Spontaneous application

French withholding tax at source….2019

New Insight
28 September 2018
french tax

The entry into force of the withholding tax on income tax (called “PAS”) is fixed on January 1, 2019.

Today, the income tax is, in principle, paid in the year following the one of the collection of income.

The withholding tax on income tax is intended to adjust the recovery of tax in respect of an income tax year to the actual situation of the user (income, life events) for the same year, without modifying the calculation rules. It aims to eliminate the one-year gap between revenue collection and the payment of income tax.

Today, even in a stable situation, the payment of the tax is irregular. It is settled on 10 months of January to October in case of monthly instalments, or by provisional 1/3 instalments in February and May with a balance in September.

Tomorrow, the tax will be collected at the same time as the corresponding income. For employees or retired people who receive income every month, the tax will now be spread over 12 months and it will adjust immediately and automatically to the amount of income earned.

An employee will not give any information concerning his tax situation to his employer,
because the tax administration will remain at the heart of the relationship with the taxpayer.

The only information sent to the collector will be the tax rate, which does not reveal any specific information. Indeed, the same rate of withholding tax can cover very varied situations. The information will be provided through the monthly DSN process.

It therefore appears that the employer becomes in the facts the collector. Collector of applicable rate but also collector of the amount of tax due. The other way round nothing has changed on the tax side. Tax calculations are done the same way.

From the first income paid in 2019, this deduction rate will be applied to the salary: the deduction at source will be automatic, and will appear clearly on the pay slip. The withdrawal rate will be updated in September 2019 to reflect any changes that may occur as a result of the 2018 income tax return in the spring of 2019. This means the employee is still to declare as in the past his earnings every year, the difference being that the pay slip will now be showing advance tax payments. The tax administration will keep calculating the final tax amount due, and therefore at year end either collect the missing amount due or reimburse the possible over payment.

This could have brought to thinking there could have been a double deduction over 2019. But nothing as such. The tax normally due for salary income received in 2018 will be canceled through a specific tax credit calculated automatically by the tax authorities on the basis of the 2018 income tax return filed in spring 2019.

2019 with definitely be a challenging year …..

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