Given the context of the crisis, the Banque de France has decided, on a temporary basis, that no automatic low- scoring will be applied to these payment incidents

This law notably authorizes the Government to take, by way of order, within 3 months following the publication of this law, any measure that may come into force, if necessary, from 12 March 2020 in order to deal with the economic, financial and social consequences of the spread of the epidemic, in particular with regard to labour law and social security.

If this law includes a whole series of measures which are of interest to employers, these will only be specified and effective as of the publication of the implementing texts.

Pending these texts, the devices announced are, for information only :

See the devices announced

Many of our employees will be teleworking from 16 March 2020. All those concerned will be equipped with secure access and the tools necessary to be able to carry out their tasks from home while preserving the security and confidentiality of the processed data.

To limit the risks of contagion and ensure the continuity of our assignments, our firm will therefore have the following organisation as from Monday 16 March 2020 and this until further notice:

• Maximum use of email exchanges. If your contact is not available, you will be invited to write to a collective mailbox to enable us to direct your question to the right person.
• The financial statements will be made available in your online iZzy account and interviews will be held by phone or videoconference. To create your online iZzy account please contact Marie BERGEY by email (contact@cabinet-henderon.com) or on +33.(0)5.57.14.33.33
• Procedure for depositing and collecting accounting paperwork: a table will be made available at the entrance of our office to deposit or collect your accounting paperwork. You can also use the iZzy safe to deposit your documentation.
• Business travels are postponed.
• Our offices remain open to allow you to deposit and collect your accounting documentation according to the above procedure, or through specific appointments.

Please find below the major tax provisions in the new Tax Bill and how they may impact you. They are based on the Loi de finances 2020 now passed into law by both Houses and verified as being compliant with the Constitution.

2019 INCOME TAXE SCALE RATES (Barème progressif)

The 2019 income tax bands’ limits are increased by 1% compared to 2018, in line with prices (price index 2019 excluding tobacco).

* The family quotient is the number of members of the household. This system allows the total taxable income of the household to be shared among the members.

The 20% tax rebate for ‘classes moyennes’ applies if RFR (Revenu Fiscal de Reference) ≤ 19,176 for a single person (38,352 for a couple + 3,836 for additional ½ parts). A lower tax rebate applies if 17,176 < RFR < 21,249 for a single person (21,249 < RFR < 42,498 for a couple + 3,836 for additional ½ parts).

2020 INCOME TAX SCALE RATES (Barème progressif)

A tax cut is granted for 2020 income tax. The second bracket rate is reduced from 14% to 11% representing a €350 savings for tax payers in that band. However, the resulting gain will be capped at €125 for households belonging to the 30% band and will be neutralized for those belonging to the 41% and 45% bands.

On the other hand, the previous 20% tax rebate in favor of ‘classes moyennes’ is removed for taxation of 2020 income.

2020 PAY AS YOU GO (Prélèvement à la source)

The 2020 withholding tax takes into account the tax cut resulting from the reevaluation of the income tax bands through reduced contribution rate with effect from January 2020.

Furthermore, some amendments have been made to the French income withholding tax to simplify tax administration.

In order to take into account the variation of household income and expenses, taxpayers have the possibility to modify and adjust their levy amount. Up to now, taxpayers could increase their levy amount without any prior condition – but a decrease was only possible if there was a 10% gap and €200 between the modified levy amount and the amount that should have been withheld.

The 2020 financial law has removed the minimum gap of €200 which penalized small tax payers. It is therefore now possible to lower the levy amount as long as a 10% gap exists between the modified levy amount based on estimated income and the levy amount that should have been withheld.

If the total paid during a year finally represents less than 90% of the assessed tax, please note that you will be charged a 10% penalty on the underpayment. Higher penalties apply if your payments are less than 70% of the assessed tax.

An advance tax credit is paid automatically to tax payers on January 15 each year, based on 60% of tax credits and reductions obtained on their last tax assessment for domestic employment, childcare costs, charitable donations, trade union fees, accommodation expenses in an EHPAD retirement home or eligible rental investments. This advance may have to be reimbursed, totally or partially, if the final tax credit is inferior. Tax payers can apply for a reduction of this advance until December 1st, if they know they are not eligible and will have to reimburse this advance tax credit.

TAXE D’HABITATION

The reduction and elimination of Taxe d’habitation from 2018 currently concerns only the main residence of tax payers with RFR N-1 <28,448 for 1 part. They will benefit from total exemption in 2020. Other tax payers remain subject to Taxe d’habitation in 2020 but they will benefit from 30% reduction in 2021, 65% in 2022 and total exemption in 2023 for their main residence only. The Taxe d’habitation will continue to apply to Secondary residence and taxation basis are being reviewed.

TAX CREDITS FOR ENERGY EFFICIENT HOME IMPROVEMENTS (Cite)

The CITE tax credit for energy saving improvement to your main residence will continue to apply for expenses paid in 2020. However, it is now subject to different conditions and new eligibility rules.

For Tax payers with modest income, CITE is replaced by an allowance called “prime de transition énergétique” paid by the Agence nationale de l’habitat (Anah) immediately after the work achievements for the expenses paid as of January 1^st, 2020.

CITE is no longer available for those with RFR >27,706 € for 1 part, except for the following expenses:

• Electric vehicle charging system
• Thermal insulation materials of opaque surfaces

Notable changes have been made to the taxation of non-residents from 1 January 2019. The flat-rate tax will increase from 20% to 30% on taxable income exceeding € 27,519. Social contributions for nonresidents affiliated with a social security system in another EU/EEA country or Switzerland will reduce from 17.2% to 7.5%. Social contributions will be maintained at 17.2% for all other non-residents.

Summary of changes and effective tax rate (income tax and social contributions) :

Illustration of tax payable :

Conclusion

For virtually all non-residents registered for healthcare in the EU/EEA, this will be a favourable reform (↓).

For non-EU/EEA residents with taxable income below € 27,519, it will be neutral ( =).

Non-EU/EEA residents with income exceeding € 27,519 can expect an increased tax liability. (↑).

For all non-residents, in particular those in the final category, a lower income tax rate can be applied if the tax payer can prove that their effective tax rate in France would be lower than 20% or 30% if their worldwide income were taxable in France.

The first tax payments via the new system will be made in January 2019, either by direct debit or withheld at source from French salaries/pensions. No action should be required from the taxpayers if all is in order.

Taxpayers should receive a payment in January 2019 equaling 60% of their previous year’s tax credits (re household employee expenses, charity gifts etc. made in 2017). The tax credit calculated on 2018 eligible expenditure (to be declared in May/June 2019) will be paid as usual in September 2019 following the submission of a 2018 income tax return minus the advance payment.

The PAYE tax rates and/or payments on account will be automatically adjusted in September 2019 following the submission of a 2018 income declaration in May/June 2019.

Alternatively, taxpayers can request an increase or decrease in their payments on account if they are certain that there will be a significant change in their income between 2017 (the year of reference) and 2019 (the current year).

All payments made in 2019 will be credited towards the 2019 income tax liability, which will be regularised in September 2020 following the submission of a 2019 income declaration.

2018 income falling within the PAYE system will benefit from a tax credit (CIMR) cancelling double payment of tax during the year of transition (on both 2019 and 2018 income). Regular pensions and salaries received in 2018 should therefore be totally tax-free. However, for self-employed income (including gîte income), the CIMR will be calculated on the best of the previous three years instead of 2018 income if 2018 happens to be the best year. A supplementary tax credit will be granted next year if 2019 income is superior or if the increase in 2018 income can be justified.

For an unfurnished rental property, it should be noted that 2019 repair and maintenance expenses will only be tax deductible for the average of expenses made in 2018 and 2019 (thus if a landlord spent zero in 2018, only 50% of his 2019 expenses will be deductible). Landlords who made no repair works in 2018 may prefer to delay repairs until 2020 when they will be fully tax deductible again.

Flat-tax on investment income and capital gains

The new 30% flat tax on investment income and capital gains (which remain outside the prélèvement à la source system) has been in place since 1 January 2018. The flat tax is comprised of income tax of 12.8% and social contributions of 17.2%. The rate of social contributions should be reduced to 7.5% for taxpayers registered for healthcare in another EU/EEA country (see below).

Each year the taxpayer can choose whether or not the flat-tax is advantageous, compared to the calculation of income tax under the progressive scale and other related rules (re abatements and deductible CSG). This choice will be made via their income tax return and will apply to all of their investment income and capital gains for that given year.

The flat tax is payable at source on all dividend and interest income for households with a 2017 worldwide income above € 50,000 (single person)/€ 75,000 (couple) concerning dividends and € 25,000 (single person)/€ 50,000 (couple) concerning interest. It is normally retained at source by the financial institution/company paying the dividend. However, for foreign-source income in particular, it may be up to the taxpayer to declare and pay the flat tax via the declaration form n° 2778. This declaration must be submitted before the 15th of the month following receipt of income.

Social contributions for residents registered for healthcare in another EU/EEA country

Following the “Du Ruyter” ruling as well as the second wave of social contribution reclaims, the French government has decided to reform the social contributions levied on taxpayers registered for healthcare in another EU/EEA member state.

This will concern residents accessing French healthcare through EU regulations after having successfully submitted a S1/E121 form.

Social contributions on property, investment income and capital gains will fall from 17.2% to 7.5%. This new 7.5% contribution is known as the prélèvement de solidarité. This change concerns social contributions payable in 2019 by retention at source or via a 2019 assessment (on 2018 income).

Ongoing reduction of taxe d’habitation

Individuals with 2018 income below € 27,000 and couples below € 43,000 can expect to receive a 65% reduction in their 2019 taxe d’habitation assessment payable in November 2019. This concerns only the main residence and the TV licence remains payable.

The government has pledged to exempt 80% of taxpayers from taxe d’habitation by 2020.

Tax credits for energy efficient home improvements (CITE)

The CITE tax credit for energy saving improvement to your main residence will continue to apply for expenses paid in 2019. It is expected to be discontinued and replaced by subsidies subject to income limits.

The replacement of single glazed windows with energy efficient windows now qualifies for a reduced 15% tax credit.

Expenditure in 2019 on other home improvements will give rise to a 30% tax credit in the same way as previous years.

Exemption for capital gains on property by former French residents

Capital gains made by non-residents selling their former main residence in France after their departure but before the 31 December of the following year are exempt, provided the house was not rented out.

Example: A person leaves France permanently in May 2019. The sale of their French home (former principle residence) is exempt from capital gains tax as long as the sale is made before 31 December 2020.

If the sale is made after that date, a capital gain exemption of € 150,000 (€ 300,000 for a property jointly held by a couple) is available for EU/EEA nationals, provided that the taxpayer lived permanently in France for at least two consecutive years during the period of ownership. The exemption is not new and can be claimed up until 31 December of the tenth year following departure (instead of five previously).

A recent ruling means that certain French taxpayers are in a position to reclaim social contributions (prélèvements sociaux) paid after 1 January 2016. The taxpayer’s arguments, initially rejected by the tax authorities, were upheld by the local Tribunal Administratif (Strasbourg) and subsequently partially upheld at the Cour d’Appel Administratif (Nancy) level, on the same basis as for the refund of social contributions paid prior to that date. This was widely known as the “De Ruyter ruling”, which provided solid arguments for successful reclaims for many of our clients.

After 1 January 2016, it was theoretically impossible to obtain refunds using the De Ruyter ruling as a result of changes made to the French Social Security Code. These changes were intended to redefine social contributions as “taxes”, and not “social security charges”. This was achieved by re-allocating these social contributions to three non-contributory funds.

In the most recent case, a Swiss national was able to challenge that the social contributions paid in 2016 on his 2015 purchased annuities were still used to finance the French social security system by repaying public debt and subsidising solidarity funds for old age persons. He argued that he should not be subject to such contributions as he had been making regular payments of national insurance in Switzerland.

EU Regulation n°1408/71 provides that a citizen cannot be subject to social security contributions, including those allocated to non-contributory funds, in more than one EU state. It should be noted that Switzerland has an agreement with the EU regarding social security and the same EU law applies even though Switzerland is not an EU member. The French court of Nancy agreed with his arguments.

A new decision from the Conseil d’Etat, who may in turn refer to the ECJ, is now pending. Meanwhile, taxpayers have the green light for new refund claims.

Which taxpayers are concerned?

Non-residents living in another EU/EEA country, who pay social contributions on French property income and gains, are concerned. It is also the case of French residents benefitting from healthcare in France based on social security contributions made in another EU country, who pay social contributions on their investment income and gains. For example, a French-resident in receipt of a UK state pension or working in another EU country and in possession of a S1 form.

Recent case-law is of no assistance for those who cannot justify affiliation with another EU/EEA social security regime, such as tax-payers benefitting from full private medical insurance, those living in third countries outside the EU/EEA, or officials and servants covered by an international organization social security regime (except those of the EU). Although one can question the application of French social contributions to such tax payers, who are not a charge to the French social security regime, the prospect of a successful refund claim is still remote.

On the other hand, early retirees receiving healthcare under a PUMA residence scheme, workers (selfemployed or salaried) carrying out their activity in France or pensioners in receipt of a French state pension, even if it is a trivial pension, are all affiliated with a French social security regime. Consequently they are definitely not in a position to submit a claim.

Contributions made on which income can be reclaimed?

Contributions paid on French-source property income by non-residents of France:

• Furnished or unfurnished rental income (payment via an avis d’imposition the following year);
• Capital gains on French property (payment upon sale of property).

For French residents, a non-exhaustive list of income concerned:

1 / Social contributions paid at source on:

• Capital gains on French property and non-French property taxable in France;
• Accrued income on the guaranteed funds of an assurance-vie contract (prélèvement au fil de l’eau);
• Gain element on a withdrawal from an assurance-vie contract (French and non-French);
• Dividend and interest income;

2/ Social contributions paid via an avis d’imposition on previous year’s declared income:

• French source rental income (unfurnished, furnished/gîtes);
• Purchased annuities not qualifying as pension income;
• Foreign-source dividend and interest on which no social contributions was paid at source;
• Capital gains on stocks and shares;
• Gain element of withdrawals from non-French assurance-vie policies not already subject to
  payment at source.

What does the taxpayer have to do next?

You only have two years to appeal following the payment of the contributions. The deadline for the submission of a reclaim for social contributions paid in 2016 is therefore 31 December 2018. This covers 2015 income, which was assessed in 2016, as well as social contributions withheld at source during 2016. After this date, no appeal will be permitted for the year 2016, even in case of a favorable judgment from the ECJ forcing the French tax authorities to reimburse all those who can prove they were eligible for refunds.

The reclaim for all three years (2016, 2017 and 2018) can be made by registered letter or online, via the impots.gouv messagerie sécurisée, with the necessary arguments, proof of social contributions paid and supporting documents proving that the taxpayer was subject to the social security legislation of another EU/EEA country for the years concerned. These will essentially be the same documents as provided for the De Ruyter reclaims, but covering a different period. It is preferable to file separate claims for refund of social contributions paid at source as they are processed by a different tax service.

It should be noted that, even three years on from the De Ruyter ruling, there are still claims waiting to be processed by the tax authorities due to the high volume and complexity in certain cases. We point out that there is no absolute guarantee of success and a claim may take several years to be processed. Failure to answer requests for additional documents in good time may lead to automatic refusal of a claim. A unsuccessful claim may also be re-processed with the help of the conciliateur fiscal in the light of a new court decision, provided it was submitted before the deadline. Patience and responsiveness are required for a successful reclaim.