Almost every developed country has put in place a system of current year withholding. What better way to ensure that taxes will be paid than to require the employer to withhold current year taxes from current year wages! Yet France has been virtually the last country to change from its current system where payment is made the year after income is earned and the employer is completely eliminated from the tax process. Each time moving from the old system to the standard current year withholding system has been discussed, resistance to change has prevailed. This time, after some last minute prevarication, President Macron will be leading the country forward with the reform starting 1 January 2019. It is important to understand what changes are in store, what happens during the 2018 transition tax year, and some unintended consequences on US taxpayers residing in France.
We will first review how the new French withholding tax applies to salaries. We will then examine the transition measures that have been put in place to avoid tax abuse and yet avoid double taxation. Finally, we will look at an exceptional issue that the transition creates for US taxpayers residing in France for whom immediate action may be necessary.Intertax