Everything You Need to Know About the Payroll Tax in France

The payroll tax is a levy imposed on employers in France who hire staff but are not liable for value-added tax (VAT) on the majority of their revenue. Who is required to pay it? How is it calculated? Are there any exemptions? Here’s a comprehensive overview.

Who Is Subject to the Payroll Tax?

The payroll tax applies to employers who:

• Hire salaried employees;

• Are based or domiciled in France, regardless of where the employees reside or work;

• Are not subject to VAT, or were subject to VAT on less than 90% of their turnover during the previous calendar year.

The tax typically concerns:

• Certain self-employed professionals;

• Public institutions (excluding intermunicipal entities);

• Financial and insurance institutions, including some brokers and stock agents;

• Non-profit and social organizations (e.g., associations);

• Civil law companies (such as investment or property companies), excluding those in real estate construction or trading;

• Property owners;

• Agricultural cooperatives, mutuals, and professional bodies.

Which Employers Are Exempt?

The following employers are not subject to the payroll tax:

• Employers whose revenue the previous year did not exceed the VAT exemption threshold (e.g., micro-entrepreneurs);

• The State and local public authorities;

• Private individuals employing a full-time domestic worker or nanny. Part-time hires do not qualify for the exemption;

• Certain agricultural employers (e.g., crop and livestock farms, animal training facilities);

• Higher education institutions issuing a recognized Bac +5 diploma (universities, business schools, grandes écoles);

• Some public institutions;

• Cultural public cooperation entities (EPCC);

• Environmental public cooperation entities (EPCE) — exemption applies to wages paid as of 1 January 2024.

What Is the Taxable Base?

The tax base corresponds to that used for the Generalized Social Contribution (CSG) on employment income. This includes gross salaries, bonuses, allowances, and both in-kind and cash benefits.

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What Are the Applicable Rates?

In Metropolitan France

The payroll tax is based on a progressive scale applied to each employee’s annual gross salary:

Note: Both the taxable base and the final tax amount are rounded to the nearest euro.

In Overseas Departments (DOM)

Employers in the French overseas departments pay a flat rate:

Important: These regions are not subject to the increased rates applied in mainland France. The tax is calculated by multiplying the base by the applicable single rate.

What Is the Degree of VAT Liability?

Employers who were liable for VAT on less than 10% of their turnover in the year preceding wage payments must calculate their VAT liability ratio.

This ratio = (Non-VAT-deductible income / Total income of the previous year)

The tax base is then determined by multiplying the total taxable wages by this ratio.

Tax Relief: Exemption and Discount Mechanism

• No tax is due if the annual payroll tax amount is €1,200 or less.

• If the tax due is between €1,200 and €2,040, a discount applies:
  The amount is reduced by 75% of the difference between €2,040 and the actual tax amount.

Example:
If the calculated tax is €1,400, the discount is ¾ of (€2,040 – €1,400) = €480
Final amount due = €1,400 – €480 = €920

How to Declare and Pay the Payroll Tax

The declaration and payment method depends on the amount due the previous year:

If Less Than €4,000

• File form 2502-SD with payment by 15 January of the year following wage payment.

Between €4,000 and €10,000

• Submit form 2501-SD with provisional payments before 15 April, 15 July, and 15 October.

• A final payment and annual return (form 2502-SD) is due by 31 January of the next year.

Over €10,000

• File form 2501-SD monthly, within 15 days after the end of each month.

• December’s tax is paid with the final regularization and form 2502-SD submitted by 31 January of the following year.

Additional Notes:

• If the business is sold or ceases operations, the return and payment must be filed within 60 days.

• In case of the employer’s death, the tax return must be filed within six months.