French social security charges to end in 2019?

In 2019, social security charges on income and capital gains realised on property in France by non-residents for tax purposes are due to be eliminated. We provide a summary of this controversial law below and information on how to file a claim with the French tax administration before the end of the year.

Seven years of uncertainty

In 2012, an Amending Finance Law established the principle of a social security withholding tax on income and capital gains realised on property in France by non-residents for tax purposes. This principle is due to be eliminated in 2019 – at least, to a large extent, according to the upcoming Social Security Financing Act. Between these two dates, a host of uncertainties have taken their toll on non-residents for tax purposes (and cross-border employees coming under the social security system of the country in which they work).

Initial judgment against France and reimbursements

Since its introduction, the validity of subjecting non-residents for tax purposes to social security withholding taxes has been widely debated. The Court of Justice of the European Union (CJEU) was called to deliver a judgment on this issue in 2015 and found against France: the Community’s principle of membership of a single social security regime implies that, for any individual, only one country can withhold taxes for social security. A person paying into Luxembourg’s compulsory national health scheme cannot be required to contribute to financing the French social security system.

This decision paved the way for the reimbursement on demand of social security charges unduly levied by the French government on residents of the European Union, the European Economic Area and Switzerland.

A new case in process

In response to the CJEU’s decision, France amended its legislation on 1 January 2016 by assigning the social security withholding charges on the income and capital gains on property of non-residents to a non-contributory system (one from which a person can benefit without having contributed). The principle is that a person only pays into one system, irrespective of whether this system provides services to people who have not contributed to it. This contentious adaptation led to a new case being brought before the French courts.

Probable reimbursements

The first two judgments (the Administrative Tribunal in 2017 then the Administrative Court of Appeal in 2018) upheld the right of the taxpayer and hence justified a reimbursement. But the French government has decided to lodge an appeal with the Court of Cassation; this means that several months or even years may elapse before a conclusion is reached.

For the taxpayer, the right to claim expires on 31 December of the second year following the year in which the tax is paid. Yet tax on rental income is paid on the basis of a tax return filed the year after its receipt, while the tax on a capital gain is deducted immediately. Consequently, in 2018, the claim will be time-barred for income received in 2015 and for capital gains realised in 2016.

In other words, before a definitive judgment is made on this case, it is important to take action to interrupt the claim’s time-limitation period and avoid losing potential years of reimbursement.

An end in sight

France’s 2019 Social Security Financing Act provides for the elimination of part of the social security withholding taxes for non-residents, thereby reducing the rate from 17.2% to 7.5% (the tax raised will be assigned to the French government budget). This reform is linked to a more general overhaul of property tax in France for non-residents.

Tax specialists by your side to help your planning

For further information, please contact our specialists who can also help you make a claim to the French tax administration before 31 December.

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