The alignment of the taxation of non-residents with that of French residents, as desired by the government, results in ill-anticipated collateral effects. Some cross-border workers fear a hike in their taxes.
He is a French civil servant, resident in Belgium but working in France, whose tax would be doubled in 2020. For his colleague used to the Brussels-Lille shuttle, whose spouse has a comfortable income in Belgium, the tax bill would be tripled. As for this retired couple, resident in North America, but receiving a French pension, its taxation could swell by more than 60% … Since the overhaul of the taxation of non-residents in the last finance law, the French of the stranger took out their calculator. The new rules, which should come into force in 2020, would prove to be very unfavorable for some of them.
A new tax bomb for the government? This was not the initial logic of this reform, presented last year as a measure of justice and simplification. “The principle is to converge the taxation of non-residents on that of French residents, explains Anne Genetet (LREM), Member of Parliament for French Abroad, behind the amendments that set the powder kegs on fire. Today, the rules for non-residents are so complex that the tax authorities are inundated with appeals. “
Except that the new rules create side effects that are poorly measured during the vote in the Assembly, for lack of a detailed impact study. To fully understand, it should be known that French salaries and pensions of non-residents are, at present, subject to a withholding tax (of 0%, 12%, or 20%), the scale of which is, up to to 43,000 euros of annual income, often more advantageous than the tax scale for French residents (with its brackets at 14%, 30%, 41%, 45%).
The taxation of non-residents, a complex mechanism
Salaries and pensions from French sources received by non-residents are taxed according to complex rules. Currently, this income is subject to withholding tax (0% up to 14,839 euros, 12% between 14,839 and 43,047 euros and 20% beyond). For income above 43,047 euros, taxpayers must then pay the balance of income tax calculated according to the progressive scale for residents (with its brackets at 30%, 41%, 45%). Households established abroad may request the application of an average rate if all of their worldwide income places them in a tax bracket of less than 20%. This approach, unknown to many taxpayers, is often a source of litigation with the administration. This is why parliamentarians wanted to overhaul the rules in finance law.
From 2020, this withholding tax would be abolished. Instead, French source income would be taxed at 20% from the first euro, then at 30% beyond 27,520 euros in annual income. Taxpayers who so wish could opt for “average rate” taxation. This rate will be calculated on the basis of worldwide income. They will therefore have to declare all of their income. “The advantage of the average rate is that it allows a progressive scale to be applied and the family situation to be taken into account”, explains Anne Genetet.
Taxes multiplied by two or by three
But some households could find themselves severely penalized, even if they opt for the average rate. On the front line: those who have no or no more family responsibilities, such as retirees living abroad or young cross-border workers. “Some of us are going to see our taxes doubled or tripled. This will put families in great difficulty with their life project ”, testifies Julien Kounowski, representative of “commuters” between Brussels and Lille. Mobilized on social networks, these cross-border workers alerted parliamentarians in all directions to make them aware of their situation.
“I hear that this could upset certain family balances and we are open to adjustments”, reacts Anne Genetet, facing this bronca. Pieyre-Alexandre Anglade (LREM), deputy representing the French of the Benelux, recognizes that “The reform is not complete”. “The aim is not to impose more, but to simplify”, he insists.
Align the taxation of non-residents
The finance bill, presented on September 25, should include a technical provision concerning non-residents, which parliamentarians can supplement with amendments. “If the government’s objective is to align the taxation of non-residents with that of residents, this logic must be followed through in the 2020 finance bill”, abounds Magda Yasumoto, associate attorney at Deloitte Taj.
And why not open more credits and tax reductions to non-residents, who do not have access to them for the moment? It is this subject that the deputies will push with Bercy which however risks opposing that certain non-residents have already been favored by the abolition, last year, of social security contributions on land income. A compromise position could emerge around a one-year moratorium, the time to better assess the impact of this reform.