Income tax in France (2012 rates)

Further to several enquiries from property investors, we have decided to clarify the French income tax for people investing in France or who currently have a French income.

The total net income is subjected to several band rates (like for the PAYE in the UK). It applies only on the income realised in France if you aren’t a French resident.

1. The total net income is divided by the number of family tax quota (1 for a single person, 2 for a married couple).
2.  A different rate is applied for each tax band.
3. The total amount obtained is multiplied by the number of tax quotas.

Example 1: a married couple without children (=2 shares) has a total net income of 100,000 euros. They have a shared income of 50,000 euros each.

Each of their shared income is imposed by band according to the scale below (valid for 2010 tax year):
Up to 5,963 euros: 0%
From 5,964 to 11,896: 5.50%
From 11,897 to 26,420: 14.00% 
From 26,421 to 70,830: 30.00% 
Beyond 70,831 euros: 40.00%

They will pay less taxes than a single income person earning 100,000 euros per year because he will have to pay 40% taxes while their individual incomes are lower than 70,831 euros each so they will pay only 30% saving 10% taxes.

Example 2: the total taxable income of a single person is 35,926 euros. He will pay:
0% on the band lower than 5,963 euros
5.50% on the income bracket ranging between 5,964 and 11,897. That is to say 5.50% X (11,896 – 5,964) = 5.50% X 5,932 = 326 euros
14% on the income bracket ranging between 11,897 and 26,420. That is to say 14% X (26,420 – 11,897) = 14% X 14,523 = 2,033 euros.
30% on the income bracket higher than 26,421. That is to say 30% X (35,926 – 26,421) = 30% X 9,505 = 2,851 euros

So the total tax income to be paid by this single person will be: 326 + 2,033 + 2,851 = 5,210 euros.

Example 3 for property investor: Mr. Smith (UK resident) owns a French property investment with an annual rental income of 8,000 euros and has an interest only mortgage which cost 3,000 euros/year. He can deduct the interests from his French income: 8,000 – 3,000 = 5,000 euros per year. It is below 5,963 euros which is the lower tax band at 0%. Thus he does not pay income tax on his investment.

References:
http://droit-finances.commentcamarche.net
http://fr.wikipedia.org