The General Context: individuals who are under social security in Switzerland, the EU or the EEA are not liable to “CSG “or “CRDS” tax on investment income
Since the 2012 amended Finance Act (n°2012-958, August 16, 2012), passed, individuals fiscally nonresident of France have been subject to French social surtaxes on real estate income (capital gains and rental income) derived from real property located in France.
After several years of litigation and backing and forthing concerning nonresidents’ liability to social surtaxes, France is finally in line with European Union legislation and, notably, a basic principle providing that an individual be subject to social security in one EEA Member State only at any given time.
Consequently, for taxpayers affiliated to a mandatory social security scheme in an EEA country other than France (EU, Island, Norway, Liechtenstein) or in Switzerland, are exempt from CSG and CRDS taxes on 2018 and 2019 rental income as well as on capital gains on the sale of real property realized since January 1, 2019.
Creation of a new « solidarity surtax » of 7,5%
However, such income is subject to a new « solidarity surtax » of 7,5% as per Article 235 ter of the French tax code (Established by Decree on December 17, 2012 at an initial rate of 2%, increased to 7,5% by Decree on December 22, 2018).
Nonresidents who are not affiliated to a mandatory social security scheme in the EU, the EEA, or Switzerland are not covered by this new exemption and remain subject to social surtaxes of 17,2% on rental income and real property capital gains.
Increase of minimum tax rate from 20% to 30%
The loss of revenue generated by eliminating CSG and CRDS taxes on investment income earned by taxpayers affiliated to a mandatory social security scheme in an EU/EEA country or in Switzerland most probably played a role in the recent decision to increase of the minimum tax rate on French source income for nonresidents, which has gone from 20% to 30% for income above certain threshold (article 13 of the 2019 Finance Act provides for the higher rate for 2018 net income above 27 519 € – art. 197 A of the French tax code).
The impact of the increase in rates will be measurable this fall when the 2018 French income tax bills are issued.
As a final to the famous « De Ruyter » case saga, France’s Supreme Court, the Conseil d’Etat deleted paragraph 80 of the regulation (BOI-RFPI-PVINR-20-20) related to tax on real estate capital gains realized by nonresidents
In line with the position of the Nancy Court of Appeals (“CAA de Nancy”), the “Conseil d’Etat” (CE April 16, 2019, n°423586) deleted paragraph 80 of the regulation published on August 1, 2018 (reference number BOI-RFPI-PVINR-20-20), which included the provisions of the 2012 amended Finance Act (n°2012-958 ,August 16, 2012) ) subjecting real property capital gains realized by nonresidents to social surtaxes.
Individuals who were not affiliated to the mandatory French social security scheme, who were affiliated to an EU/EEA or Swiss regime, who were nonresident of France, and who realized real property capital gains in 2016, 2017, or 2018 which were subject to the above mentioned social surtaxes should file a claim for a refund from the French tax authorities for any years where the statute of limitations has not yet run.
Further to this decision, it is our opinion that all taxpayers, whether resident of France or not, who were affiliated to a social security scheme in an EU/EEA country or in Switzerland and who were not subject to French mandatory social security can claim for refunds of social surtaxes (except for the solidarity surtax) they paid on their investment income as of the tax year 2016.
1 Established by Decree on December 17, 2012 at an initial rate of 2%, increased to 7,5% by Decree on December 22, 2018