Understanding France’s Pay-As-You-Earn (PAYE) System

From January 1^st, 2019, all social charges and income taxes on employment income and some other income in France became subject to a new withholding tax system. This Pay As You Earn (PAYE) system or ‘prélèvement à la source’ system means that all employment income is now taxed at source.

This system works in a similar way to many other countries that also implement a PAYE or tax at source system, such as the UK, United States, and other EU countries, whereby both income taxes and social charges are deducted from your wages before you are paid. Prior to this date, social charges were deducted from income at source, but income tax was paid by in monthly or quarterly instalments the following year after filing your annual tax return.

Income subject to the French PAYE system

The PAYE system in France applies to the following:

• Employment income/salaries
• Taxable state benefits (e.g. sickness and unemployment benefits)
• Pension and other taxable retirement income (such as lifetime annuities)
• Rental Income
• Non-French income taxable in France (including foreign pensions paid to French residents)
• Business profits
• Other independent income

However, it does not apply to:

• investment income*
• capital gains*
• non-French income subject to French tax credits under the double-tax treaty ( for example, a French resident receiving income from a rental property in the UK or receiving a UK government pension)

*Note that this doesn’t mean that there are no tax implications for this income, but it will not be taxed at source – you must still declare all income on your annual tax return and may be subject to tax.

Your tax rate will be based on your fiscal household, the applicable French tax rates and tax-free allowance. You can see estimates of your current tax liabilities and amend your tax situation (for example, if your salary is set to increase or decrease, you marry or divorce, or have a child) via your online tax account at impots.gouv.fr.

Click on your ‘Espace Particulier’ and ‘Gérer mon prélèvement à la source’ (manage my PAYE) where you can ‘Signaler un changement’ (inform the tax office of a change of situation) or update your salary. If you don’t inform the tax office of these changes, the tax rate used on your previous tax return will apply.

Read our guides for more on how your tax is calculated:

Understanding French Income Tax- What You Need to Know

Understanding French Tax- What is a Fiscal Household in France?

If you are employed in France, your income tax and social charges will be deducted from your wage each month before you are paid. A full breakdown of all the taxes and social charges will be shown on your payslip, along with your gross (brut) and net (net) earnings.

The payslip below shows an example of what this might look like – the Cotisations and Contributions Sociales at the top are your social security contributions, while the ‘impôt sur le revenu prélève’ is the amount of income tax deducted from your salary. ‘Le montant du salaire net imposable’ is the amount of taxable income (after social security contributions) that you will declare on your income tax return.

For rental income, income from foreign sources, and other income that fall under the PAYE system, your taxes will be deducted monthly (or sometimes quarterly, depending on your individual situation) from your bank account upon receipt of payments.

All legal residents in France are required to file an annual tax return, regardless of whether or not you are employed or receive income in France, or whether or not you have any tax liabilities. You may also need to file a tax return as a non-resident if you have French income or investments – see our guide Understanding French Tax: Are You Tax Resident in France? for more on this.

Many employees and pensioners in France have now moved onto ‘automatic tax declarations’, which work similarly to the system in the UK and other countries. Essentially this means that you don’t need to file a tax return; your tax declaration will be automatically filled in, and you will simply declare that the information is correct. However, you still need to go online and confirm the tax declaration – this is your opportunity to also add any tax claims or deductions, or declare additional income.

What happens if I’m taxed too much/too little?

PAYE rates are only an estimation of the tax you owe; the exact amount will be calculated when you file your annual tax declaration in May (or sign off on your automatic tax declaration where applicable). If your situation changes during the financial year or you benefit from reductions or tax credits, you may find that you are charged too much or too little income tax throughout the year. This is one reason why it’s essential to inform the tax office of any changes to your personal situation as soon as possible.

In these instances, you may find that you are entitled to a tax rebate or that you have outstanding taxes to pay. Outstanding payments or refunds will be automatically deducted from or credited to your bank account either as one lump-sum payment or (in the event of outstanding payments over €300) as staggered quarterly payments throughout the current tax year.

Whether you are moving to France, own French property, or have business interests, assets, or investments in France—FrenchEntrée is here to help with all your tax questions. Our Essential Reading articles will talk you through all the basics, from income tax and social charges to wealth tax and property taxes. However, international tax liabilities can be complicated, so if in doubt, we always advise discussing your personal situation with one of our recommended financial or tax advisors.

Disclaimer: This guide is provided for general information purposes only and is not intended to be a substitute for professional advice regarding any aspect of your tax planning or tax liabilities in France. FrenchEntrée cannot be held responsible for the consequences of decisions or actions you may choose to take in connection with French tax declarations or tax liabilities.