Earlier this year the French tax authorities published information regarding the new withholding system for collecting tax (similar to the principals of ‘pay as you earn’ in the UK) coming into force in 2019. Currently income tax, for French resident tax payers, is collected after the end of the tax year and can be paid in 1, 2 or 3 instalments depending on circumstances based on the declaration filed the previous year. Most commonly, the income tax bill, is paid in three instalments – 15th February, 15th May and 15th September the year after the income has been earned.
But how does this affect assignees into and out of France? There are three fundamental areas Global Mobility need to consider:
- Working with French payroll as to how payroll instructions should change going forward.
- What decisions should be made if the French outbound assignees are tax equalised. Should they get a tax-free year with no hypothetical tax being withheld?
- How should these changes be best communicated to the assignee?
When we spoke to Andy Kelly, Partner at BDO, one of Expat Academy’s training partners, he confirmed that
“whilst this creates a potential windfall on 2018 employment income for individuals who are only liable to pay French tax it does create challenges for employers such as for those with tax equalised assignees working outside France. If the assignees are given the benefit of the ‘white year’ for 2018 it will create extra grossed up costs for the employer in the host country. There are also complexities for US citizens and Green card holders working in France, who are required to report worldwide income to the IRS, and for whom guidance should be sought on their position for 2018”.
Further information on how this impacts 2018 US tax filings can be found in the BDO Newsletter under ‘United States’.