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Thursday, 11 October 2018

France 2018 - “Année Blanche” ?

Currently, French income tax is generally collected in the year after the income has been earned after the filing of a tax return.

An important change will take place in France on 1 January 2019 as the current system of income tax collection for French taxpayers will be replaced by a pay as you earn tax system (“Prélèvement à la source”) for certain types of income. It concerns amongst others salaries, directors’ fees and income from self-employed individuals. Not all income will be subject to the new pay as you earn tax system , such as for instance capital gains on immovable property and movable property, dividends and interest, stock options, etc.

To avoid that taxpayers have to pay tax twice in 2019 (i.e. on the income of 2018 and 2019), a special tax credit called “Crédit d’impôt modernization du recouvrement” will apply for income year 2018. Taxpayers will have to file their tax return in May-June 2019 relating to their income of 2018, but the French tax which would normally be due will be annulled by said tax credit.

The question arises whether this means that 2018 will be a “tax-free” year and that taxpayers or their employer should take this into account for the timing of envisaged transactions. It appears that it is not that simple.

First, evidentially, the tax credit only applies to income which is included in the scope of the withholding tax. For some transactions, such as the sale of immovable or movable property, which is not subject to the new withholding system, there is thus no tax benefit of the “année blanch” in case the sale is done in 2018.

Second, the tax credit only applies to non-exceptional income subject to tax in France. The tax authorities published a list of examples of income considered exceptional, including amongst others severance payments, directors’ termination fees, pension capitals, etc1. Of course, a lot of discussion shall arise on this subject.

The French tax authorities are further suspicious that taxpayers would abuse the tax credit. Therefore, it is foreseen that directors and self-employed individuals their 2018 professional income subject to the tax credit is limited to their maximum income earned in the period 2015 – 2017, except if they can demonstrate that their 2019 income is even higher.

What for Belgian tax residents with French source income? For French tax non-residents, it depends on whether or not their income is already subject to a French withholding tax. If so, they fall out of the scope of the new pay as you earn tax system and therefore cannot benefit from the tax credit.

Therefore, a Belgian employee working in France and taxable in France, whose salary is subject to the withholding tax (“retenue à la source”), falls out of the scope of the new pay as you earn tax system and therefore cannot benefit from the tax credit.

Conclusion is that the “Année blanche” may create in certain circumstances opportunities, but does not mean that 2018 is a tax free year for everyone.

Further, as concerns employers with staff working in France, they should of course check how the new pay as you earn tax system affects their payroll obligations and whether there are not any pitfalls, for instance for employers with tax equalized employees working in or outside France.

Katrien Bollen – Senior Associate (

 [1] For a complete list: see

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