Another Point for France (Income Tax Witholding)

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A friend who just returned from a visit to Paris told me he loved it there and that someone told him they don’t even have income tax withholding there, as we do here. I was dubious, since I assumed France has even higher taxes than here and would have by now enacted withholding. But I checked with some French attorney colleagues and an American friend who lives there, and they confirmed that no, there is no wittholding.As my friend said:

Yes, your friend is right. it is the individual’s (or business’) responsability to pay tax annually – ie, yes, you withold from your own earnings in order to pay your taxes.

Years ago, I was surprised to hear friends talk about “not having enough money to pay their taxes”, or stories of having taken out loans to pay their taxes (quite common, actually). I now understand it better. Yes, it’s the individual’s responsability to save properly; this is a burden on the individual, and a lot of people don’t have the control and maturity. On the other hand, YOU, not the state, manage your money. Which, when I thought about it, compared to the US system of collecting interest on my money, impressed me.

There are some exceptions, and some tools to help manage it. If you fall into high-earning brackets, the state asks you to pay a “tiers prévisionnel”, a trimersterly (sp?) estimated payment based on your previous year’s earnings. This is a bit similar to the US practice, but here there is great flexibility where in the US I found there wasn’t. I was required, in my last years in the US, to make advance estimated payments to the IRS based on our previous years’ earnings, once valérie and I passed into a new bracket. I tried to “negotiate” this with the IRS, based on changes in our earnings, to no avail.

Here, the process was totally different. I started a business this year, and have had no revenue – a huge change from last year. The tax authority didn’t know this, and send us the “tiers prévisionnel” request based on last year’s taxes. I simply walked to my LOCAL tax center (one in every arrondissement), explained my situation, and that was that. No advance payment.

Business is another exception: while business pays it’s taxes just like individuals, depending on your revenue level (<76Ke, <250ke, <1Me...etc) and your declared “category” (whether you pay tax on your personal revenu, the business’ revenus, etc.) you are required to file periodic statements to the governement (without necessarily paying anything), and then, if your revenues pass a certain limit during the year, to make an estimated payment at that point.

Finally, one last point, if you delve into this subject further, you might be surprised to find that your statement “France, with higher income taxes than here” may or may not be as certain as you think. Having lived here for 5 years, I’ve been surprised to find that the income tax in and of itself, after deductions, isn’t as high as I thought it was. In fact, it’s quite often LOWER than in the US. There are, on the other hand, a lot of other taxes – other than income tax – which make the total effective tax rate higher than the US, no doubt. But then you start to compare what you GET for those individual taxes, and line them up, and the comparison becomes much more difficult (health, schools...etc.) A complex, but interesting, subject.

(oh, by the way, there is also the ISF – impot sur la fortune – a wealth tax – which is yet another tangled web, but one of current import as there is a raging debate here to eliminate it...)

4:00 pm on September 24, 2004