The 2018 transition year tax credit: no French tax in 2018?

Tax credit for the 2018 year (CIMR)

France switches to a withholding tax system on January 1st, 2019. French tax was previously paid based on an instalment (quarterly or monthly) system occurring with one year in arrears.

To avoid that the taxpayers in France bear the French income tax of two different years (2018 French income tax & 2019 current year withholding tax) during the same year (2019), the legislator has implemented a tax credit (CIMR) that will be deductible from the 2018 French income tax to be calculated by the French tax authorities in the summer 2019.

The purpose of this tax credit is to cancel the French income tax due for the 2018 income and that the taxpayers only bear the 2019 French income tax in 2019 via the monthly current year new withholding tax. This is good news for all taxpayers in France, who will forego one year of taxation during their lifetime, even though this is only immediately perceivable for taxpayers who retire, die or leave France in 2018.

In order to prevent any aggressive tax planning on the income received in 2018, the legislation has limited the transition year tax credit (CIMR) to non-exceptional income as follows:

  1.  “Non-exceptional” income received in 2018: the CIMR will be calculated on this income and deducted from the 2018 French income tax due on this income.
  2.  “Exceptional” income received in 2018: no CIMR will be granted for this income which means that the 2018 French income tax related to this income will be due and payable in a lump sum by mid-September 2019 at the latest.

The exceptional income for 2018 is the following:

  • Severance payments
  • Corporate officer termination payments
  • Company profit-sharing and saving plans
  • Pluri-annual income (deferred compensation)
  • Any income which is not deemed to be received on an annual basis

This last category of exceptional income for 2018 may be challenging for some items of compensation or benefits received in 2018 as this category can be subject to interpretation (grey area).

The tax legislation has introduced the possibility for the employers or the employees to request a ruling from the French tax authorities to secure the category (exceptional income or not) of any compensation or benefits paid in 2018 and therefore its eligibility to the CIMR.

NB: if the French tax authorities do not respond within a 3 month period after the request of ruling, the analysis made in the request of ruling is considered as an approval of the French tax authorities to this analysis.

While the determination of the income eligible to the CIMR will be responsibility of the individuals when filing the 2018 French income tax return in 2019, employers may wish to provide their employees and executives with the appropriate information and secure their 2018 French income tax obligations.

Focus: bonuses, allowances/premiums, benefits, RSU and stock options vesting/exercise gain not qualified from a French tax perspective received in 2018 are the income for which you will most likely wish to secure the tax position of your employees.

  • Cet article n’est paru qu’en anglais 
Etienne Boyé

Etienne est Associé au sein du département Global Employer Services et possède plus de 16 ans d’expérience en matière de mobilité internationale. Il conseille des groupes multinationaux français et étrangers […]