As an American living in France, you may not know that merely residing in a French residence could subject you to a tax known as the “taxe d’habitation” or French Council Tax, whether you rent the property or own it. This is an often-overlooked tax consideration for an individual planning to move to France and it can greatly impact expats and taxes.
What Is the French Council Tax and How Does It Affect Expats and Taxes?
The taxe d’habitation, or the French Council Tax, is an annual tax levied on the occupants of French properties on January 1st, whether the property is rented or owned.
The local council (commune) determines the tax, but it is calculated and collected by the central government tax authority. The funds are allocated to the local commune where the property is located and are intended to cover community costs such as street lighting, street cleaning, collection of waste and recycled materials, and the cost of administrative services.
How Are Americans Living in France Affected by This Tax?
This specific charge affects expats and taxes in several ways, so be sure to answer the following questions:
Are you renting a home in France?
If you are renting a home in France and either physically resided in the home as of January 1st, or had the home available to reside in, you will be liable for this tax. Note: this includes primary homes, secondary homes, and long-term holiday homes in France. If the home was habitable (i.e., it was furnished, and utilities were available) as of January 1st, then the tax will be levied and liable to that occupant.
Has your employer provided you with housing while on a foreign assignment?
Even if you are on assignment in France and your employer provided housing, you will still be assessed this tax if you are living in France as of January 1st.
Are you a student living in France?
Even if you are a student renting an apartment as a primary residence for nine consecutive months or more, for which the period included January 1st, you will be responsible for paying this tax.
Do you own a home in France used as your primary residence?
If you own a home in France and use it as your primary residence, this will be one of two property taxes you can expect to pay. The first being your French property tax (Taxe Foncière) and the second being this French Council Tax (taxe d’habitation).
Do you own a rental property in France?
If you own a rental property in France, this tax liability will fall to the tenant if the property is actively rented with a long-term lease. However, if the property is vacant, then it may be the property owner’s responsibility to pay this tax.
The exception to this rule is if the property is uninhabitable because it is undergoing extensive renovations or if the property is unfurnished and does not have active utilities. In those cases, it may be exempt from this tax. To obtain an exemption under these conditions, you’re required to get a statement from the local council confirming the status of the property.
Alternatively, if you own a rental property but only rent to short-term tenants, you could also be held liable for paying this tax.
Did you move from one area or commune in France to another during the year?
Although the French Council Tax can vary greatly from one commune to another, if you move during the year, the amount of French Council Tax assessed corresponds to the previous residence you held as of January 1st.
As an American living in France, when you file your US tax return, can you claim a credit or deduction for the French Council Tax?
In most situations, the answer would be no, you cannot claim a benefit for this on your US tax return. Because this is a property tax rather than an income tax, this tax cannot be claimed as a Foreign Tax Credit on your US tax return. And, while you may have been able to claim this as a non-US property tax in tax years prior to 2018, due to more recent tax reform, all non-US property tax has been specifically excluded from being taken as an itemized deduction. In the rare situation that you may pay French Council Tax as a rental property owner because you rent to short-term tenants instead of long-term, then this could be taken as a rental expense on your Schedule E.
Who Must Pay the French Council Tax?
By definition, the occupant of a French residential property as of January 1st is liable for the French Council tax. Additionally, if the property was available to an occupant on January 1st but the occupant was not physically present at the property on that date, that occupant is still liable. The French law assumes that if you have the right to occupy the property and it is furnished and habitable, then the tax is due. The assessment of the tax has nothing to do with the amount of time you physically occupy the property but instead considers when the property is available for expats and taxes.
How Is the French Council Tax Calculated?
The French Council Tax was initially introduced in 2015 as a uniform 20% of the notional rent that the property might be expected to achieve in the open market. Since 2017, the laws have allowed the local councils to increase the tax between 5% and 60%, causing many variations between the local areas. As a general rule, towns are more expensive than villages and country properties. Also, as a general rule, the French Council Tax on second homes located in France tend to be higher than the French Council Tax assessed on primary residences, due to discounts that are available on main homes.
The exact formula to calculate this tax is quite complex. However, in general, the amount you are required to pay is determined by the following criteria:
- The annual rent that the property would be expected to collect in the open market
- Discounts, family expenses, low-income households, and disabilities
- Property management costs
- The tenant’s taxable income
- Tax rates set by the local commune level
The French Council Tax demand letter is normally sent out in August or September with the tax payable in October or November.
As part of this French Council Tax demand letter, an additional tax called la redevance audiovisuelle (audio-visual tax) also applies. The audio-visual tax is a charge of €139 (in 2019), indexed annually, which is payable per household if the home contains a television (whether or not it’s watched). If there is no television in the house, the tax authorities must be informed by ticking the relevant box on the annual income tax return.
How Do I Pay My French Council Tax?
The tax demand letter is sent out in the third quarter of the year, around August or September, as mentioned above. This demand letter normally includes a specific due date for the tax payment and detailed payment options. Online payment is generally convenient, but may not be available in your first year in France due to needing certain tax identification numbers for payment. However, the demand letter will summarize several other payment options available, including monthly installments and direct debit.
Will Any Upcoming Changes to the French Council Tax Affect Expats and Taxes?
Upon taking office, French President Emmanuel Macron promised the implementation of many changes to the French tax system. For one, the French Council Tax will be abolished by 2021. This abolishment will be a gradual process that began in 2018 with many households seeing a 35% reduction in the tax. Reductions will continually increase until the tax is fully abolished in 2022.
While the French Council Tax is in the process of being gradually abolished, the audio-visual tax that is currently assessed on the same demand notice may remain. The French government recently announced plans to reform the audio-visual tax to widen its reach to include computers in the home, as computers are now regularly used to access audio-visual material. This could affect expats and taxes, as well.
To estimate your own French Council Tax amidst the gradual phasing out and changes, the French government has set up a simulator that will allow individuals to calculate their tax.
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