The French National Parliament voted the Social Security Finance Act for 2018 on December 4th, 2017 which has confirmed the following measures applicable to self-employed workers.
- Reform of the RSI (article 15)
As of January 1st, 2018, the RSI’s operating structures (independent contractors’ illness and maternity schemes) are reorganized : the various RSI’s funds are being absorbed by the general scheme’s institutions (URSSAF for the contributions recovery, CPAM for illness and maternity benefits and Carsat for retirement except for lawyers for whom the CNBF will remain in charge).
The URSSAF contributions assessment notices sent as from the 1st quarter of 2018 therefore also cover sickness and maternity contributions which were assessed by the RSI so far.
The retirement contribution assessment notices are still issued by the CNBF for self-employed lawyers.
- Increase of the CSG by 1.7 points (article 8)
As of January 1st, 2018, the rate of CSG has been increased by 1.7 points of percentage bringing it from 7.5% (until 2017) to 9.2%.
This increase is applicable to employees, self-employed and retired workers.
- Decrease of family allowance and sickness-maternity contributions (article 8)
As from January 1st, 2018, the CSG increase is compensated by a decrease of other self-employed workers’ contributions:
- Family allowance social tax rate is reduced by 2.15 points (from the rate of 5.25% to 1%);
- Gradual reduction of illness and maternity contributions is reinforced for professionals with taxable income below Euro 43,000.
The self-employed registered lawyers’ social taxes (irrespective to the retirement and Bar contributions) are computed as follows:
- CSG / CRDS : CSG surtax at 9.2 % and CRDS surtax at 0.5 %, giving a global rate of 9.7 %
- Family allowances : 1%
- Illness-maternity (for self-employed individuals receiving a net professional income exceeding Euro 43,000) : 50 % (unchanged rate)
The URSSAF scheme has confirmed that 2018 provisional contributions will be computed using the 2017 rates (8% for CSG / CRDS ; 5.25% for family allowances and 6.5% for illness-maternity). The new rates will be used as from Spring 2018 after the filing of 2017 French social tax returns (May / June 2018). The provisional contributions will then be adjusted with the new rates.
As indicated in our October 2017 tax alert, these changes should benefit to self-employed individuals receiving foreign source professional income (it is confirmed that the CGS-CRDS surtaxes are not assessed if a double tax treaty signed by France gives right to an income tax exemption or a tax credit in France on foreign source professional income received by French tax residents).
Thus, self-employed individuals receiving foreign source income would not be impacted on such income by the CSG-CRDS increase, whereas they would benefit from the family allowance social tax decrease (as long as they would be due, this issue being currently discussed in the frame of lot of cases pending before the courts).
Adjustment of 2018 French provisional social taxes should be made in order to anticipate this decrease and avoid being in a refund situation towards the URSSAF for all social taxes listed above.
- Penalties applicable to underestimated adjustment of provisional contributions are suspended (article 15)
Self-employed workers’ contributions are computed on the basis of year Y-2 income. These provisional contributions are then adjusted in year Y+1 after the filing of the social tax returns for year Y.
Self-employed workers have the ability to opt for a computation of their provisional contributions on the basis of the income they estimated for year Y (higher or lower than year Y-2).
A penalty is in principle applied if the estimated income for year Y is lower than the final actual income by more than one third. This penalty is assessed on the difference between provisional contributions paid in year N and the one that should have been paid without any adjustment. Its rate is 5% or 10% depending on whether the actual income is 1.5 higher or not than the estimated one.
This penalty is suspended for 2018 and 2019 (article 15 of Social Security Finance Act for 2018).
- Testing of a new social tax collection process for URSSAF contributions (article 15)
The URSSAF will experiment a new collection method until June 30th, 2019. This experimentation will be implemented on a voluntary basis (practicalities will be defined by a Decree to be published).
The self-employed volunteers workers will have the possibility to pay their provisional contributions on a monthly or quarterly basis. The contributions will be based on the income they will report to the URSSAF each month or each quarter.
- Conversion of the CICE (article 9)
The tax credit for competitiveness and employment (CICE) will be replaced by a decrease of employer’s social security contributions as from January 1st, 2019.
Self-employed workers will no longer benefit from this tax credit since they are not subject, by nature, to employer contributions.
The CICE which benefited so far to equity partners (residents only, or residents and non-residents depending on the approach retained by each firm) will no longer go to the partners. It will rather benefit to the French offices in their quality of employers.
The tax credit computed for 2017 will still be chargeable against the partners’ 2017 French income tax assessed after the filing of their 2017 income tax return in May/June 2018.
The new tax credit procedure will have to be specified for 2018 tax year (application in 2019) within the context of the implementation of the new French withholding tax system as from January 1st, 2019.
N.B. : the abovementioned measures were voted by the Parliament on December 4th, 2017 and confirmed by the French Constitutional Council on December 21st, 2017 (decision n°2017-756 DC).
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