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The end of French social contributions for non-residents?

The European Court of Justice has just rendered a very positive decision that will impact the application of French Social contributions to non-French residents owning French real estate.


The decision of the ECJ of 26 February 2015


The facts related to M de Ruyter, a Dutch national resident in France, who had been subject to French social contributions on his Dutch salary, investments and business income and income from purchased life annuities between 1997 and 2004. He claimed that the requirement to pay French social contributions was unjustified as his income had already been subject to social contributions in the Netherlands. He argued that the French legislation therefore triggered a double social charge on the same income, contrary to the combination of articles 4 and 13 of the Regulation (EEC) N° 1408/71 which provide that a resident of an EU State may only be subject to social contributions in a single Member State.


After confirming that these tax levies contribute to the financing of compulsory French social security schemes, the French Supreme Court pointed out that the main levies at issue were imposed on investment income (and not employment income). The French Court asked to the ECJ for a preliminary ruling to know if these levies on investment income, had a direct and relevant link with some elements of the social security referred to in article 4 of the Regulation.


In its judgment of 26 February, the ECJ confirmed this link and consequently that the French levies on investment income was against the European Regulation. The consequences are that France has unlawfully applied social contributions to the French resident on his Dutch income.


Consequences for non-French residents on their French immovable source income


Since 2012, non-residents are subject to French social contributions (at the rate of 15.5%) on their French source rental income and their French capital gains.


A UK resident and domiciled individual is therefore subject in France not only to French income tax (minimum rate of 20%) but also to French social contributions (rate of 15.5%) on his or her French source rental income. Under the double tax treaty of 2008, the individual is able to offset the income tax paid in France against his or her UK income tax, but he cannot offset the 15.5% French social contributions.


The new judgement of ECJ can easily be interpreted as putting an end to the application of social contributions to non-residents of France. We have now to wait for France‘s reaction. In the meantime, taxpayers should not wait to make their claim for a refund of the social contributions applied to their French rental income or capital gains arising from real estate although it is not entirely clear if year 2012 has already been covered by the statute of limitation. It is certainly not too late for 2013 and 2014…


February 2015

This article is for general information only and is not intended to provide legal advice


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Tax law is subject to change.