Exemption from French social charges with S1 form, a taxing system

Taxes key on keyboard

Previously, we’ve seen how UK second homeowners have won the battle against having to pay social taxes (prélèvements sociaux) on their rental income in France, based on the grounds that they are no burden to the French health-care system.

Local tax offices have, by and large, seen the logic of this and over the last 12 months many of my clients have been reimbursed, not – I should add – without a fight and numerous registered letters and threats of legal action.

On February 26th, 2015, the European Court of Justice also ruled that the 15.5% social tax should not apply to residents of France, as long as they can demonstrate that they are (as above) no burden to the French health service. This ruling applies to any passive income, such as gains on assurance vie, bank interest, dividends, annuities, rental income etc.

Effectively, therefore, anyone with an S1 form from another EU country should be exempted from the 15.5% social tax. An S1 form is a Europe-wide form that shows that a person’s health care is funded by their country of origin, normally because they have reached State retirement age and are in receipt of a State pension. However, this can also apply to non-retirees, such as employees with worldwide (ie, not strictly French) job responsibilities.

The French government has been – naturally – slow to respond to this ruling, especially as this will drain their already depleted coffers even more at a time of economic crisis. I await a few “test” cases over the next few months and will report accordingly.

As a precaution, already S1 expats were advised to make it very clear on their French tax return this year that they enjoyed this special status, either by attaching their CPAM attestation showing S1 entitlement, or by making a comment on their electronic submission.

On this latter point, we were amused to see that the French tax office’s campaign to drive people towards electronic filing failed miserably. Last year, out of 35 million tax declarations, only 13 million were online and the intent this year was to almost coerce people to file this way: first by bringing forward the filing deadlines and only leaving open the tiniest window for filing, either by paper or online. Secondly, by threatening harsher penalties for late filing.

However, the number of electronic declarations at www.impots.gouv.fr barely crept over the 14 million mark. Even for relatively simple returns, and even if you were fluent in French, it was still just too darn complicated to fathom out and the average person in the street was terrified of making a mistake. And what happens then? Revert to good old paper. The French love it!