France has an excellent social security system that offers their citizens and residents countless benefits and protection. French residents pay for these benefits through a substantial amount of taxes. There are three main types of taxes in France to cover the benefits and social security that is paid to employees including; taxes on goods and services (Value Added Tax or VAT), Social Security Contributions, and Income Tax.
Tax on Goods and Services
The Value Added Tax in France is applicable for specific items at a 20% rate. It is also included in the sale price of commodities. This means that the amount listed on a price tag is the sum of its VAT and net worth. The 20% VAT rate is not applied to all goods and services in France. Items that have reduced tax rates include medicine, hotels, restaurants, and public transportation. The VAT on food and books is 5.5% and 2.1% on TV licenses and newspapers. Non-citizens and people outside of the European Union can file for a VAT refund, but the process can be cumbersome. In order to file a refund, the person will need to fill out a Detaxe form, submit all receipts, and visit a VAT counter at the store. Another option is to visit a VAT desk at the airport with the form and receipts to claim a refund.
Social Security Contributions
The French social security contributions are charged on an employee gross salary at a rate of 45%. However, in 2022, the rate has gone down to 20-30%. This contribution accounts for sick leave, maternity and paternity benefits, unemployment benefits, work-related incident compensation, retirement benefits, and disability for residents in France.
France recently implemented a PAYE (Pay-As-You-Earn) system for income tax collection. According to PAYE, instead of filing for taxes for the prior year, residents may have their tax amount deducted from their monthly income. This allows for residents to receive their salary free of tax. The PAYE system is also applied to pensions, investment returns, annuities, and leave payments. If a resident receives an “income” it can be subjected to the PAYE tax system.
Other Taxes in France
Aside from the top three tax contributions in France, other taxes may include investments, inheritance, wealth, corporate or business income and property. If you have employees in France, it is important to ensure the proper taxes are being contributed by each employee. To learn more about benefits, HR, and statutory compliance requirements in France, visit Global People Strategist