Presently in France, personal income tax is paid directly by employees. Employers are under no obligation to deduct tax at source; employees are responsible for both filing and payment of their own income taxes.
With effect from 1 Jan 2019, it will be the responsibility of the employer to ensure that tax is deducted from the remuneration of employees (including Salary, Pension and French property income) and to remit the deducted taxes to the French tax authority. This brings France in line with most developed countries which already have Pay As You Earn or Pay As You Go (PAYE / PAYG) systems.
The deducted tax must also be reflected on the monthly pay slips of the employees. In addition, the employer must also file monthly returns with the local tax centers.
The income tax rates applicable on various levels of income and family situations will be updated each year in September by the tax authorities. The tax authority will calculate the tax rates for employees and inform the employers. The employees can also request a change in the applicable rates. The amount of the withholding tax (Prélèvement à la source) will be paid through the Nominative Social Declaration (DSN - Déclaration Sociale Nominative).
Points to watch
- The withholding tax can only be paid through direct debit from a SEPA bank account. Thus companies will need a SEPA account or the payroll service provider will need to have this account.
- All employees should be informed of the change and its effect on their monthly “take home” salaries. Essentially in 2019, the employee will need to pay over the taxes owed form 2018 as well as pay the 2019 taxes on a monthly basis.
- The employee should also be notified how this will affect their personal tax returns and tax payments.
- Non-resident employees have already been subject to withholding tax by employers but companies should confirm any effect on the taxability of an Expat employee.
- Consider the effect of GDPR – companies should address any privacy concerns as the tax rate for each employee should be kept confidential as the tax rate is an indicator of the remuneration of an employee including salary and any French property income). It is recommended that employers obtain written consent from employees to share the tax rate with the payroll service provider.
- Companies should also analyze whether any amendments to employment contracts are necessary to allow the remuneration agreed in the contract to be subject to applicable tax deductions. (In most countries the contracts of employment state that there will be tax deductions from the remuneration at applicable tax rates, which may change from time to time.)
- The increase in the calculations and paperwork will increase payroll costs in France which should be budgeted.
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