Today, we’ll speak about French capital gain tax (CGT) and social charges. But what is the link between these two items ?
First of all, let’s clarify things: we are talking about CSG and CRDS and capital gains tax. Indeed, as you all know, the French CGT is made up of two different components:
- Income tax at a rate of 19%.
- Social charges at a rate of… 17.2 or 7.5%!
But why this difference in rates? Who can benefit from it? We will explain it all to you.
Why these two rates?
Article 26 of the 2019 Social Security Financing Act stipulates that people, whether or not they are domiciled in France for tax purposes and who are covered by a social security scheme in the EEA, Switzerland or the United Kingdom (since February 2022), are exempt from paying the CSG and CRDS on their income from assets or investments (property income, capital gains on movable and immovable assets, etc.)
What does the 7.5% rate correspond to?
Because in France, one tax can hide another, people who are exempt from CSG and CRDS thanks to the above-mentioned rules will still have to pay a 7.5% solidarity tax in order to finance the State budget (and not the social security system): this is article 235 ter of the CGI.
Who can benefit from the reduced rate of 7.5%?
Any person covered by a social security scheme in the EEA (European Economic Area), Switzerland or the United Kingdom and not covered by a compulsory French social security scheme.
Is this benefit automatic?
Regarding the treatment of capital gains on real estate, which is our main focus at the French Tax Representative, the benefit of this reduced rate will only be obtained after the provision of certain documents proving the affiliation to the social security system of another country:
- proof of affiliation to the other country’s social security system
- social security number of the other country
- proof of tax residence in the other country
The documents obviously depend on the country in question: do not hesitate to contact us directly for more information and assistance on this subject.
What about residents outside the EEA, Switzerland and the UK?
The law clearly states that this reduced rate is only possible for residents of the EEA, Switzerland and the UK: this means that for all others the basic rate of 17.2% applies.
What happens if I can’t provide the requested documents for the day of the sale of my property ?
Given that it might take a long time to get all your social security documents ready it is possible that you are not able to provide them to the notary for the day of the sale. No worries : your notary or ourselves will be able to keep on an escrow account the difference between the regular rate and the reduced rate in order to give you more time to get the documents. Once you’ll get them you’ll just need to send them to your notary in order to get a refund of the money held on the escrow account !
Do not hesitate to contact us directly for any question about your French CGT, social charges and more !