France’s New 75% Tax Rate

I do not recall ever talking about French taxes on this blog, but this morning I saw something that stunned me.

France has announced a 75% income tax rate.

Now, think about that for a moment. You would be giving-up 75 cents on the dollar, just for the privilege of setting an alarm clock, cutting sleep short, incurring dry cleaning, sitting in traffic and – finally – stressing at work. This move is driven by economic pressures in the European Union. We are familiar with the debt crisis of Greece, but Spain is also facing difficult times. Italy is hot on their heels. Germany is pulling this sled, and France likes to think that it is closer to the lead dog than the rear. Germany allows France to think that.

The EU has restrictions on allowable member deficits, and France is looking to narrow its deficit from 4.5% to 3% next year. It is doing this by raising 30 billion euros. Unfortunately, it seems to have escaped French President Hollande that one way to save money is to spend less of it. Hollande has announced that the money will be used for – among other things – thousands of new civil servant jobs. Brilliant!

The French government has softened the blow by announcing that the tax will be in effect for only two years.

On the other hand, for two years France will have the world’s highest tax rate.

French income tax applies on worldwide income for individuals who reside in France. The key word here is “reside.” Nonresidents are generally taxed only on French-source income. This is not the U.S. system, where a U.S. citizen is taxed on worldwide income, irrespective of where he/she lives. A U.S. expat living in Thailand for the last twenty years is still required to file an annual U.S. income tax return. On the other hand, a French citizen can avoid French tax by not residing in France, although I anticipate that the French tax authorities would aggressively dispute the issue of residence, where possible.

Seems to me that – if I made enough money to be subject to this new tax – I would have enough money to leave France for a couple of years. Why would I work for twenty five cents on the dollar? Short answer: I wouldn’t.