How will the new French ‘PAYE’ rate be calculated?

My last article spoke about the major reform with the launch of Prélèvement à la Source (PAS) – a French form of PAYE starting next year. The basic principle of this is that employers in France will be asked to deduct and pay across the PAS from their employees’ pay. The idea being that the net amount an employee receives will be their disposable income, or income available for their own use and that there will be no further taxes to pay on it.

So what will be the basis of this calculation?

Unlike the British system which applies a PAYE deduction according to the person’s tax bracket, the French system will instead use the previous year’s assessment as the basis. Therefore, this year’s 2018 assessment on your 2017 earnings will be the basis to determine the PAS rates for 2019.

We anticipate that the 2018 avis (income tax bill) will show the percentage rates that will be used for the PAS in 2019. However, the PAS system has an added complexity in that in France people are taxed as households and not as individuals as is the system in the UK. Therefore, there could be three to four rates to choose from, one for either spouse and one for the household. In the case of an employee, the tax office will inform the employer of the rate to use and the employee can either use this rate, the one of the household or a neutral one.

Most readers of this article are not French employees and are perhaps instead in receipt of a foreign pension – so the question is how will PAS apply in such a case? As France cannot oblige the source country of an expat pension to pay the source tax, the PAS will be based on their previous declaration and the amount will be deducted by direct debit from their French bank account. This is similar to the current ‘on account’ payment system under which tax payments are made by monthly or quarterly payments.

Next month we discuss potential issues with the implementation of this system and the so called année blanche (no tax year!).

This question was answered by Olaf Muscat Baron who is a Fellow of the Chartered Association of Accountants UK, a French expert comptable and an International tax advisor. He is the principal accountant of Fiscaly, an accountancy firm based in the Dordogne.

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