The Tax System in France

France has an excellent social security system that offers their citizens and residents endless benefits and protection. However, French residents pay for these benefits through a substantial amount of taxes. Those who wish to work and reside in France have multiple taxes to pay. Here is a closer look at the French tax system.

Types of Taxes

There are three types of taxes in France.

Tax on goods and services or Value Added Tax (VAT)
Social security contributions
Income Tax

Tax on Goods and Services

The VAT in France is only applicable on particular items at a 20% rate. It is also included in the sale price of commodities. This means whatever amount you see on an item’s 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 transport.

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, the person will need to fill out a Detaxe form, submit all their past receipts, and visit a VAT counter at the store they shop from. Another option is to visit a VAT desk at the airport with the form and receipts to claim a refund, but it is often crowded and busy.

Social Security Contributions

The French social security contributions are charged on a person’s gross salary at a rate of 45%. However, in 2022, the rate has gone down to 20-30%. This accounts for sick leave, maternity and paternity benefits, unemployment benefits, work-related incident compensation, retirement benefits, disability, and so on for residents in France. (See also: Maternity Benefits in France)

Income Tax

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.