax – non-French corporate entities who own real estate in France are in principle liable to a prohibitive and dissuasive annual tax amounting to 3% of the actual value of the real estate. However, dispensations are available as its main aim is to obtain information relating to the ultimate private individual economic beneficiaries so that they can be correctly assessed for French wealth tax purposes. One notable way of dispensation is through the filing of an annual return disclosing the names and addresses of such private individual economic beneficiaries.
- With regards to the disclosure of trust arrangements – if either the assets of a trust are real estate property situated in France or the settler or any of the beneficiaries are French resident, disclosure obligations apply to the trustees. These annual obligations imply the disclosure of notably the main characteristics of the trust arrangement, the names and addresses of the settlor and all beneficiaries as well as an estimated value of the French situated trust assets. It should be noted that non-compliance with this trust disclosure obligation gives rise to a €20,000 penalty.
- Regarding French wealth tax – any non-French resident private individual whose French situated assets have a net worth of more than €1.3 million are required to file an annual French wealth tax return providing an estimated valuation of such French situated assets. It should be noted that when such assets are immovable assets their market value can vary through time. Therefore non-French resident owners of French real estate should be aware that, even if the original purchase price was less than €1.3 million, through time the value of the property may have risen given changes in property market prices. Consequently, it is advisable to check on the potential market value of such property in order to anticipate whether filing a French wealth tax return is required.
It should be noted that the French tax authorities are under no obligation to inform non-French residents of such filing obligations. In addition, even if such obligations have been completed in the past non-French residents might not automatically receive either a reminder or the appropriate return. Consequently, it is highly advisable that the situation with regards to such filing obligations be verified. Triplet & Associés can assist with such a summary verification and help with any French tax and legal filing obligations.
Penalties for non-completion of such filing obligations include primarily the risk of the French tax authorities applying taxation based on information at their disposal without any consultation with the non-resident taxpayer. Additionally, penalties and late interest payments can apply on any assessed tax amounts. Such penalties begin at 5 and 10% and can very easily, if care is not taken, increase to 40 or even 100%.
Finally, it is possible for the French tax authorities to go back and assess the previous 3 or 6 years depending on the tax concerned and even in some cases go back 10 years.
For further information on French tax returns please click here.