Update on the PAYE tax system in France

The French government has definitively ruled to not postpone for another year the introduction of the withholding tax system, scheduled for January 1, 2019. Claimed by the Medef, the Minister of the Economy, Bruno Le Maire said that the installation of the system will indeed be planned for January 2019.

For this purpose, Sandy Dalmas, our charterred accountant, reminds us of the contours of this new system.

2018 = blank year?

If you hope to qualify for a “blank” fiscal year for 2018, you may be disappointed.

In fact, the 2018 revenues will have to be declared but they will be neutralized by a tax credit, the CIMR ” Crédit d’Impôt de Modernisation du Recouvrement “ or “Tax Credit for the Modernization of the Recovery”. Thus, the exceptional income but also the abnormal increases in current income will not be neutralized by the CIMR and will therefore be taxed.
Among the exceptional income not neutralized by the CIMR and thus taxed for the year 2018, we find: severance pay of employees and compensation paid to corporate officers, pension benefits paid in the form of capital, the sums withdrawn by the taxpayer on a Salary Savings Plan, and in general any other income which is not likely to be collected annually.

Land revenue: the complex deduction of construction expenses

The property income will be calculated by deducting all the work paid in 2018. The tax interest will be totally zero as this category result will not be subject to tax (compensation with the CIMR).
Many taxpayers may therefore be tempted to postpone the completion of this work in 2019 in order to keep the tax interest. Mistake !

In facts, for the determination of the 2019 land profit, the so-called “controllable” (foreseeable) works will be taken into account for the average of the amounts respectively borne in 2018 and 2019.

Example:

Mr. X owner of a small apartment, did not wish to carry out work in 2018, and preferred to wait for the year 2019 to replace defective windows (5.000 €).
For the determination of his 2019 land profit, the average of the 2018-2019 works will be taken into account, ie (0 + 5.000) / 2 = 2.500 €
Non-pilotable (urgent) work is not affected by the rules set out above. They will be deducted for 100% of their amount regardless of the tax year (2018 or 2019).

What about tax cuts and credits?

The tax reductions and credits will be retained, they will exceptionally be returned to the taxpayer in 2019 or charged to their taxation not compensated by the CIMR.