Tax residence
Tax residence determines in which State a person is subject to tax and the extent of his or her tax obligations. In France, the determination of tax residence is based on several criteria, including the home, the principal place of residence, the professional activity and the taxpayer's economic interests.
Contrary to a widespread idea, it is not enough to spend less than 183 days in France to be no longer a French tax resident. The rule of « 183 days » is not the sole criterion for determining a person's tax residence.
The situation becomes more complex when a taxpayer has links with several countries. An expatriate, an international leader, an entrepreneur or a person with a foreign asset may sometimes be considered tax resident by two States under their respective laws.
In this case, the international tax convention between the States concerned should be analysed. It generally provides for successive criteria for resolving the tax residency dispute and for determining the State in which the taxpayer is to be considered a resident within the meaning of the Convention.
The determination of tax residence has major consequences. A person who is a tax resident in France is, in principle and subject to international tax treaties, taxable in France on his income from French and foreign sources. Conversely, a tax non-resident may remain taxable in France on certain income from French sources.
Master Édouard Pruvost, tax lawyer at the Paris Bar, holder of the Certificate of Specialisation in Tax Law and Doctor of Tax Law, has been accompanying taxpayers facing issues of tax residence and international taxation for more than ten years.
The Cabinet intervenes in particular in the context of departures from France, expatriations, returns to France, situations of double tax residence and tax controls relating to the tax domicile of a taxpayer.
The analysis of tax residence requires a precise study of the facts and rules applicable. The place of residence of the family, the number of days spent in each country, the professional activity, the location of income and investment or the management of assets can be examined by the tax administration.
How to determine your tax residence?
To determine a person's tax residence, two steps are required.
The first is to examine the rules of domestic tax law of each State concerned. In France, the criteria for paying taxes are mainly laid down in Article 4b of the General Tax Code.
The second is, when a person is considered a tax resident of two countries, to examine the applicable international tax convention.
This method is essential.
Indeed, tax residence is not freely chosen. Reporting income in a country, possessing a residence permit or having a tax residence certificate there is not necessarily enough to exclude French tax residence.
The actual situation of the taxpayer must be analysed against all applicable tax criteria.
What are the criteria for tax residence in France?
A person may be considered to be tax domiciled in France when he meets one of the criteria laid down in French tax law.
These criteria relate mainly to:
- the main residence or residence in France;
- the exercise in France of a non-related professional activity;
- the location in France of the centre of economic interests.
These criteria are alternative. It is therefore not necessary to complete all of them to be considered a French tax resident.
A taxpayer may, for example, carry on a significant part of his business abroad and nevertheless retain his tax domicile in France if his home or the centre of his economic interests remains in France.
The tax home in France
The home is, in principle, the place where the taxpayer normally lives and where the centre of his family interests is situated.
The location of the spouse or partner and children can thus be a determining factor.
Business travel abroad is not necessarily enough to transfer the tax residence when the home remains in France.
The main place of residence
In the absence of an identifiable home, the main place of residence may be taken into account.
The tax administration then analyses the actual presence of the taxpayer in the various States concerned.
The count of days of presence may be an important element, but it should be included in the overall analysis of the situation.
Employment
A person engaged in an employed or self-employed professional activity in France may be regarded as tax domiciled in France where that activity is not carried out as an ancillary activity.
The situation of managers, entrepreneurs and individuals operating in several countries often requires special analysis.
The centre of economic interests
The centre of economic interest is the place where the taxpayer concentrates its main economic, professional or financial interests.
In particular, the administration may examine the location of the taxpayer's main sources of income, investments, economic activities or productive assets.
This criterion is a common issue in tax controls over the residence of directors or taxpayers with an international heritage.
Tax residence and 183-day rule: an idea received
The « 183 days rule » is probably one of the most misunderstood notions of tax residence.
Spending less than 183 days in France does not automatically mean that it is a French tax non-resident.
Conversely, the number of days spent in a State does not always make it possible to determine tax residence alone.
In French tax law, the situation must be examined in the light of all the criteria of tax domicile.
The duration of presence in France can be taken into account to assess the main place of stay. However, the home, professional activity or the centre of economic interests may lead to a person being considered a French tax resident regardless of a simple 183-day count.
In addition, the 183-day threshold appears in different tax treaties and in certain rules on the taxation of remuneration. Its role therefore depends on the legal context in which it is used.
It is therefore particularly risky to base a transfer of tax residence on the number of days spent outside France.
Can you be a tax resident of two countries?
Yes. A person may be considered a tax resident by two States under their domestic laws.
This situation is common in international taxation.
A taxpayer may, for example, dispose of a dwelling and operate in a country while maintaining his family and important economic interests in France.
Each State may then consider, according to its own rules, that that person is its tax resident.
Generally speaking, there is a dispute over tax residence or double tax residence.
Where an international tax convention exists between the two States, it must be examined in order to determine the tax residence of the taxpayer in the conventional sense.
How do tax treaties determine tax residence?
International tax treaties generally provide for a succession of criteria for resolving residential disputes.
Under the applicable convention, the analysis may include:
- the permanent home;
- the centre of vital interests;
- the usual place of residence;
- nationality.
These criteria are generally examined successively.
In particular, the centre of vital interests may lead to an analysis of the taxpayer's personal and economic relations with each of the States concerned.
The application of a tax treaty therefore requires a precise analysis of the actual situation of the taxpayer.
An apparently minor difference in a person's personal, professional or heritage organization may alter the analysis of his or her tax residence.
What are the consequences of tax residence?
Tax residence determines the extent of a taxpayer's tax obligations.
A person considered to be a tax resident of France is, in principle, subject in France to a tax obligation relating to his income from French and foreign sources, subject to the application of international tax treaties.
It may thus be required to declare in France:
- his wages received abroad;
- its foreign real estate income;
- its foreign dividends and interest;
- certain capital gains realized outside France;
- its bank accounts held abroad;
- certain foreign contracts or assets.
Conversely, a non-resident tax person from France may remain taxable in France on certain income from French sources.
The definition of resident or non-resident tax therefore has a direct impact on the reporting obligations and the amount of tax that may be due.
Tax residence and expatriation
The physical departure from France does not automatically entail the transfer of the tax residence.
Before an expatriation, it is necessary to analyse the personal, family, professional and property situation of the taxpayer.
Particular attention should be paid to the location of the home, the professional functions held in France, the companies held and the main sources of income.
The Cabinet assists taxpayers in the analysis of their tax residence before and after leaving France to identify risks and secure their international tax situation.
Tax control of tax residence
The tax authority may challenge the non-resident status claimed by a taxpayer.
As part of a control over tax residence, the administration can analyze many factual elements relating to the taxpayer's personal, professional and property life.
The stakes can be particularly important when the administration considers that a person who has been identified as a non-resident should have reported in France his income from global sources.
Master Édouard Pruvost intervenes in the context of tax controls and disputes concerning the tax residence of taxpayers with an international situation.
The intervention consists of an analysis of the domicile criteria invoked by the administration, the provisions of the applicable tax treaty and all the elements necessary to establish the actual situation of the taxpayer.
Avocat fiscaliste en matière de résidence fiscale
La détermination de la résidence fiscale constitue souvent la première étape de l’analyse d’une situation de fiscalité internationale.
Maître Édouard Pruvost est avocat fiscaliste au Barreau de Paris. Titulaire du Certificat de spécialisation en droit fiscal délivré par le Conseil national des barreaux et Docteur en droit fiscal, son activité est exclusivement consacrée au droit fiscal.
Bénéficiant de plus de dix années de pratique en droit fiscal, il accompagne une clientèle française et internationale sur des problématiques de résidence fiscale, d’expatriation, d’impatriation et de double résidence.
Le Cabinet intervient aussi bien en amont d’un transfert de résidence fiscale que dans le cadre d’un contrôle ou d’un contentieux avec l’administration fiscale.
Vous vous interrogez sur votre résidence fiscale en France ou à l’étranger ? Le Cabinet analyse votre situation au regard du droit fiscal français et des conventions fiscales internationales applicables afin de déterminer et de sécuriser votre situation fiscale.
