Expatriates – Are you a “mixed” couple?
Do you live abroad and your spouse has to move back to France for professional or personal reasons? Would you like to be able to continue working abroad without preventing your spouse’s return? Will your children be living with one or the other, or even with both parents? What are the tax consequences of these new ways of organizing family life between several countries?
Find out all you need to know about the notion of “tax residence” and its consequences when family life takes place in several countries.
What is a “tax resident”?
The notion of tax residence is used in international tax law.
In French law, the notion of ” tax residence ” is used to determine the territorial scope of application of French income tax.
- Being a “resident” or “non-resident” of France for tax purposes (or having or not having your ” tax residence ” in France) will determine the extent of your tax obligations in France.
French law defines the notion of “tax residence” (“domicile fiscal”) in article 4 B of the Code Général des Impôts (“CGI”) using 4 alternative criteria:
- The existence of a “home” in France
A home is defined as the place where the individual or his or her family normally lives, i.e. the place of habitual residence, without taking into account temporary stays elsewhere due to professional requirements or exceptional circumstances.
Family includes spouse, children (in principle minors) and cohabitee. It does not, however, include other close relatives (parents, brothers and sisters).
- Main place of stay in France
In contrast to the first criterion, the only criterion used here is the person’s place of residence (whatever the conditions of their stay, such as living in a hotel), without taking into account the place of residence of their family.
As a general rule, if a person has stayed in France for more than 183 days during the year, he or she is deemed to have had his or her main stay in our country for the relevant year.
It should be noted that this criterion (main place of stay) can only determine tax residence if the taxpayer does not have a home.
- Carrying on a non-accessory professional activity in France
- Location in France of the center of economic interests
This is the place where the taxpayer has made his or her main investments, where he or she has his or her business headquarters, and from where he or she administers his or her assets. It may also be the place where the person’s professional activities are centered, or where he or she derives the bulk of his or her income, such as a retirement pension.
- You only need to meet one of these criteria to be subject to income tax (“IR”) in France as a resident taxpayer.
- In practice, it’s possible that you live abroad with your family, or work abroad, but that one of these 4 criteria is met, in which case you have a conflict of residence.
This conflict of tax residence, which could lead to double taxation, is governed by the provisions of the double taxation treaty signed between France and your country of residence, insofar as such a treaty has been concluded.
- Tax treaties based on the OECD model settle residence disputes on the basis of successive, hierarchical criteria:
- The permanent home, or failing that,
- The center of vital interests, or failing that,
- Place of habitual residence, or failing that,
- Determination according to any amicable agreements concluded between States.
What are the consequences of qualifying as a French “resident” or “non-resident” for tax purposes?
In principle, regardless of their nationality, French residents are liable to pay income tax in France on all their worldwide income.
On the other hand, non-French tax residents are subject to income tax in France only on their French-source income.
What is a “mixed couple”?
This refers to a married or civil partnership couple in which only one of the spouses or partners is a French tax resident.
For example :
- Family living in France, where one of the spouses works full-time abroad but spends his or her vacations in France,
- Family living abroad where both spouses work, but one is called back to France by his or her employer; siblings of varying ages may attend school in different countries.
How do you declare your taxes as a “mixed couple”?
- First hypothesis: you are married under a matrimonial regime of separation of property
You will need to file two tax returns:
- A declaration as a French tax resident; this declaration will include all the worldwide-source income of the French tax resident spouse; it must be filed at the place of principal residence.
- A declaration as a non-resident to the Service des impôts des particuliers non-résidents, if the non-resident spouse receives French-source income (for example, income from the rental of a building located in France).
If you are taxed as two separate tax households, you will lose the benefit of the family quotient.
One of the conditions for being taxed separately when married under the regime of separation of property is to be “separated from bed and board”.
In the event of frequent stays in France by the spouse living abroad, this condition may be challenged by the tax authorities, potentially leading to taxation in France of worldwide income received by both spouses.
- Only an in-depth analysis of your personal situation will enable you to determine the framework within which to organize your family and professional life in order to limit this risk.
- Second hypothesis: you are married under a matrimonial regime of community of property.
In this case, you file a single tax return for the household, listing :
All worldwide-source income of the spouse domiciled in France,
- The French-source income of the spouse domiciled abroad, provided that taxation of this income is attributed to France by a tax treaty.
In this case, the household retains the benefit of the family quotient.
In this case, it is important to ensure that the status of the spouse working abroad as a non-French tax resident is properly established under French domestic law and any applicable tax treaty.
Once again, only an in-depth analysis of your personal situation will enable us to advise you on the best practices to follow in order to secure your tax situation. Our lawyers are at your disposal to answer all your questions and advise you. Our meetings can be held in person or by videoconference. You can make an appointment directly online at www.agn-avocats.com.
AGN AVOCATS – Tax department
09 72 34 24 72