The French tax system is a constantly changing maze of laws, treaties and convictions with sometimes good news at the exit. Like now! If you have sold a second home in France, you can finally claim money back from the tax department. The French parliament has adopted a bill to definitively abolish the levying of social contributions on 1 January 2019.
Reclaiming money from the French tax authorities is of course not without a struggle; there are even 15,000 files waiting for you for treatment. So when they finally start with your file, it is important to have prepared your case well and thoroughly.
Remind me again about ‘plus value’?
Article 19 of the bill for the financing of social security 2019 stipulates that as of 1 January 2019 no social contributions (rate 17.2%) will be imposed on persons who are already subject to the social security scheme of another European Union member state or European Economic Space Member State or Switzerland.
As of 1 January 2016, France has introduced repair legislation to circumvent the De Ruyter judgment, but the Court in Nancy also declared this new legislation to be in violation of the EU regulation on 31 May 2018. More than 3,000 procedures are currently underway for the tax years 2016, 2017 and 2018. For the year 2017 alone, the unpaid social contributions by non-residents amount to more than 285 million euros.
Less capital gains tax
This puts a definitive end to the unsustainable position of the French government to continue to levy double social contributions while it was always clear that this would be in conflict with the ban on the cumulation of social security legislation (EU regulation 1408/71). In short, good news for foreign people in the EU with a second home in France. As a result of the amendment of the law, the tax rate for EU citizens who make a profit on the sale of a second French home (so-called plus-value) will go from a maximum of 42.2% to 25%; a big improvement!
This change in law is of great importance for owners of secondary houses in France. From a capital gains tax standpoint in case of a sale such owners today still become subject to personal tax in France at a fixed 19% income tax rate plus 17,2% social contributions, i.e. in total 36,2%. An additional taxation applies for any capital gains derived from the sale of a property that exceed € 50.000.
The tax rates vary from 2% to a top rate of 6%. Thus, in case the total capital gain exceeds € 260.000 the maximum capital gains tax rate, applicable today can amount to 36,2 % plus 6%, i.e. 42,2,%. As from January 1st, 2019 for persons already subject to social contributions in another EU Member State (or Switzerland or the European Economic Area) the tax rate will go down to maximum 25%!
The change in law will also have a positive effect for owners that receive furnished or unfurnished rental income from French property. As from January 1st, 2019 they will only pay personal income tax (with a minimum tax rate of 20%).
Last but not least France could even become quite interesting for wealthy private individuals, because the flat tax rate of currently 30% on income from capital (interest, dividends and capital gains on sales of shares and bonds) will go down to 12,8% which corresponds to the levy of personal income tax.
Of course one has to be able to proof that he/she is subject to the social security system of another EU Member State (or Switzerland or the European Economic Area). Only then one can escape the levy of the French social security contributions. Unfortunately the new law does not apply for all other categories of foreign investors. For example an American, Russian, Indian or Canadian investor will still become subject to the French social contributions.
The pile of objections is growing
France was condemned by the European Court of Justice on 26 February 2015 in its judgment in Case C-623/13 Ministre de l’Économie et de Finances / Gérard de Ruyter, which resulted in a huge flow of objections. For the period 2012 to 2016, the French tax department received around 59,000 objections, of which 15,000 are still untreated.
Submit a notice of objection according to the French rules
How do you submit a clear notice of objection to the unjustly paid social contributions? Mr. Albert MULDER, lawyer in Aix-en-Provence shares with the readers of Living on the Côte d’Azur the simple rules.
What you absolutely must not do
Try to make a notice of objection in your best French with Google Translate. Of course it is almost certain that you are entitled to a refund if you have paid in error. Submitting a notice of objection in France is bound by strict procedural rules. If you do not comply with these rules, your notice of objection will be declared inadmissible and rejected. In many cases you can unfortunately no longer repair it at a later stage.
Use a lawyer or consultant who is not established in France. Article R 197-5 Livre des Procédures Fiscales states that a non-resident is obliged to choose domicile in France! For example, if you use a Dutch lawyer, there is a threat of a formal error.
What you should do
After a while, prescription expires, even in France. For example, if you sold your second home in 2016 and paid social contributions unjustly, you must submit your notice of objection by 31 December of this year! If you have sold in 2017 or 2018, fortunately you have more time. Therefore, call in a lawyer based in France. You then domiciliate at the office of this lawyer and the other formal requirements will also be respected. Albert Mulder is ready for you to start your file!
Mr. Albert Mulder
6, rue Chastel
Direct contact via this form