Non-residents’ taxation: how to decrease investment income tax by half

This case study explains how Mr. A will halve his taxation on investment income.

The typical situation of French non-residents and their investment income

Mr. A has been a Swiss tax resident for the past 5 years. He has rented out his former main residence in France and receives €40,000 in annual rental income.

He decided to sell his former secondary residence located in Paris at the beginning of 2023. He had purchased this building 3 years ago, and this sale generated a real estate capital gain of €100,000.

In principle, rental income and real estate capital gains are subject to income tax and 17.2% social security contributions.

Social security contributions are deducted from certain income received by individuals domiciled in France or abroad. They were introduced to finance social security, the active solidarity income (RSA), and pensions. Social security contributions are made up of:

• The general social contribution (CSG) of 9.20%.
• The social debt repayment contribution (CRDS) of 0.5%.
• The solidarity levy of 7.5%.

It is important to note that for a non-tax resident, social security contributions apply only to French-source real estate income and capital gains.

Mr. A calculated that his rental income and his real estate capital gains will be subject to social security contributions for a total amount of €24,080.

A blow from the European Union against France: CSG and CRDS exemption

Since 2019, those affiliated with a mandatory social security scheme from an EEA country (EU member countries, Iceland, Norway, Liechtenstein) or Switzerland are only subject to social security contributions of 7.5%. Why? Theyare exempt from CSG and CRDS. However, they remain subject to the 7.5% solidarity levy.

This CSG and CRDS exemption was established following the condemnation of France by the European Court of Justice in 2015 (CJEU, n° C-623/13, Judgment of the Court, Minister of Economy and Finance vs. Gérard de Ruyter, February 26, 2015). These two contributions have the “specific and direct purpose of financing French social security”. Indeed, a French tax non-resident already affiliated social security scheme in an EEA member state or Switzerland, does not benefit from French social security. Therefore, they will not fund a scheme to which they are not entitled.

Halve your social security contributions : how to benefit from the CSG and CRDS exemption

Benefiting from this exemption is not automatic; you must request it in their tax return.

Non-residents must tick boxes 8SH (declarant 1) and/or 8SI (declarant 2) in the “8 – Miscellaneous” section on form 2042 C.

I have never ticked this box on my declaration : what should I do?

This favorable regime, applicable to non-residents, has been in force since 2019. It is possible to rectify the tax returns for the last three years. Therefore, you can amend your 2023 declaration for 2022 income, your 2022 declaration for 2021 income, and your 2021 declaration for 2020 income.

Mr. A receives €40,000 in rental income every year. He has never ticked box 8SH in his income declarations. If Mr. A corrects his declarations, how much will he be reimbursed by the tax administration?

Rental income of €40,000 was taxed at 17.2% social security contributions for 3 years. In principle, this income should have been taxed at 7.5%. If Mr. A asks for his tax declarations to be corrected, he could save €11,640 in tax.

Thus, if Mr. A earns €40,000 a year in rental income over 15 years, his gain will be €60,000.

Takeaways from this case study

Aside from knowing the tax rules, mastery of tax declaration procedures is particularly important since it is the vehicle for providing information to the tax administration. Thus, not being aware of certain modalities can have extremely significant impacts as there is a gap between the apparent simplicity of the action: entering a figure or ticking a box, and its actual impacts.

If Mr A has to tick one box in his life, this is it!

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