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The rules on tax residency for France

The question of French tax residency rules affect anyone who has a home in France. We ask Robert Kent of Kentingtons, the professional tax advisors for British expats in France, to explain what the rules are…

Am I a tax resident in France?

I will start by saying french residency rules are a matter of legislation, not a matter of choice. I am often asked “where is it best to pay taxes … France or the UK?” It must be clear that there is no choice. It just depends where you fall within the rules.

Many people bury their head in the sand when it comes to defining their residence of France. It’s so easy just to stick with what you know and avoid what is foreign. Many people, who do attempt to define their status, try to define their residency of France using the same rules as are used to define residency of the United Kingdom, eg UK law. But this makes no sense at all when trying to define the residency rules of another country.

French Tax Residency Rules

The bad news is that the main laws defining residency of France do not even mention the number of days spent in the country. So, it’s time to throw out the UK rule book! We’re in France! Many people think that the rules on residency are vague. And yes, this can sometimes  be the case. However, very few people fall into this vague category. For most people, their residency position is very clear.

The french tax residency rules are clarified both in Article 4B of the French tax code (the Code Général des impôts or CGI) and Article 3 of the UK/France Double Tax Treaty. Residency is defined using a series of tests:

Where is your principal residence? (Article 4B1a – CGI)

This is also supported by article 3a of the UK / France double tax treaty. If you have one “home” this is easy. If the only “residence” available to you is in France you are French resident. For any property to be viewed as your “residence” it must be available for your use. If rented out it doesn’t count. And  it must either belong to you or be a property you rent with a “formal” rental agreement. Using a relative’s or friend’s address is not sufficient. As a guide, you’re generally required to provide utility bills for the property – in your name.

Just to prove that number of days can literally be inconsequential, there was a case of a businessman who had never been to France. However, his wife lived there, and his children lived and went to school there. Even though he had not entered the country, it was viewed that his principal residence was France as this is where his family was based. The conclusion is that ‘principal residence’ test overrides the number of days test.

If you do own a “residence” in each country, then it is settled by your centre of economic or “vital” interests.

Where do you have a professional activity? (Article 4B1b -CGI)

If you work in France or have a business here, this can make you a French resident. If it is ancillary to your main profession and this is in the UK, for example, it is not necessarily the case. However, if it is your only activity, you will generally be deemed as resident.

Where is your centre of economic or “vital” interest? (Article 4B1c -CGI)

This is supported by article 3b of the UK/France double tax treaty. Ultimately this is where you run your financial life from. For example it may be where your income is paid from. Or it may be where your business interests are and also where you manage your assets from.

Place of your habitual abode

This is where French law and the tax treaty stop overlapping. The tax treaty takes over to decide in which country you are resident. Article 3b states that if your centre of vital interest cannot be determined or there is no principal residence, or “home”,  then it is down to where you have your habitual abode. This does not count the number of days in a country, but merely where you are spending most of your time. If you only spend your time between the UK and France and nowhere else, then it can be simplified as where you spend over 183 days. However, it is this oversimplification that has led to many problems. For instance, if you spend time in a third country, it is possible to be in France for, say, five months and still be considered resident. It’s about where you are spending most of your time.

It is important to note that it is not after 183 days that you become resident. It is from your day of arrival in France. So from the day of arrival – you are assessable to tax in France.

Country of which you are a national

Article 3c states that if residency position still remains unclear, your residency will be decided by the country of which you are a national.

Mutual agreement

Article 3d states that if you are a national of both France and the UK, and none of the other tests make your residency status clear, it then goes to deadlock. Then it’s up to the respective fiscal authorities to decide between them.

Joining the health system

This has nothing to do with tax law, but more to do with making a false declaration. If you are not a resident of France, you have no right to join the French healthcare system. By joining you are openly declaring that you are a resident of France. Many people have found themselves in hot water with the financial authorities because they have joined the French health service. If you do not live in France, do not join the health service.

Conclusions About the French Tax Residency Rules

To be in a “vague residency position”, you would need to have a property in the UK and France. Have the utility bills are in your name. Equal vital interests in each. Spend exactly the same amount of time in each country. And be a national of both countries. If you are working you would need to be exercising your profession equally between the two countries. This is why very few people fall into the “vague” category. Establishing your position maybe somewhat complex, but it is normally perfectly clear.

If you are a resident of France, you are also domiciled in France, since the double tax treaty between the two countries agrees this. More importantly, you are now duty bound to complete a French tax return, declaring your worldwide income. It does not matter where it is paid, where is maintained, whether it is considered “exempt” in France or not, whether you pay tax at source in the UK or not. You must declare everything. Even if you have no income at all, you must still complete a return.

It is unlikely you will be sent a tax return in the first instance. The law says it is your responsibility to obtain one. You can obtain a tax return at your local mairie, tax office or online at www.impots.gouv.fr.

Is paying tax in France bad news?

Not for most people. In many cases the weight of taxation is lower in France than the UK. Obviously, this depends on your situation and the only way to be sure of your position is to seek advice from a qualified professional.

Contact the team at Kentingtons for advice, or a free initial consultation at: kentingtons.com

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