I’ve been getting a lot of enquiries recently from UK residents thinking of moving to France either temporarily or on a more permanent basis. The two current events that seem to be driving this increased interest in the idea of working in France are:
- Brexit: The end of the Brexit transition period is fast approaching, and many people are keen to retain their freedom of movement within the EU.
- Covid-19: The social distancing measures means a lot of people are now working remotely. Some like the idea of working from their second home in France.
If you are in France, it is very easy to open up your laptop, connect to a Wi-Fi and start writing emails to clients and colleagues, draft reports, make phone calls… essentially what constitutes work for a lot of us. As easy as that is, it is actually not so straightforward from a tax and social security point of view. You may have read some general comments about the tax and social security implications. Here, I will be delving into the details of why, by addressing four of the issues.
- Where will you and your employer pay national insurance contributions?
- Where will you be resident for tax purposes?
- How will your salary be taxed?
- Will your employer end up having a place of business in France?
- After the Brexit transition period
Where will you and your employer pay national insurance contributions?
For many people, the money taken from their salary at the end of each month that goes to the UK government is all ‘tax’. In fact, there are two components: ‘tax’ and ‘national insurance contributions’ (NIC) which are treated very differently. In an international context, NIC is often referred to as social security contributions so I will use both terms.
As a general rule, if you work in France, you and your employer must pay French social security contributions on your salary. This raises the first question about working in France: where will you and your employer pay national insurance contributions? Is it the UK, France, or worse, both? This is particularly important because French social security contributions are generally much higher than UK NIC.
Making the occasional work-related phone call or answering the occasional work-related email whilst on holiday in France is one thing – a lot of people do this without a second’s thought. But doing the same from your home in France over a prolonged period on a daily basis is entirely different. It is a situation that could better be described as a secondment or posting to France.
EU social security rules for posted workers
In order to answer the question about where you and your employer should pay national insurance contributions, we should look at the rules about posted workers within the EEA and Switzerland which are determined at the EU level. These rules still apply to the UK during the Brexit transition period that is set to end on 31 December 2020.
One important principle within the EU social security rules is that you pay social security contributions in one country only. In response to our question, we know therefore that it cannot be both UK and France (at least during the Brexit transition period). To know whether it is France or the UK, the following rule will answer the question for most people:
- If the secondment is temporary (under 2 years), you can continue to pay UK NIC.
- If you are working in both countries simultaneously but doing very little work in France (as a guide, under 20% by reference to time, salary, or both) then you can continue to pay UK NIC.
Putting this into the context of self-isolating during Covid-19 or moving to France to preserve EU freedom of movement:
- If you want to self-isolate in France, presumably this will be for no more than a few months, in which case you and your employer should be able to continue paying UK NIC as long as you go before the end of the Brexit transition period.
- If you want to move to France because the UK is leaving the EU, then you are probably not being seconded on a temporary basis and you will probably be working most of the time in France, in which case you and your employer will end up having to pay French social security contributions.
I should point out that when you get into the detail of the rules, some people may not fit nicely into the simple situation described above. Examples of more complicated situations are having more than one employer based in different countries, working across more than two countries, being self-employed as well as employed.
Temporary secondment within EEA/Switzerland
For a temporary secondment (under 2 years) to France, your employer will need to apply to HMRC for an A1 certificate in order to continue paying UK NIC. The A1 certificate will also serve two purposes in France:
- Evidence for why you are not paying French social security contributions even though you are working there.
- To allow you and your family to register for French state healthcare.
The necessary forms that need to be completed are:
- CA3821 – when the employer is applying for the first time
- CA3822 – to be completed for each employee that is being seconded to France
Registering as a foreign employer in France
For those who are moving to work in France and have to pay French social security contributions, things are not as straightforward. If your employer already has an office in France (maybe a branch or a subsidiary), then that office will need to operate French payroll in order to collect the social security contributions. If your employer has no presence in France, then they will need to register as a foreign employer. This guide by the French authorities (in French) explains the process and the employer’s obligations in France.
Where will you be resident for tax purposes?
If during a tax year, you are only absent from the UK for a short period, say a few months, and you spend the rest of the time in the UK, then the 183-day rule means you will be UK resident for tax purposes in that tax year. However, in France, one of the tests for tax residence is working in the country, even if your employer is based in the UK. So, if you go to work in France, this raises the question: where will you be resident for tax purposes? This question is important because as a UK tax resident, the UK normally has taxing rights over your worldwide income. Similarly, as a French tax resident, France also has taxing rights over your worldwide income. Luckily, there is a double tax agreement between the two countries to stop this situation, but the question of which country has taxing rights over your worldwide income remains.
The work test for French tax residence ignores incidental work. The occasional work-related email or telephone call whilst in France are not likely to be enough to make you tax resident there. But, as with the previous question, when you do it on a regular basis for a prolonged period, it is a different matter – you are very likely to meet this test and therefore become a French tax resident.
It should be noted that there are other ways of becoming a French tax resident, but I am focusing on the work test because that is the topic of discussion.
UK-French dual tax residence
You may then find yourself tax resident in both countries at the same time. When this happens, you will need to look at the French-UK double tax agreement. One of the articles of the agreement deals with the case of dual residents. It applies the following criteria in this order for any periods of dual residency:
- You will be deemed to be tax resident where you have a permanent home available to you (a permanent home can be one that you own, rent, or you live in for free e.g. with a relative).
- If you have a permanent home available to you in both countries, you will be deemed to be tax resident where your personal and economic relations are closer, known as the centre of vital interests. For personal, think for example ‘family’, ‘social’, ‘cultural’, ‘political’ ties. For economic, think for example ‘work’, ‘business’, ‘wealth’ ties.
- If you do not have a permanent home in either country, or your centre of vital interests cannot be determined, then you will be deemed to be tax resident where you have an ‘habitual abode’. This is where you normally spend most of your time. It can be determined by counting days, but this will not always be appropriate. For example, your home is in the UK and your family is settled there, but a work project in France that will last some months means you will be away from the UK – the UK will probably remain your ‘habitual abode’ even if you do not spend many days there whilst on the project.
- If you have an ‘habitual abode’ in both countries, or in neither, then you will be deemed to be tax resident in the country of your nationality.
- If you have both nationalities, or have neither, then the two countries will decide by mutual agreement.
How does this apply to our two scenarios?
If you normally live in the UK but go to France to self-isolate and work in France for a short period, then, as mentioned, you may become a French tax resident because of the work test. However, it is much more likely that you will be deemed to be a UK tax resident by the double tax agreement. This is because, although you probably have a permanent home in both countries, your ‘centre of vital interests’ (see no. 2 of the previous paragraph) is likely to be in the UK.
But if your move to France is likely to be longer because of Brexit and you cease to have a permanent home in the UK, then even if you still meet the UK residence test, the double tax treaty will deem you to be resident in France. This is because of the first of the dual residency criteria mentioned above – permanent home available to you in France only. If you still have a permanent home in the UK, then things are less clear and will depend on the facts of your individual situation.
How will your salary be taxed?
The previous question about your tax residence was to resolve the issue of which country gets taxing rights over your worldwide income. But what about the salary you are earning for the work carried out in France? If you are physically working in France, this is considered to be a French source of income and as such is taxable in France whether or not you are a French tax resident.
If you have moved to France and are working full time in France, then the answer is fairly straightforward. Regardless of whether you continue to pay national insurance in the UK, your salary will be subject to French income tax (there will be some special cases where this is not the case for example some diplomats or people working for certain international organisations).
In the case of the person who moves to France for a relatively short period (say a few months) to self-isolate and therefore remains a UK tax resident (see the previous question), it is not as straightforward. In general, the salary for work done in France counts as French income and would be taxable in France. The way you deal with this in practice is by apportioning the salary based on your total working time; so in a given taxable period, if your working time in France is 10% then 10% of your salary will be subject to French income tax. However, there is an article in the French-UK double tax treaty that deals with employment income which can override this, provided all the following are true:
- You are in France for no more than a total of 183 days (not necessarily consecutive) in any 12-month period.
- Your salary is paid by, or on behalf of, a non-French resident employer.
- The cost of employing you is not attributed to a French permanent establishment of your employer.
For the person self-isolating for a few months and working for a UK employer with no French office, the first two conditions should be satisfied. The last one is not so clear because of the ‘permanent establishment’ (see the last question below for more about this). If we assume there is no French permanent establishment then the double tax agreement will override the French rule about taxing a portion of the salary that relates to work carried out in France, and you will only need to pay tax in the UK on the salary.
As always, I am describing the general case that applies to most people, there are exceptions in the double tax agreement to the above, for example government employees, directors, sportspeople, entertainers, and others.
Will your employer end up having a place of business in France?
The final question is one that potentially affects your employer’s liability to French tax. It also affects whether some of your salary is subject to French income tax (see the previous question).
The double tax agreement has a section about ‘permanent establishment’. If your UK employer has a permanent establishment in France, then the profits of that permanent establishment are subject to French tax. This is relevant because, depending on the nature of your work, the place where you are physically working for your employer could be considered a ‘permanent establishment’ – even if it is just a room in your home. Examples of those that are at risk of falling into this category are:
- One-person companies and you, the director, are the only employee working in France.
- You are self-employed and working in France.
- The work you are carrying out in France for your employer involves concluding contracts with clients and generating sales.
If it turns out that your work in France creates a permanent establishment there, then this opens up other issues such as having to register the establishment for taxes in France (income/corporation tax on profits, VAT, local property taxes).
After the Brexit transition period
Of the four issues discussed, it is only the first one about social security that will be affected by whatever deal is struck. The other three issues have nothing to do with the UK’s exit from the EU and they will remain relevant.
There is uncertainty about social security because those rules are determined at the EU level. However, we do not yet know what kind of agreement will be in place after the Brexit transition period. If there is no agreement between the UK and France after the Brexit transition period, then it will no longer be possible to continue paying only UK NIC if you go to work in France, even for temporary secondments. You and your employer will have to pay French social security contributions and quite possibly UK NIC as well. There will also be other non-tax matters to contend with, such as having to apply for a work permit. In short, the financial and administrative burden of going to work in France will almost certainly be higher.
So, you still want to work in France…? Well, it is certainly not impossible. My aim here was to spell out, in more detail than you may see elsewhere, some of the tax and social security obstacles you may face. It is important that you seek professional advice that is relevant to you.