France: Switch to Payroll Withholding in 2018
France is one of the few countries that does not place a responsibility on the employer to withhold income tax from an employee’s salary (Only social security contributions are administered and remitted by the employer). But France is seeking to change its system to bring it in line with other countries. French authorities took a further step in this direction on June 17 when the Ministry of Finance announced that a new pay-as-you-earn (PAYE) system will be introduced in 2018.
This will be a massive upheaval for French employers, employees and authorities alike. And, given the initiative's scale, it is not surprising that technical details have not been released.
Despite the move to a withholdings system, French taxpayers will continue to have a responsibility to file an annual tax return.
One area that needs to be clarified is the position on 2017 income. Under the current system, French tax payers pay tax on income received in the previous year. For example, 2016 income tax will be paid in 2017. This begs the question: Will 2018 income taxes be paid in 2018 via the new withholding system, in addition to tax owed on income received in 2017?
We await further detail from the French authorities.