French Tax Revolution Postponed

Author:Mr Alix Mugnier
Profession:TMF Group

Withholding 'at source' the personal income tax of French employees and reflecting it on monthly payslips was scheduled to begin in 2018, however implementation is now postponed.

During the presidential election campaign, Emmanuel Macron had declared he would postpone the tax reform if he won the election. Following Macron's election, on 7 June 2017, Prime Minister Edouard Philippe confirmed the postponement of the new system to January 2019. This additional year will be used to test the effective technical feasibility of the new system, using a restricted sample of volunteer companies.

It means, for the majority of companies, that no withholding at source of employee personal income tax will take place in 2018, and the decree confirming this postponement will be published during the summer.

The current system

The reform is designed to replace the current system of personal income tax collection in France, which consists of tax centres collecting personal income tax directly from employees - one year in arrears.

Currently, employers are not involved in the collection of personal income tax. Employers pay the net salary to their employees, and employees are responsible for filing their personal income tax return in May of the following year. Tax centres calculate the past year's income tax based on the entire household's income, and generate the tax bill, which employees have to pay in several installments throughout the year.

There is therefore, a full years' delay between the moment the income is earned, and when the income tax is fully collected.

The future system

Under the now-postponed reform, employers will be asked to withhold the income tax and reflect this in monthly employee payslips, using a pre-defined, individualised tax rate provided by the tax administration.

At the end of each month, the income tax filings will be completed by the payroll vendor, via the monthly e-filing called 'DSN', and employers will pay all their employees' income tax to their local corporate...

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