FRANCE Law and Practice Contributed by: Anthony Roustan and Cédric Dubucq, Bruzzo Dubucq
Overseas Territories France’s overseas departments generally follow metropolitan tax legislation with specific incentives. Overseas collectives such as New Caledonia have autonomous tax systems and are treated as separate jurisdictions for treaty purposes. 2.2 Tax Residence of Individuals Domestic Criteria The CGI provides four alternative criteria, any one of which can establish French tax residence: • where the taxpayer’s home ( foyer ) is in France, meaning where the family habitually lives; • if the taxpayer has no home (in France or abroad), they can be deemed resident if they have their principal place of abode in France (ie, the country where they spend the most time in a year); • where they exercise a professional activity in France, unless that activity is ancillary (tax authori - ties consider that being a director of a French company is presumed to be a professional activity in France); or • where the centre of their economic interests is located in France, being defined as the place from where the taxpayer derives the majority of their revenues. Treaty Tie-Breaker Rules Where a bilateral tax treaty applies, the treaty’s tie- breaker rules prevail over domestic criteria. The Con- seil d’État has developed extensive case law clarify - ing these domestic criteria, particularly the concept of “foyer” in cross-border family situations. Since 2025, where a taxpayer is deemed to be non- resident by a treaty provision, they will also be consid - ered non-resident for domestic law purposes. 2.3 Taxation of Resident Individuals Progressive Income Tax Residents are subject to progressive income tax at rates ranging from 0% to 45% on worldwide income, plus a high-income surtax of 3% to 4% above EUR250,000. France taxes income by category: employment, busi - ness, real estate, investment income and capital gains.
with exceptions (notably the exemption method used with Germany); and • in treaties with developing countries, elements drawn from the UN Model such as limited source- state taxation on technical service fees. France has entered reservations on several OECD Model Commentary articles, particularly regarding the treatment of partnerships and beneficial owner - ship interpretation. 1.4 Multilateral Instrument France signed the Multilateral Instrument (MLI) on 7 June 2017 and ratified it on 26 September 2018, with its entry into force on 1 January 2019. France adopt - ed a broad approach, listing a substantial number of bilateral treaties as Covered Tax Agreements. France opted for the Principal Purpose Test (PPT) as the minimum standard for treaty abuse prevention, and chose to apply mandatory binding arbitration under Part VI. The MLI has effectively modified a sig - nificant portion of France’s bilateral treaty network, introducing anti-abuse provisions, updated perma - nent establishment rules, and improved dispute reso - lution mechanisms. 2. Territoriality, Residence and Permanent Establishment 2.1 General Principle of Territorial Taxation Individual Taxation France taxes resident individuals on their worldwide income. Non-residents are taxed only on French- source income as defined by the CGI. This worldwide approach means that residents must report and pay tax on income earned anywhere in the world, subject to double taxation relief. Corporate Taxation For companies, France applies a territorial principle: entities are taxed only on profits derived from activities carried on in France or attributable to a French per - manent establishment. Foreign branch and subsidiary profits are generally excluded, with limited exceptions such as controlled foreign company (CFC) rules.
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