Archive for category: Taxes and Finance

WAYS TO REDUCE TAXES FOR EXPATRIATES AND FAMILIES (Part 1 of 2)

The tax system can be notoriously complex, more so for new arrivals who are unfamiliar with how it works. But you can lower your tax liabilities, depending on your circumstances. Whether you’re welcoming another member to the family or moving into France on an expatriate contract, here are five scenarios where you could cut the dreaded tax bill.

Reducing Income Tax For Families

Mr. and Mrs. X have three dependent children. Mr. X earns €75,000 a year and Mrs. X €45,000.

Under the current tax rates (for 2012 income, tax payable in 2013), if they paid tax individually and did not take into account the family, Mr. X’s tax bill would come to €17,392 while his wife’s would be €7,933. On an individual basis, the total tax liability would be €25,325.

However, if you are married or have entered into a PACS, the parts familiales system will apply, and it is calculated on the income of the whole household. Thus, each spouse/PACS partner is considered one part. The first two children are considered a half part each, then the third and subsequent children a whole part each.

The household’s taxable income is divided by the number of parts. The income tax scale rates are then applied to this lower figure, and the income tax computed then multiplied by the number of parts.

In this case, the family has 4 parts, so the total income of €120,000 is divided by four, making €30,000 per part. Using the normal income tax scale rates (see table), the income tax bill on this €30,000 is €3,433 (rounded up), which when multiplied by four makes a total tax bill for the household of €13,732.

This results in an annual savings of €11,593.

However, there is a limit to the permitted adjustment to household income. If the effect of calculating your parts produces a tax bill which has been reduced by more than €2,000 per half part, compared to what it would be without reference to the parts, then the tax is recalculated. An individual adult will receive one part, and a married couple will always receive two parts. The tax is then calculated on this basis, and then you make a deduction of €2,000 per half part.   So, in this example, the tax saving above of €11,593 will not stand, as it exceeds €2,000 per half-part. The recalculated tax liability would be €16,866, which is not quite as if all parts are included, but is still a saving of €8,459 – representing a 33% tax saving over individual taxation.

This is before any tax credits which may be applicable are deducted, including deductions against employment income. If you are over 65, you would also be entitled to a small deduction, which reduces for income over around €14,000, and is withdrawn where that individual’s income exceeds €23,000.

This works very well to lower the household tax bill for UK expatriates, particularly those where one spouse has a significantly higher income than the other. A couple where the husband is paying higher tax rates (40%) on their pension income in the UK, would probably pay less tax in France than if they remained a UK resident. With this system, significant amounts of tax can actually be saved by moving to France!

Income in France is additionally subject to social charges (separate from social security which also needs to be paid), which are currently 8% on salaries and 15.5% on investment income.

Income Tax Table for 2012 Income, with tax payable in 2013

Net Income Subject to Tax	Income Band	Tax Rate	Tax on Band	Cumulative Tax
Up to €5,963	€5,963	Nil
€5,964 to €11,896	€5,932	5.5%	€326	€326
€11,897 to €26,420	€14,523	14%	€2,033	€2,359
€26,421 to €70,830	€44,409	30%	€13,323	€15,682
€70,830 to €150,000	€79,170	41%	€32,460	€48,142
Over €150,000		45%

Income tax is payable in arrears in France, and the 2013 rates will not be available until the end of the year.

The Impatriate Regime

France offers special tax incentives for individuals coming in to work from another country.   The rules differ a little depending on whether you are seconded or directly hired from abroad. There are rules as to who qualifies and who does not. You have to become a French tax resident under domestic rules, and cannot have been a resident here at any time in the proceeding five years.

The legislation introduces the concept of an impatriate premium, all or part of which can be exempt from tax. There is a list of what expenses form part of the premium and which do not.

The regime also provides that remuneration for days spent working outside of France undertaken in the direct and exclusive interest of the employer may be outside of French taxation. It must be in proportion with remuneration for the days worked in France.

For example, Mr Y is a UK citizen and resident. He is employed by a UK company but will be assigned to a French company in Paris. He will move to France and become a tax resident. His job entails frequent travels abroad.

His salary in France will be €150,000 (after employee social security charge but before tax). He can negotiate to have it set up as follows:

Salary: French days – €60,000

Salary: Non-French days – €30,000

Impatriate premium: €60,000

He then has two choices: The first is to exempt the impatriate premium (subject to the taxable salary not being reduced below a reference salary) and cap the overseas working days at 20% of the balance of the salary. The second option is to exempt the full amount of the impatriate premium plus overseas work days, but capped at 50% of the total net remuneration.

Under the first option he would end up with a taxable salary of €80,000. Under the second, his taxable salary would be €75,000. Using a basic income tax calculation (see table), an annual salary of €75,000 would generate a €17,392 tax bill (rounded up, and excluding social charges). If the full €150,000 was taxed, tax would be much higher at €48,142.

This system could therefore provide significant tax savings for those who qualify. The legislation is long and complicated though, so it would be best to seek professional advice.

The second part of this article in the next issue will focus on an alternative to the impatriate regime that might exempt you from wealth tax and how you could avail of a ‘tax holiday’.

Note: Tax calculations are rounded up to the nearest Euro. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarized; an individual should take personalized advice.

Blevins Franks specializes in providing integrated and detailed tax and wealth management advice to expatriates in Europe. You may call 0 805 112 163, e-mail france@blevinsfranks.com or visit www.blevinsfranks.com.