The withholding tax came into force in France on January 1, 2019, it allows the tax to be automatically deducted from the employee’s income received. And it is the company borne by its employees that has the obligation to collect this tax in order to pay it back to the French Government.
As a general rule, a company established in a country outside the European Union needs to appoint a tax representative.
Find out in this article what is the withholding tax and the obligations to be fulfilled by a foreign company that employs French residents.
What is the withholding tax?
Withholding tax is a method of tax liquidation which consists of deducting the amount due to tax by the employer before paying the balance to the employee.
In France, withholding tax has become the process of collection of income tax for the French state. Previously, it was paid with a one-year lag, i.e. the deduction of the tax for year minus 1 during the year.
The withholding tax is levied in France on income such as salary, retirement pension, land income, self-employed income and replacement income such as unemployment benefits.
It should be noted that any foreign company that employs workers who are tax resident in France must fulfill some obligations in order to monitor the collection and payment of tax:
Either to have a SIRET or SIREN number. Failing this, it can be registered;
· To also have a company account on the French tax web portal: impots.gouv.fr;
To hold a bank account in the SEPA zone;
Depending on the case, appoint a tax agent or a tax representative. The role of the latter would be to take charge of all the administrative procedures related to the management of withholding tax;
Given that most of these companies do not have a structure in place on French territory, how should they proceed?
WHT obligations for a company employing residents in France
To ensure the withholding tax on behalf of their employees in France, depending on the situation, foreign companies must appoint a representative or tax agent in France.
France’s WHT cases:
As part of the management of withholding tax by foreign companies in France, several cases arise depending on the geographical location and the conditions related to the banking situation of the company in charge of the employees. It is article 1671 of the CGI which establishes the following different cases which require either an agent or a tax representative:
Case where the company is based in the EU and does not have a SEPA bank account
If you have a foreign company established in the European Union, but which does not have a SEPA bank account. You are exempt from appointing a tax representative. But you would need to appoint a tax agent who will take care of all the procedures necessary to carry out the recovery.
Generally, this concerns companies that are based in EU countries and do not use the euro as their currency. As the case of countries such as: Romania, Czech Republic, Bulgaria, Hungary, Croatia, Sweden, Denmark, etc.
Your company is established in a country outside the European Union
In this situation, two cases arise:
The case where your company is established in a country which has a mutual assistance agreement with France: The company is then exempted from the appointment of a tax representative. However, it is advisable to appoint a tax agent in France to take care of your obligations.
The case where there is no legal instrument between France and said country:
Debtors who do not have a tax agreement with France must automatically appoint a tax representative there to ensure withholding tax collection.
In order to follow all the procedure necessary to ensure withholding tax collection, as a foreign company, it is advisable to identify above, the procedure which corresponds to its case before committing.
Eurotax offers you its representation service / Tax mandate for withholding tax in France, do not hesitate to consult our withholding tax page or contact us here.