Viewing posts categorised under: Social Charges
The long and complicated relationship with social charges
By Katriona Murray-Platon - Topics: France, Social Charges
This article is published on: 12th February 2019
Most people accept that when you live in a country you have to pay local taxes. Equally, most people can understand the fact that in order to get social benefits such as unemployment benefits and healthcare, you have to pay social security contributions. France, on the other hand, has another tax: social charges, which isn’t actually called a tax, but in fact operates very much like a tax.
Social charges were first introduced in 1991 and have been much grumbled about by French tax payers and expats living in France. It is not one social charge, but is made up of various types of social charges, the rates and combined rate of which has increased progressively over the years. Social charges are taken from all types of income, but where they have caused the most problems is the social charges on capital and rental income, especially for non-resident tax payers.
In 2015, following a challenge by a Dutch national, Mr De Ruyter, the European Court of Justice held that the social charges on rental and capital income were not a tax but a social security contribution and that an EU national should not be required to pay social charges in France when they are paying or have paid social security contributions in their own Member State. The French Administrative Court, the Conseil d’Etat then confirmed that decision and orders were issued to the French tax offices to reimburse the social charges paid to non-resident EU nationals or resident EU nationals who were covered for their health insurance by another EU system (under the S1 form, for example). This led to hundreds of thousands of pounds being reimbursed for the tax years 2012, 2013 and 2014.
In an effort to resolve the problem of the drop in funds being collected, in 2016 the French government changed the allocation of the social charges from rental and capital income so that they were no longer paid to the social security body, but to the Old Age Solidarity Fund and the Social Debt Depreciation Fund. Therefore, claims could not be made on income earned in 2015 taxable in 2016 or on capital gains from 2016 onward. This was a bit of last minute shuffle to seemingly comply with the European judgment, however the legal grounds of this abrupt turnaround were questionable.
On 31st May 2018, the Nancy Administrative Court of Appeal held that even these social charges should not apply to those covered by another EU Member State social security scheme. This meant that the major part of the social charges (14.5%) should be refunded. Although this decision has been referred to the European Court for a ruling and has yet to be confirmed by the Conseil d’Etat, claims for 2016 and 2017 should be made now to avoid being time barred later (2015 is time barred as of 31st December 2018).
Whether or not it is because the French government is expecting the European Court of Justice to rule against them again, the Law on Social Security Financing of 2019 has now entered into force, stating that tax payers who do not rely on the French social security system for their healthcare, but on a healthcare system of another EU Member State, Iceland, Norway, Lichtenstein or Switzerland, are exempt from the CSG and CRDS on capital and rental income. Social charges in general have been reorganised so that, as of 1st January 2019 there are only the CSG and CRDS. However a new social charge has been introduced called the “Prélèvement Solidaire” at a rate of 7.5%, which means that the total amount is the same as last year at 17.2%. Under the Social Security Financing Law of 2019 those not reliant on the French State for health cover, as described above, only have to pay this 7.5% social charge.
An Order published on 7th February 2019 by the French parliament on the situation of Brits in France in case of a No Deal Brexit has stated that all current healthcare arrangements would be maintained for a period of 2 years following the Brexit. Although this is good news, it is subject to the UK reciprocating the same rights and guarantees.
Whilst no one knows what the final Brexit outcome may be, it would still be worth getting in touch with a financial adviser to review your investments and see how you can benefit from these new tax changes.
Working in Gibraltar but living in Spain
By Pauline Bowden - Topics: Gibraltar, Income Tax, Residency, Social Charges, Spain, tax advice, tax tips, Uncategorised
This article is published on: 3rd June 2016
Thousands of people cross the border from Spain to Gibraltar every day to go to work. Many of these people feel that they are in a kind of “Limboland” because they are not fully part of either state’s systems. Even though they pay tax and social security to the Gibraltar government, they are not entitled to free education for their children, nor automatic free health care. If they do not pay tax and social security in Spain, they are not always entitled to the facilities in that country either.
Contrary to popular belief, the two countries do co-operate in many areas. Social security and health care are areas of great co-operation between the two. They also have a reciprocal arrangement for income tax.
Each individual working and paying social security in Gibraltar can elect for those payments to be transferred to their local social security office in Spain. It is a fairly easy procedure, in that you go to the social security office in Gibraltar and ask to fill in the form to transfer your social security payment to the seguridad social of your area of residence. The Spanish office then send confirmation of receipt of payments and issue you with a Spanish social security card.
You are then entitled to Spanish state health care, unemployment benefit, sick pay etc, and once enough contributions have been made, the Spanish state pension.
Many people worry that if they do this, then they would not be entitled to any health care in Gibraltar should they have an accident or fall ill while at work or visiting Gibraltar. Gibraltar is part of the European Union’s health care system and once you have your Spanish social security card, you can go to your local officina de seguridad social and ask for a “Tarjeta Sanitaria Europea” which is produced on the spot once a check is made to ensure that your social security payments are up to date in Spain. This card is valid in all EU countries and Switzerland (including Gibraltar).
To be fully legal, if you live in Spain for more than 183 days in any one year, you should also make a tax return in Spain. Unless you are a high rate tax payer in Gibraltar then you should have no more tax to pay. All it will cost you is the Gestor’s fee for submitting your annual tax return.
French Tax Changes 2016
By Spectrum IFA - Topics: France, Income Tax, Social Charges, Tax, Uncategorised
This article is published on: 12th January 2016
During December, the following legislation has entered into force:
- the Loi de Finances 2016;
- the Loi de Finances Rectificative 2015(I); and
- the Loi de Financement de la Sécurité Sociale 2016
Shown below is a summary of our understanding of the principle changes.
INCOME TAX (Impôt sur le Revenu)
The barème scale, which is applicable to the taxation of income and gains from financial assets, has been revised as follows:
|| Tax Rate
| Up to €9,700
| €9,701 – €26,791
| €26,792 – €71,826
| €71,827 – €152,108
| €152,109 – plus
The above will apply in 2016 in respect of the taxation of 2015 income and gains from financial assets.
WEALTH TAX (Impôt de Solidarité sur la Fortune)
There are no changes to wealth tax. Therefore, taxpayers with net assets of at least €1.3 million will continue to be subject to wealth tax on assets exceeding €800,000, as follows:
| Fraction of taxable Assets
|| Tax Rate
| Up to €800,000
| €800,001 to €1,300,000
| €1,300,001 to €2,570,000
| €2,570,001 to € 5,000,000
| €5,000,001 to €10,000,000
| Greater than €10,000,000
CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)
Gains arising from the disposal of financial assets continue to be added to other taxable income and then taxed in accordance with the progressive rates of tax outlined in the barème scale above.
However, the system of ‘taper relief’ still applies for the capital gains tax (but not for social contributions), in recognition of the period of ownership of any company shares, as follows:
- 50% for a holding period from two years to less than eight years; and
- 65% for a holding period of at least eight years.
This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.
In order to encourage investment in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:
- 50% for a holding period from one year to less than four years;
- 65% for a holding period from four years to less than eight years; and
- 85% for a holding period of at least eight years.
The above provisions apply in 2016 in respect of the taxation of gains made in 2015.
CAPITAL GAINS TAX – Property (Plus Value Immobilières)
Capital gains arising on the sale of a maison secondaire and on building land continue to be taxed at a fixed rate of 19%. However, a system of taper relief applies, as follows:
- 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and;
- 4% for the twenty-second year.
Thus, the gain will become free of capital gains tax after twenty-two years of ownership.
However, for social contributions (which remain at 15.5%), a different scale of taper relief applies, as follows:
- 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
- 1.6% for the twenty-second year; and
- 9% for each year of ownership beyond the twenty-second year.
Thus, the gain will become free of social contributions after thirty years of ownership.
An additional tax continues to apply for a maison secondaire (but not on building land), when the gain exceeds €50,000, as follows:
| Amount of Gain
|| Tax Rate
| €50,001 – €100,000
| €100,001 – €150,000
| €150,001 to €200,000
| €200,001 to €250,000
| €250,001 and over
Where the gain is within the first €10,000 of the lower level of the band, a smoothing mechanism applies to reduce the amount of the tax liability.
The above taxes are also payable by non-residents selling a property or building land in France.
SOCIAL CHARGES (Prélèvements Sociaux)
To date, social charges have been levied to fund certain social security benefits in France, as well as the compulsory sickness insurance schemes.
Hence, if you are resident in France, these are charged on your worldwide investment income and gains, even though this does not give any automatic right to French social security benefits and health cover. The current rate is 15.5% and the charges are also payable by non-residents on French property rental income and capital gains.
As has been widely publicised, on 26th February 2015, the European Court of Justice (ECJ) ruled that France could not apply social charges to ‘income from capital’, if the taxpayer is insured by another Member State of the EU/EEA. Income from capital includes investment income on financial assets and property rental income, as well as capital gains on financial assets and real estate.
Fundamental to this decision was the fact that the ECJ determined that France’s social charges have sufficient links with the financing of the country’s social security system and benefits. EU Regulations generally provide that people can only be insured by one Member State. Therefore, if the person is insured by another Member State, they cannot also be insured by France and thus, should not have to pay French social charges on income from capital.
In the main, the ECJ ruling affects people who have retired to France and hold a Certificate S1 that has been issued by another Member State, as well as those people who work in another Member State, but live in France.
On 27th July 2015, the Conseil d’Etat, which is France’s highest court, accepted the ECJ ruling, which paved the way for those people affected to reclaim social charges that had been paid in 2013, 2014 and 2015. Happily, this also included residents of any EU/EEA State who had paid social charges on French property rental income and capital gains.
In order to circumvent the ECJ ruling, France has amended its Social Security Code. In doing so, it has removed the direct link of social charges to specific social security benefits that fall under EU Regulations. The changes take effect from 1st January 2016, which means that social charges continue to be applicable at the rate of 15.5% on income from capital.
EXCHANGE OF INFORMATION UNDER COMMON REPORTING STANDARD:
2016 brings a new era in global automatic exchange of information between tax authorities.
Close to 60 countries are ‘early adopters’ of the OECD’s Common Reporting Standard (CRS), including all EU States (except Austria) and the popular offshore jurisdictions of the Isle of Man, Guernsey, Jersey & Gibraltar. As such, these early adopters start collecting information from 1st January 2016 to share by the end of September 2017.
Other countries, including Austria, Switzerland, Monaco, Australia, New Zealand and Canada have committed to start sharing data in 2018.
In the EU, the CRS has been brought into effect through the EU Directive on Administrative Cooperation in the Field of Taxation, which was adopted in December 2014. The scope of information exchange is very broad, including investment income (e.g. bank interest and dividends), pensions, property rental income, capital gains from financial assets and real estate, life assurance products, employment income, directors’ fees, as well as account balances of financial assets.
No-one is exempt and therefore, it is essential that when French income tax returns are completed, taxpayers declare all income and gains – even if this is taxable in another country by virtue of a Double Taxation Treaty with France.
It is also obligatory to declare the existence of bank accounts and life assurance policies held outside of France. The penalties for not doing so are €1,500 per account or contract, which increases to €10,000 if this is held in an ‘uncooperative State that has not concluded an agreement with France to provide administrative assistance to exchange tax information. Furthermore, if the total value of the accounts and contracts not declared is at least €50,000, then the fine is increased to 5% of the value of the account/contract as at 31st December, if this is greater than €1,500 (€10,000 if in an uncooperative State).
11th January 2016
This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.
French Social charges on UK pensions and investment income
By Amanda Johnson - Topics: France, Social Charges, Uncategorised, United Kingdom
This article is published on: 13th November 2015
I read online that there have been several changes to Social charges on UK pensions and investment income for British expats living in France. Is this true?
This question is very pertinent at the moment, as there have been changes and there is a time limitation on some of the possible reclamations. Therefore, prompt action is needed.
Since 27th July 2015, it has been ruled by the French Government under “Le Conseil d’Etat no. 333551” that if you are in receipt of a UK State Pension and an S1 Certificate, that the UK Government pays for your healthcare costs in France.
If this is the case (and there are some exceptions) then the French Government cannot charge you any social charges on these incomes.
They have also stated that you can reclaim any social charges paid on earnings in 2012 (2013 Avis d’Impot) and since this date. You will firstly need to check your 2013, 2014 and 2015 forms, detail any social charges paid and send a letter in French claiming this back from your local French tax office, referencing “Conseil d’Etat no. 333551”. I recommend you send this recorded delivery as timescales apply.
The deadline for 2013 reclaims is 31st December 2015 so it’s a good idea to get these sent off as soon as possible and, as your application may be the first your local tax office has received, be prepared to have to follow up your letter with a personal visit.
If you would like to discuss your personal situation please get in touch!
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Update on French Social Charges
By Spectrum IFA - Topics: France, Social Charges, Tax, Uncategorised
This article is published on: 12th November 2015
My last article on this subject confirmed that France had accepted the European Court of Justice (ECJ) ruling of February that it should not apply social charges on ‘income from capital’ for French residents who are insured under the social security scheme of another EU/EEA State.
The article can be found at http://www.spectrum-ifa.com/recent-financial-updates-affecting-expats-in-france/ and more detail on the ECJ’s ruling can be found at http://www.spectrum-ifa.com/french-social-charges-on-worldwide-investment-income/.
As is well known in France, it is often the case that one tax office can follow a different practice than another! So some of our clients have already been successful in claiming refunds of social charges, whilst others have been told that they would have to wait until the ‘official instructions’ were received by the local tax office.
Happily, the official instructions arrived on 20th October in the form of a ‘Communiqué de Presse’ from the Direction Générale des Finances Publiques (DGFiP). This concerns individuals who are not insured by France, but instead by another EU, EEA or Swiss social security regime.
Hence, all French tax offices have now been given the green light to process claims for refunds of social charges, as follows:
- For French residents, social charges that have been applied to investment income and gains, regardless of whether these have arisen within or outside of France.
- For anyone resident outside of France, social charges paid on French property capital gains and unfurnished rental income.
The communiqué highlights the fact that the ‘2% prélèvement de solidarité’ does not specifically finance any particular French social security organisation and as such, will not be refunded, reducing the refund to 13.5% of the 15.5% social charges paid.
Refund claims must be submitted by 31st December 2015 for the following:
- Social charges that have been paid from 1st January 2013 in respect of gains on real estate.
- For income and gains assessed via tax declarations made since 1st January 2013, effectively limiting this to income and gains made since 2012.
- For investment income that has been taxed at source since 1st January 2013.
In all cases, the claim must be accompanied by a justification of the amount of social charges being contested, as well as justification of the taxpayer’s affiliation to a social security regime other than France, in the EU, EEA or Switzerland.
In view of the above requirements to justify claims, ‘early retirees’ and anyone else who is not covered by an EU, EEA or Swiss social security regime cannot depend upon the outcome of the judgement with certainty, even if they have private medical cover. Nevertheless, they may anyway wish to make the claim and be prepared to appeal if they are refused, perhaps on the grounds that they are not insured by France and therefore, should not have to contribute to a social security system from which they cannot benefit.
Looking forward, it is not clear what will happen from 2016. In the draft Social Security budget currently being debated by the French parliament, a proposal has been made to ‘redirect’ the CSG (8.2%) and the CRDS (0.5%) to the Fonds de Solidarité Viellesse (FVI) in an attempt to circumvent the ECJ ruling. Let’s hope that the Constitutional Council throws out this proposal when it undertakes its final deliberation on the draft legislation!
In reality, France raises more from social charges than from income tax. What seems clear is that the government will find some way to make up for this loss of income from social charges if it cannot get its own way, perhaps by the introduction of other taxes. Equally clear is the fact that people should always find legitimate ways to avoid paying unnecessary taxes and that is something that we help our clients to do.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.
Recent financial updates affecting expats in France
By Spectrum IFA - Topics: France, Income Tax, Inheritance Tax, Pensions, Residency, Social Charges, Succession Planning, Uncategorised
This article is published on: 15th September 2015
There are lots of things happening at the moment in the financial world that affect us as expats living in France. So this month, I am providing a summary of various topics.
This has to be one of the hottest topics around the expat dinner table, at the moment! It all started with the European Court of Justice (ECJ) ruling in February that France should not apply social charges on ‘income from capital’ for French residents who are insured under the social security scheme of another EU/EEA State. For those who want more on the detail of the ECJ ruling, this can be found in my previous article on this subject at http://www.spectrum-ifa.com/french-social-charges-on-worldwide-investment-income/.
However, despite the fact that the ECJ had made its decision, we still had to wait for France to accept the ruling. Happily, this came through on 27th July 2015, from the Conseil d’Etat, which is France’s highest court. This means that people affected by the ruling can now claim back social charges paid in 2013 and 2014, on investment income and gains. The claim should be made by 31st December 2015, otherwise you will lose the right to get back those paid in 2013.
As concerns social charges due for 2015, the good news is that I have already seen evidence from some clients’ tax bills that the social charges have not been applied. On the other hand, we all know that one tax office can do something completely different than another and so some of you may find that you have a bill for social charges! If so and you don’t think that you are liable, you should contact your tax office to dispute the bill.
The main group of people who will benefit from the ECJ ruling is those who hold a Certificate S1 for their health cover. Beyond this, those working in another EU/EEA State, but living in France will also benefit. However, a grey area concerns early retirees, who do not have a Certificate S1 and instead have private medical cover because the text of the ECJ judgement actually refers to being insured by another State’s social security system. So we will have to wait for the next round of Social Security legislation, which will be debated during the final quarter of this year, to see how they will be affected.
French Tax Changes
The debate on the draft finance bill for 2016 is scheduled to commence on 13th October.
As documents are published, we will carry out our own analysis. So keep an eye on the French pages on our own website at http://www.spectrum-ifa.com/financial-advisor-france/ for information. Alternatively, you can contact me directly for information.
EU Succession Regulations
These Regulations have now been in effect since 17th August 2015 and more information can be found in my previous articles at:
So if you have not made a French will, as a French resident, the default position is that the succession rules of France will apply to your entire worldwide estate. In effect, this should include any UK property that you own, but since the UK has opted out of the Regulations, it is unlikely that an English court will easily accept a French court deciding that the UK property should pass to the ‘protected heirs’, instead of to the surviving spouse, if that is what you specified in a UK will! So we cannot be clear about what will happen in practice.
There are lots of other complicated situations that may arise and at the very least people should take the opportunity to revisit wills and succession planning. If you would like to have a confidential discussion about your situation, please contact me.
The major reform in UK pensions that has taken place this year has generated lots of enquiries from people who are looking to cash-in their pension pots. Many people are not aware of the severe tax implications of doing this and thankfully, we are often able to find alternative solutions for them to meet their objectives.
We all wish to have a financially secure retirement and careful planning is an essential part of achieving this objective. At Spectrum, we can provide you with the necessary advice to reach your goal.
Investment Markets & Interest Rates
Volatility has been felt in investment markets over the last month, mainly as a result of actions taken in China relating to interest rates and currency devaluation. What has also been demonstrated is the fact that the global recovery is still fragile. This has caused central bankers to rethink interest rate policy and anticipated increases in US and UK interest rates may be pushed further back.
At Spectrum, we have a range of solutions to suit all levels of attitude to investment risk and if you would like to have a review of your financial situation, please contact me.
All of the above subjects are being covered at our Autumn Seminars taking place across France – “Le Tour de Finance – Bringing Experts to Expats”. The date for the local seminar is Friday, 9th October 2015 at the Domaine Gayda, 11300 Brugairolles and there are a limited number of places remaining. If you would like to come to the event, please contact me as soon as possible to make your reservation.
If you are further away, we have other events are taking place earlier during that week at:
- Endreol (Provence) on 7th October
- Aix-en-Provence on 8th October
- Avrillé 49240 (Loire) on 11th November
- Dinard, Ille-et-Vilain, (Brittany) on 12th November (the 100th Le Tour de Finance event)
If you are not able to come to one of our seminars, but you would anyway like to have a confidential discussion about any aspect of financial planning, please contact me either by e-mail at email@example.com or by telephone on 04 68 20 30 17.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at The Spectrum IFA Group Client Charter