What taxation should apply for employees working in France but employed by a foreign company?
The current pandemic of covid-19 has shaken up professional codes. Working from home has become a normal thing, where everyone is trying to combine technical constraints and family obligations. However, this situation has brought to the forefront social and fiscal issues, which were previously rather rare but have become relatively common in recent times, related to international telework situations.
International mobility has grown considerably in recent years, and the pandemic has done nothing but accelerate the process, especially in France. As common as they may be, these situations actually raise many social and fiscal issues.
- As an employer, what should I do in France?
Social security rules are territorial, which means that the employee depends on the social security system of the country in which he/she works.
For example, a Spanish employee who decides to come and live in France in order to work there is in theory subject to the French social security system. It is possible in some cases to claim a temporary detachment, in which case the foreign employee working in France continues to be attached to the social security system of his home country. Nevertheless, this is something usually difficult to apply for, especially when the employee decides to move to France, as foreign companies can only second their employees to France if they are in one of the following situations:
- The employee will work in France for the development of the foreign company’s activities in France.
- The employee is going to work as a temporary employee for a user company in France
- The employee will provide a service in France for a client of the company
- The employee is going to work in a French-based entity of the group to which the company belongs
Except from these specific situations, it is impossible to apply for the secondment procedure and the employee must be declared to the French social security authorities. The employer is also subject to the provisions of French labor law.
However, it should be noted that in the context of the pandemic and in order to overcome the difficulties of the containment measures still in force in some countries, the member states of the European Union have agreed to neutralize the effects of the change of workplace during the period. A temporary tolerance is thus granted, thus avoiding the sometimes complex procedures for employers.
The employer should take the following steps:
- Register with local social security organizations like URSSAF etc.
- Declare the employee in France with the “DUE” (unique declaration of employment)
- Drawing up monthly pay slips and payment of social security contributions. Social charges are declared and paid each month through the “DSN” Nominative Social Declaration
- Employees are also fiscally impacted
An employee living permanently in France is generally considered to be domiciled in France for tax purpose, in accordance with the provisions of article 4B of the General Tax Code.
In case of international mobility, the analysis of the bilateral tax treaty signed with the “home” country of the income remains essential. France has concluded such agreements with many countries (see list on the official website https://www.impots.gouv.fr/portail/). The objective is to avoid double taxation situations.
New work methods complicate the analysis of the taxation of salaried income. Indeed, international conventions, generally drafted under the OECD model, do not explicitly include telework in their drafting. However, an analysis of these conventions leads logically to the following conclusion: when the professional activity is carried out by teleworking, the corresponding remuneration is in principle taxable in the state where this activity is physically carried out.
In conclusion, no matter what, any international mobility project must be analyzed by professionals in order to measure the social and tax impacts of these changes.
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