Non-French residents will no longer have to pay social charges on unfurnished rental income or capital gains on French property after the taxes were ruled as discriminatory by the European Court of Justice.
A social charge of 15.5% was previously imposed on non-French residents with French-sourced rental income and capital gains, on top of actual income tax or capital gains tax.
However, on 26 February, the EU commission ruled that the charges, which also apply to French residents employed outside of France, have sufficient similarities to social security payments, and therefore fall foul of European regulation that states social security should only be paid in one member state.
Those who have paid social charges on unearned income can now make a refund claim to recover unduly paid tax, although the claim must be made before 31 December in the second year after the charges, meaning the deadline for reclaiming tax in 2012 has passed.
The issue first came to light in 2013, when the French administrative court threw out a claim by a Dutch national living in France, regarding the imposition of social charges on a foreign life annuity, on which they had paid social security contributions in their home country.
The case was referred to the EU attorney general, who said the social charges were part of a social security system, and as such could not be imposed twice.
Jason Porter, director at international advice firm Blevins Franks, said the European Union viewed the charges as a threat to the free movement of workers in the union.
“An employed person in the UK who lets a gîte will be subject to pau social security in both states,” he said. “Where a French resident letting the same property would be able to deduct some of the social charge in calculating their French income tax bill, a UK resident could not. France is therefore regarded as being discriminatory on two counts.”
However, he added that unemployment rates in France, which hit record highs last year and have already risen further in 2015, meant the country was not well positioned to repay taxes it had already spent.
“This is good news for non-French residents but it may be short-lived,” he said. “Many advisers believe that France will need to replace this tax revenue somehow, and it may not be long before we see a new tax with a similar rate, but where it is titled and described as such that it is divorced from any connection to social security.”