Under Article 182 A of the French Tax Code (Code Général des Impôts), a withholding tax return (Form 2494-SD) must be filed by non-residents with French source income.
The rules governing the taxation of individuals whose tax residence is located outside France, as set out in Article 182 A of the French Tax Code, have been modified for the coming years:
- Under the 2019 Finance Act, withholding tax on salaries, pensions and life annuities will be abolished as from 2023;
- Withholding tax on income from employee shareholdings will be modified as from 2023.
The following years are concerned: 2020, 2021/2022 and 2023
- For the year 2020: No change – withholding tax continues to apply under the same rules as previously.
- Three rates still apply for the calculation of withholding tax: 0%, 12% and 20%. Withholding tax provides exemption from income tax for the portion up to and including the 12% rate, but not for the portion subject to the 20% rate.
- For the years 2021 and 2022: Withholding tax will remain applicable; however, the rates will be revised each year, as is currently the case. In addition, there will no longer be any exemption from income tax (whereas in 2020, the portions of income subject to withholding tax at the 0% and 12% rates provided exemption).
- Income tax must therefore be calculated based on the full amount of income subject to withholding tax.
- For the year 2023: Withholding tax will be abolished entirely as from this date. Income received or earned as from this date will be subject to the standard pay-as-you-earn system (PAYE).
Special rules for exemption from withholding tax currently exist for non-residents, based on case law (Decision of the CJEC, 14 February 1995, Schumacker case ). To be eligible, three cumulative conditions must be met:
- The non-resident is domiciled in another member State of the European Union;
- Over 75% of the non-resident’s worldwide income is earned in France;
- The non-resident does not benefit from sufficient tax allowance mechanisms in the State of residence, with respect to his/her personal and family status.
Where these conditions are met, the non-resident is considered as a French tax resident. As a result, the withholding tax referred to in Article 182 A of the French Tax Code does not apply