Taxes in France

The French social security system is complex and includes a wide range of employee benefit schemes that include basic social security coverage, unemployment benefits, compulsory complementary retirement plans, complementary death and disability coverage, and complementary health coverage.

Employers and employees share contributions to the social security system. The employer’s contributions depend on the business type, size and location, but on average, they are 40% of the employee’s gross salary. The employer withholds the employer’s and employee’s share of French social security charges.

The monthly social security ceiling is €4,005 and the daily value is €220,00 , for a total annual ceiling at €48,060.

On top of the social security contribution “health, maternity, invalidity, death insurance”, employers must make additional contribution to a private health insurance (mutuelle) for all employees. The cost of the insurance varies depending on the benefits and the insurance provider. The Company is required to pay for at least half of the cost.

Besides the government-mandated old-age insurance that both employers and employees contribute to, companies must also provide employees with a supplementary pension. Contributions to the supplementary pension vary by salary tranche and are capped, while a separate employer contribution of 1.9% applies to basic old-age insurance without a ceiling.

Provident insurance (prévoyance) is a widespread life insurance in France, which covers people for accidents that may result in injury or death. Companies are required to extend provident insurance to all managers. If a manager passes away and the company hasn’t provided the insurance, they have to pay out the family three times the annual Social Security ceiling.

Depending on the industry and the applicable CBA branch, implementing the Provident insurance for all employee categories may be mandatory.

The French Pension and Occupational Health Insurance Fund notifies employers of their rates annually, which vary depending on the nature of the activity, the assessed level of occupational risk, and the characteristics of the company.

Forfait Social is a tax contribution that employers pay for certain remunerations they provide. Those remunerations are not subject to social security tax but are subject to CSG. The social package rate is 20% (in certain cases, rates of 8%, 10% or 16% may apply instead).

The following remuneration is subject to the 30% rate:

• Incentive or participation bonuses – unless the company has fewer than 50 employees
• Employer contributions to company savings plans (PEE), inter-company savings plans (PEI) or collective retirement savings plans (Perco) – at a reduced rate of 16% under certain conditions
• Employer contributions for supplementary retirement and supplementary provident insurance (only on the part excluded from social security contributions)
• Supplementary pension scheme payments by the employer
• The attendance fee remuneration received by directors and members of public limited companies’ (SA) and independent companies’ (SEL) supervisory boards for exercising their mandate.
• Exceptional compensation allocated by the board of directors or by the supervisory board for the missions and mandates entrusted to directors

In the case of indemnities paid out in the case of mutually agreed termination, the percentage increases to 30%.

The following remunerations do not require a social package tax contribution from employers:

• Stock options or free shares
• Compensation paid within the framework of the termination of an employment contract: dismissal, job protection plan, voluntary departure within the framework of an agreement for the interim management of jobs and skills (GPEC), retirement, forced termination of the functions of corporate officers and managers.
• Holiday vouchers (in companies with less than 50 employees), restaurant vouchers and pre-financed universal service employment vouchers (CESU)
• Attendance fees paid to directors who act as the chairman of the board of directors, general managers or deputy general managers (these are already subject to social security contributions and contributions like salaries)
• Employer contributions for supplementary provident insurance paid for employees, former employees and their beneficiaries in companies with fewer than 11 employees (compared to 10 employees until December 31, 2015)
• Participation bonuses for companies not required to set up a participation agreement (companies with less than 50 employees)
• Profit-sharing schemes in companies employing between 50 and 249 employees

Companies must pay an apprenticeship tax of 0.68% of gross payroll, which finances apprenticeship and vocational training schemes.

This tax is applicable for companies with 11 or more employees based in the Île-de-France region (Paris and its surroundings) or within the scope of a transport organising authority (AOT) where mobility payments are subject to a contribution. This contribution finances public transport and is capped at 2.95% in Paris. The collection of this contribution depends on company size and location.

All private companies that employ workers must declare the number of disabled workers within the company. The workforce of companies with 20+ employees should be comprised of at least 6% employees with disabilities. There is a broad definition of a disability which covers any degradation of at least one physical, sensory, mental or psychic function that diminishes the possibility of obtaining or keeping a job. A company not fulfilling this employment obligation must pay a financial contribution to Agefiph equal to a multiple of the hourly minimum wage (SMIC), calculated per missing employee. Calculator to simulate the contribution.

Companies that do not respect the declaration deadline risk penalties capped at a statutory amount calculated by reference to the hourly minimum wage (SMIC), increased by 25% per missing employee.

Personal income tax is assessed using the household’s total income – it is not calculated per individual. The calculation is adjusted to personal circumstances through an income-splitting system and by applying tax credits for some personal expenses. Income splitting allows for dependents to be taken into account. It also allows for cushioning progressive taxation effects by applying the progressive rate to only the taxable income part.

Income that is subject to income tax:

• Pensions
• Annuities (reduced taxes)
• Wages
• Employment compensation and payments, including the remuneration of senior managers of joint-stock corporations and managers of limited liability companies
• French and European Parliament members
• At the beneficiary’s discretion, allowances paid to the holders of local elected offices

Employers withhold income tax directly from the employee’s salary after most social security contributions have been deducted. It’s then sent to the French tax administration (“Direction Générale des Finances Publiques”).

An additional 3% contribution applies to income that exceeds €250,000 (single, widowed, separated or divorced) and €500,000 for married couples, and 4% for income exceeding €500,000 (single) and €1,000,000 for married couples.

An allowance equal to 10% of the taxable employment income and capped at €14,426 per year is available to employees to cover professional expenses. An employee may elect to deduct the actual professional expenses incurred instead of the 10% standard deduction. In this case, all expenses that the employer reimburses must be added back to the taxable salary.

Qualifying professional expenses include certain commuting expenses, meals taken while away from home, and professional documentation. Professional advice should be sought before choosing any option to deduct actual costs since various conditions must be met to ensure deductibility.

In contrast to most European countries, where the social security system is financed through general taxation, the system in France is funded through social security contributions, which are divided between employers and employees. Every employee contributes to old age insurance, pension and what are known as contributions sociales include Contribution Sociale Généralisée (CSG) and Contribution au Remboursement de la Dette Sociale (CRDS). These charges are technically not a social security contribution, as they do not generate an entitlement to social security benefits, although CSG goes towards funding health care in France. Employers hold and send to the authorities the employee’s contribution when doing payroll.

Employees must contribute between 3.15% and 8.64% of their gross income, depending on salary tranche, to supplement their pension. These contribution rates apply regardless of whether the employee is in a managerial or non-managerial position.

Established in 2019, CEG (Contribution d’Equilibre Général) is part of the balanced contributions to the supplementary pension scheme. The contribution is 1.29% up to the ceiling, 1.62% between one and eight times the ceiling for managers and non-managers. In the table above, CEG is combined with the rates for supplemental pension.

The market value of benefits in kind is added to the total taxable income, except the following:

• business travel cost reimbursements
• reimbursements for furniture removal expenses

While housing cost compensation covered by the employer is assessed in full for income tax purposes for expats, housing that the employer is renting or owns is subject to special rules. In this case, the taxable amount is not determined by the actual cost of the rent.

Instead, it’s determined by either the French social administration’s fixed rates (depending on salary and number of rooms) or the rental value used by the tax authorities to levy local taxes. The expat employee should not be a managing director/corporate officer of the company owning or renting the dwelling to qualify.