France | Employment Tax | PASRAU – Adjustment of the French withholding tax system

03 February 2023

Employment Tax

France | PASRAU – Adjustment of the French withholding tax system

Impact: High

Summary

The French withholding tax system for foreign employers of French tax resident employees has been adjusted.

In a press release (n°550) dated 30 January 2023, the French tax authorities clarified the changes provided for in article 3 of the French Finance Act 2023.

Article 3 provides for the substitution of the PAS (French Pay-As-You-Earn) obligations carried out through the PASRAU system, with a monthly instalment system when French tax resident employees occasionally perform their professional activity in France.

The Detail

The new system concerns compensation received in the following situations:

•  Taxable compensation in France related to the exercise of a professional activity in France, paid by an employer established outside France in a European member State or in a State with whom France concluded an administrative assistance agreement and a mutual assistance agreement on recovery*.
• Paid to French tax resident employees who are not affiliated to a French mandatory social security scheme under the Article 13 of EC Regulation 883/2004.

*Germany, Austria, Belgium, Bulgaria, Cyprus, Croatia, Denmark, Spain, Estonia, Finland, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Norway, the Netherlands, Poland, Portugal, the Czech Republic, the United Kingdom**, Romania, Slovakia, Slovenia, Sweden.
Note: Switzerland is not included.

**For the United Kingdom, only French tax resident employees who were affiliated to the British social security scheme before 1 January 2021 and who remain so without interruption.

This adjustment only applies to employees working in France on an occasional basis (such as cross border workers working remotely). Thus, employees seconded from another Member State on a basis other than Article 13 of EC Regulation 883/2004 are not within the scope of this change.

Implementation:

•  The new system is applicable as of 1 January 2023.
•  The foreign employer is still required to report annually to the French tax administration, the total amount of the French taxable remuneration paid to their employees via the usual reporting channels, i.e., via net-entreprises.fr
•  The income tax recovery in these situations will be carried out by monthly instalments withdrawn from the employee’s bank account and based on the information already declared to the authorities.

The press release indicates that the employees involved will have to pay monthly instalments on their own in their impots.gouv.fr personal profile to avoid having to pay their French income tax in full upon receipt of the tax assessment. However, this is not mandatory.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

•  Rozenn Hamelet, Partner | rozenn.hamelet@avocats.vialto.com
•  Marie-Claire Delphin, Partner | marie-claire.delpin@avocats.vialto.com
•  Maxime Lefebvre, Manager | maxime.lefebvre@avocats.vialto.com

Further information on Vialto Partners can be found here: www.vialtopartners.com

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