personal taxation

2018: Withholding tax in France

withholding tax in France in 2018

Income tax to be immediately deducted from payslip

On 18th of November 2016, the National Assembly approved the reform to have income tax deducted as it is earned. France will join Luxembourg, United Kingdom, and other countries in this reform. On July 2017, tax payers will receive the withholding tax rate. On the 1st of January 2018, income tax will be directly deducted from employees' payslip.


Withholding tax: definition

Paying income tax as it is earned consists in deducting taxes from the monthly payslip. Instead of going through third parties claiming to the tax authorities, income tax amounts will be directly collected by the employer at each period of wage payment.


How will it roll out?

Tax will always be calculated according to the taxable household. It will be in the form of a withholding tax on salaries, pensions, wages, and replacement income, that is calculated and deducted by the employer or pension fund according to the tax communicated by the administration and then repaid to the State each year.



2017 : Taxes will be calculated according to the 2016 income.
Jauary 2018 : taxes will be directly applied to 2018 income.
Spring of 2018 : 2017 income will not be taxed but they will be reported to the tax authorities under the usual conditions.

This income will allow an "Extraordinary Tax Recovery Tax Credit" which has the objective to cancel the tax that would have to be paid were there to be no deduction at the source.

The exceptional income earned in 2017 (compensation earned for breach of contract, real estate gains, dividends, etc.) will still be taxed.

Employer obligations

This reform has three main obligations for the company:

  • Apply yhe tax rate that has been communicated by the tax authorities ;
  • Retain the salary deduction for Month M ;
  • Pay on M+1 the amount of income that was deducted on month M.

Failure to comply with these obligations will result in pecuniary sanctions. The "fines" foreseen will have a range between 5% to 80% of the amounts due depending on the severity of the fault or error.

Complex reform

This reform is presented as a "simplification measure", yet it is difficult to simplify the existing fiscal context and put in place new reforms and add intermediaries within the circuit.

To put it more concretely :

  • The employee will always have to file a return, receive a notice of assessment, and communicate all professional or work changes that may affect his or her tax rate ;
  • The administration must recalculate the tax rate each year and communicate it to employers ;
  • For the company, it undoubtedly represents an increase in work even if it is supported by the form DSN (Nominative Social Statement). The administration promises it will be simple provided that the company has an adequate software.

The treatment of taxes for 2017 still encounters doubts by all today and will surely lead to many difficulties and even some disputes. Let's hope that this heavy reform, which demands additional work by Bercy and adds costs, is not repealed before being enforced.