Tax Residency in France for Digital Nomads is something to pay attention to if you love la douce France.
The south of France is a favourite holiday destination for many people as it has hot summers and a nice moderate climate the rest of the year. Or you might like the isolated French country side. Or, maybe you prefer the plenty winter sport locations France has to offer.
We’ll dive deeper in what you can expect from a tax point of view if you would set up tax residency in France. However, let’s first look into what it takes to actually live in the country.
Living in France
France is part of the European Union and thus the Schengen Area. This might sound like Chinese to you. Yet, it is important to know what this means. Simply stated, if you are a citizen of another country of the Schengen Area, you can live in any of the countries. You will need to think about some formalities like registering yourself with the local authorities, but you don’t need to apply for any visa.
If you don’t hold a passport from another Schengen country, you will need a visa to stay longer than 90 days in France. You can check the official website of the French government to check out your options.
French tax rules
Tax residency in France
France will consider you a tax resident if you have your habitual abode in the country or if you have the centre of your economic interests in France.
The assessment of where you have your habitual abode or economic interest isn’t always clear. It is an assessment based upon your personal situation and factual elements.
Tax residency in France for digital nomads: tax rates
France is one of those Western countries where living there doesn’t come cheap from a tax perspective. Income tax rates for professional income in France go up to 45% if your income surpasses €160.000.
If you receive investment income (dividend, interest, etc.) you will pay taxes on this income at a flat rate of 30% (12,8% actual income taxes and 17,2% of social contributions).
Tax residency in France for digital nomads: social contributions
Social contributions on professional income depend on your personal and professional situation but can easily reach over 40%.
Apart from general social contributions, also special social surcharges are levied. These amount to another 9,70%.
French tax regime for micro-entrepreneurs
A way to improve your tax situation is to look at the French regime for micro-entrepreneurs. Under this regime, you can simplify the calculation of your taxes and most of the time it will also lower your tax burden.
The main condition to apply the regime is that your annual turnover doesn’t exceed €77.000.
Income taxes are due based on your turnover and not based on your actual profit. Yet, a fixed cost allowance is applied to your turnover in order to establish your (fictional) profit or net income. For service based businesses, the cost allowance is 34%. This basically means you are only taxed on 66% of your turnover.
So, if you have a turnover of €70.000, you will only pay taxes on €46.200. The applicable tax rates are the normal tax brackets that apply to professional income. A quick calculation learns that this would give you an actual income tax rate of around 13%.
Also your social contributions are calculated on your turnover. The exact rate of your contributions depends on the industry you work in. If your run a service or consulting business, you will need to pay social contributions at a rate of 21,20%.
Setting up a company in France
An option that is often used to limit tax liability is setting up a company instead of working in your personal name. By setting up a company, you will be liable to corporate tax on the profit that the company generates.
Corporate taxes in France amount to 25%. Nevertheless, under certain conditions, a limited rate of 15% applies to your first €38.000 in profit.
Once you paid the corporate taxes, the net profit is still in the accounts of the company. In order to get the money to your private account you will need to pay out a dividend. You will have to pay taxes on this dividend. As mentioned before, these amount to another 30% for French tax residents.
Tax residency in France for digital nomads: conclusion
It doesn’t need any more explanation that setting up tax residency in France is like signing your own death sentence from a tax point of view. As the old saying goes: you can be sure of death and taxes.
If you plan to live in France as a lifestyle choice, you might not have any other chance than to pay these high taxes. Nevertheless, even in that case we would suggest to look for solutions in order to limit your tax burden as much as possible. Opting for the micro-entrepreneur regime could be one of those solutions.