Exploring PAYE: How the New French Income Tax System will Impact Foreign Employers
France’s new Pay as You Earn (PAYE) tax system will have implications for foreign employers, including, in some cases, the appointment of an accredited tax representative in France.
The PAYE system went live on January 1st 2019 and is designed to compel employers to withhold income tax from their employees’ taxable salaries and pay it monthly to the French tax authorities. The scope of this new system includes both French and foreign companies employing people who are tax resident in France. This involves a significant change, since, up until now, French and foreign companies’ only dealings with the French tax authorities, in regard to the tax liabilities of their employees, were limited to the cases in which employees who were not considered French tax residents, were paid salaries related to work performed in France.
As a result of the reforms, French and foreign employers will now also be bound to engage with the French tax authorities when they hire employees to work in France, who are considered French residents for tax purposes.
To this end, foreign employers who do not have an establishment in France, must choose a tax representative, and have such representative accredited by the French tax authorities unless they are established in an EU Member State, or in a State party to the EEA agreement which has concluded a tax treaty with France. This representative will be responsible for the company’s compliance with French regulations regarding the withholding of personal income tax.
Employers are required to withhold tax each month by applying a specific rate provided by the tax authorities, computed on the basis of the employee’s last reported net taxable income. The applicable tax rate is provided monthly by the tax authorities, following the filing of a declaration by the employer (DSN or PASRAU declarations). In case the French tax authorities do not provide any rate for the employee (for example if an employee had just arrived in France and had never filed a tax return), a standard tax rate based on the level of monthly taxable salary would apply.
Compulsory identification formalities for foreign companies with no establishment in France
Since 1st January 2019, foreign companies with no establishment in France, but with employees falling under the scope of the PAYE system must:
• apply for a SIREN/SIRET identification number in France
• open a bank account in the SEPA zone
• create a professional account on impots.gouv.fr (web site of the French tax authorities)
• get a professional account on the net-entreprises.fr website in order to file the withholding tax declaration each month and get the tax rates provided by the authorities for each employee.
Monthly filing requirements
The foreign company, or the representative in charge of the withholding tax declaration, has to report the withholding tax monthly to the French tax authorities. This declaration is a ‘Déclaration sociale nominative’ (DSN) when the company’s employees are affiliated to the French social security regime. The DSN has to be filed at the latest on the 5th or the 15th (depending on the number of employees and on the date of payment of their salary) of the month following the month during which the salary has been paid.
If the employer is not established in France and the employee subject to the withholding tax is not affiliated to the French social security system, the declaration must be a ‘Prélèvement à la source sur revenus autres’ (PASRAU) declaration. It shall be filed at the latest on the 10th of the month following the one during which the income has been paid.
In both cases, the declaration has to be filed on the net-entreprises.fr website. It will be sent to the competent company’s tax service (if the employer is not established in France, the competent service will be the Service des impôts des entreprises étrangères (SIEE), the foreign company’s tax service).
These new requirements have been in force since 1st January 2019. Although it seems the French tax authorities do not wish to apply a zero-tolerance policy against foreign companies who did not already fulfil all their duties with respect to this new PAYE system, it is essential to inform foreign employers of these new obligations as soon as possible, especially since the deadlines for obtaining the necessary identifiers may prove relatively long and increase the delay already made by these companies in fulfilling these formalities.
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