Due date for VAT on advance payments as of January 1, 2023

In France, VAT on supplies of goods is due at the time of supply. For services, on the other hand, the payment triggers the tax liability for the supplying company and the deductibility for the service recipient.

In the case of services, the tax is thus due and deductible by the recipient in the amount of the advance payments made.

In the case of supplies, up to now advance payments had no effect on the due date of the tax.

This will change: For all advance payments received as from 01.01.2023, VAT will be due on the advance payments. In parallel, the customer can claim input tax in the month in which the advance payment was made.

Application of social security contributions to non-residents:

Personal taxation in France differs from its neighbours states in that it is based on a relatively low income tax, especially in the first brackets, but on the coexistence of social contributions, the weight of which has continued to increase.

These contributions consist in the CSG and CRDS on one side and the solidarity contribution levied on investment means. 

Two social contributions are levied on the basis of two main categories of income, namely : 

• Employment and replacement income: this includes wages, self-employed income and pensions.
• Income from assets and investments: this includes income from property, life annuities for valuable consideration, income from movable assets, capital gains from the sale of securities or company rights, as well as investment income, which includes interests and capital gains on the solde of real estate.

The CSG rate is 9.2%. The CRDS rate is 0.5%. Reduced rates varying from 3.8% to 8.3% on certain replacement incomes.

In addition, income from assets and investments is subject to a solidarity levy of 7.5%, giving a total charge of 17.2%.

This applies at least to taxpayers resident in France, as the application to non-resident taxpayers has been widely discussed. 

A distinction should be made here between, on the one hand, residents of a Member State of the European Economic Area (Norway, Iceland and Liechtenstein) and Switzerland and, on the other hand, residents of a third country.

I. Against residents of the European Union and the European Economic Area (Norway, Iceland and Liechtenstein) and Switzerland.

A. No liability to CSG and CRDS

The European Regulation of June 14, 1971 on “the system of coordination between social security schemes” provides that social security contributions are levied only by the State of employment of workers in the European Economic Area. This is known as the principle of the unicity of social security. In other words, only the State of employment is entitled to collect contributions that are intended to finance a social security scheme.

On the basis of this European Regulation, the ordinance of May 2, 2001 provides that only individuals who meet the folowing two conditions are subject to the CSG and CRDS on earned income and replacement income.
These persons must be both : 

• Be resident in France for income tax purposes and
• dependent on a French compulsory health insurance scheme, which means that they are subject to the social security legislation applicable in France.

As a result, there is no liability to CSG or CRDS on earned income or replacement income if the person in question is domiciled for tax purposes outside France or is covered by a health insurance scheme in another Member State of the European Economic Area.

As regards income from capital or assets, the CSG and CRDS also affect non-resident taxpayers if they are taxable in France on their French-source property income or capital gains.

However, the Court of Justice of the European Union has again ruled that these social security contributions also fall within the scope of the Regulation of June 14, 1971 and are therefore also subject to the principle of a single social legislation (Court of Justice of the European Union, 26 February 2015, de Ruyter).

The following are therefore exempt from paying the CSG and CRDS:

• workers domiciled in France and exercising their activity in the territory of another State, provided that they are not covered by a compulsory French health insurance scheme;
• posted workers who carry out their activity in France and are subject to the social security legislation of their State of origin, i.e. the State in which the company or organisation which usually employs them and on whose behalf they have been sent to France is established. This exemption applies only to the period of secondment;
• expatriate workers affiliated to the voluntary sickness and maternity insurance and work accident insurance scheme managed by the Caisse des Français à l’étranger (CFE) provided for in Articles L. 762-1 et seq. of the Social Security Code;
• non-resident taxpayers taxable in France on their French-source property income or capital gains.

B. But a liability to the solidarity contribution

Taxpayers who are not resident in France for tax purposes but who are resident in the European Economic Area still have to pay the 7.5% “solidarity levy on income from assets and investment products” which is allocated to the State budget.

This levy applies to real estate income (property income and BIC) received since January 1, 2018 and capital gains on real estate since January 1, 2019.

C. Challenging social security levies

Despite these now well-established principles, the French tax authorithies generally subjects all income to social security contributions, including against non-resident taxpayers.

If you believe that you have been unduly subject to social contributions other than the solidarity levy, we invite you to contact our lawfirm, which will take care of filing a claim with the tax authorities so that they can reimburse you the amount of the wrongly paid social security contributions.

To do this, you should send us :

• the tax notice showing the said deductions; and
• a proof of affiliation to the social security system of a State belonging to the European Economic Area, other than France.

The period for lodging a claim expires on December 31 of the second year following the year of collection. Thus, the CSG and CRDS that would have been wrongly applied to property income earned in 2020 and collected in 2021 can be contested until December 31, 2023.

II. Residents of third countries are fully subject to social security contributions

It has been questioned whether a taxpayer established in a third country, not a member of the European Economic Area, and affiliated in that country to a compulsory social security scheme could also obtain a discharge of the social contributions to which he had been subject on the income from assets or investments by invoking the principle of free movement of capital.

The ECJ answered in the negative, considering that there was no discrimination contrary to the principle of free movement of capital insofar as residents of a third State and those of a Member State of the European Union are not placed in a comparable situation since only residents of the Member States of the Union benefit from the principle of the unicity of social security legislation (Court of Justice of the European Union, January 18, 2018, Jahin). 

Thus, residents of third countries receiving income from assets or investments in France are subject to all social security deductions (CSG, CRDS and solidarity contribution) on this income in France if they do not benefit from the principle of a single social security legislation. They may therefore be subject to double taxation.

In particular, since the Brexit, British residents may be affected if they sell their secondary residence in France. 

ITRS Avocat – September 2021

The tax on the market value of property owned in France, the so-called “3%-tax”

The so-called 3%-tax is certainly a particularity of the French tax system. The tax is payable on real properties and real property rights owned in France on January 1st of the tax year. The tax rate is 3%. Since its sole purpose is to identify the true owners of real estate, they are many possible exemptions.

Scope of the tax

The tax applies to all French and foreign corporate bodies, organizations, trusts and comparable institutions (legal entities), regardless of their legal form, whether incorporated or unincorporated, that own real properties or real property rights in France on January 1st of the tax year, either directly or through intermediaries. Individuals are not concerned. 

Exemptions that do not require a filing form

The tax does not apply to : 

• International organizations, sovereign States, their political and territorial subdivisions, and legal entities in which they have a majority stake
• Legal entities that are not deemed companies investing predominantly in real property, whose property assets located in France account for less than 50% of French assets they hold, either directly or indirectly
• Legal entities whose shares, units and other rights are the subject of significant and regular transactions on a regulated market, as well as corporate bodies in which these entities hold the entire share capital, either directly or indirectly
• Legal entities that have their registered office in France or another European Member State
• Legal entities that have their registered office in a country or territory bound to France by an administrative assistance agreement with a view to combating tax evasion and avoidance
• Legal entities that have their registered office in a country bound to France by a treaty under the terms of which they enjoy the same treatment as legal entities having their registered office in France, and that:
  • Directly or indirectly hold a share in real properties situated in France or hold real property rights relating to such properties, whose market value is less than €100,000 or 5% of the market value of the aforementioned properties or rights
  • Are established for the purpose of managing retirement schemes, are public interest organizations, or organizations managed without personal gain, and whose business activity or financing justifies ownership of real properties or real property rights
  • Take the form of a real-estate investment trust or a limited liability real estate company with variable capital and legal entities that must comply with equivalent regulations 

Exemptions that require filing form 

If no “automatic exemption” is applicable, legal entities liable for VAT and whose registered office is located in France, in another European Union Member State or in a country or territory bound to France by an administrative assistance agreement with a view to combating tax evasion and avoidance or in a country bound to France by a treaty under the terms of which they enjoy the same treatment as legal entities having their registered office in France may be exempted by filing form.

Filing procedures 

The legal entity must : 

• Either file, by May 15 of each year, a form no. 2746 declaring real properties and real property rights held directly and indirectly and their value on January 1, as well as the list of shareholders, partners or other members that hold less than 1% of shares, units or other rights ;
• Or take the commitment either 2 months following the first acquisition to disclose, at the first request of the tax authority, the real properties and real property rights held directly and indirectly and their value on January 1, as well as the list of shareholders, partners or other members that hold less than 1% of shares, units or other rights. 

Since January 1, 2021, the form no 2746 and the deed of commitment must be filed in electronic form on the company’s “impôts.gouv.fr” portal. The access to this portal is done by means of an administrative identification number of the company, called “SIRET number”. If the company does not have such a number, a request for attribution must be submitted to the tax office responsible for the 3% tax. Once the SIRET number has been issued, it is necessary to register on the “impôts.gouv.fr” portal and then to fill in the declaration oneself or through a representative, such as a tax lawyer. 

Details

In case of omission of a declaration, a regularization (filing of a form after the due date) is possible, but only if it is the first time that the legal entity makes a late filing.

The tax liability (and thus the obligation to file exemption returns) extends to all legal entities and institutions in an ownership chain. All interposed companies in the possible chain of ownership are jointly and severally liable. It is therefore very important to ensure that all partners, shareholders or unit holders themselves comply with their reporting obligations.

In principle, the limitation period for the 3% tax is 6 years, but a shortened period of 3 years applies if the tax has become due by the registration of a deed or the filing of a declaration without the tax authorities having to carry out additional investigations.

For more information, please contact us by filling out the contact form or by email at: contact@itrs-avocat.com !
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