Tax residence of individuals
Many taxpayers have family or economic ties to different countries. These situations can pose difficulties in tax matters.
Why is it important to determine tax residence?
Determining tax residence is extremely important as it determines the extent of the taxpayer’s tax obligations to a country.
In France, Article 4A of the General Tax Code (hereinafter CGI) states that:
- Tax residents in France have an unlimited tax obligation: all their worldwide income will be subject to income tax.
- Non-tax residents in France are taxable only on their French-source income.
How to define tax residence?
In domestic law, tax residence is defined by Article 4B of the CGI. This text sets several alternative criteria. A person will be tax-resident in France if:
- They have their home or principal residence in France;
- They engage in professional activity, whether employed or self-employed, in France, unless they can prove that this activity is incidental;
- They have the center of their economic interests in France.
Once a natural person meets any of these criteria, they will be considered a French tax resident.
It is possible for a person to be tax-resident in multiple states depending on the tax laws of each. To manage these situations, France has signed bilateral tax treaties with the vast majority of countries worldwide.
What is the role of tax treaties?
Tax treaties help resolve conflicts of residence and determine the place of taxation for different categories of income for individuals with ties to multiple states.
There are several types of tax treaties, but the vast majority follow the model set by the Organization for Economic Cooperation and Development (OECD).
To resolve a residence conflict, OECD model treaties consider four successive criteria:
- Permanent home;
- Vital interests;
- Habitual abode;
- Nationality.
Other provisions of tax treaties address the allocation of the right to tax each state based on income categories and the methods for eliminating double taxation.
How is tax residence controlled?
The French tax administration can check the tax residence of an individual during an Examination of the taxpayer’s personal tax situation (ESFP). Indeed, the control does not go through a specific procedure.
In the context of this ESFP, the administration may gather information from customs services or even third parties to determine the taxpayer’s tax residence.