Different Types of Income and Their Obligations

The French tax system is complex and includes different types of taxes and declarations. It is important to fully understand the rules applicable to one’s personal or professional situation in order to properly fulfill tax obligations.

Summary

There are two types of taxes:

the income tax on individuals (IRPP): IRPP is calculated based on the income of the entire tax household. All income and expenses of household members are taken into account to determine the tax amount.
the corporate tax (IS).

Obligations

There are different categories of income, each subject to specific evaluation rules.

Taxable income is the sum of all resources declared by the taxpayer on their income tax return. Certain deficits and expenses can be deducted from the overall income to obtain the net taxable income.

The income tax return must be filed for the year n in n+1 between May 15 and June 10, depending on the department of residence. Tax payment is made by withholding at source, and the declaration allows verification and adjustment of the amount paid.
The income tax return is mainly done online via impot.gouv.fr. Different forms are available depending on the types of income.
Agricultural profits are a category of income to declare and are subject to a specific annex.
For rental income, the form 2042 is used for rents under €15,000. Beyond this threshold, form 2044 is required.
Capital companies and partnerships by option are subject to corporate tax.
Companies file their own income tax return and pay tax directly. The net profit after tax can then be distributed to partners, who will declare it in their personal income.
Penalties, surcharges, and late payment interest apply in case of late income declaration.
An assessment procedure may be initiated in the absence of declaration and response to a formal notice.

Context

The principle: one income tax return per tax household IRPP (=individual income tax)

The exception: companies subject to corporate tax

For individuals: the income tax return

A single declaration per household

The income and expenses of all members of the tax household are taken into account to establish a single taxation. Income tax considers family status (single, married, separated, PACS, etc.), family charges (dependent minor children, adult dependents…), and certain personal situations (disability, war veteran…).

A declaration grouping different categories of income

Income tax is determined according to a progressive scale applicable to all individual incomes. The principle of unitary taxation does not question the maintenance of different categories of income tax. Consequently, there is not one income but multiple incomes that must be evaluated according to specific rules within their respective category, namely:

salaries, wages, pensions and life annuities BOI-RSA;
non-commercial professional profits and similar income (BNC) BOI-BNC;
industrial, commercial and artisanal profits (BIC) BOI-BIC;
agricultural profits (BA) BOI-BA;
rental income (RF) BOI-RFPI;
investment income (RCM) BOI-RPPM;
remuneration of company directors referred to in article 62 of the CGI;
capital gains on asset disposals.

From the global income obtained by totaling the net incomes of the various categories, deficits recorded in certain income categories, certain expenses of the global income strictly listed by law, as well as special abatements provided in some cases, may be deducted. This results in the net taxable global income.

The declaration must be made for the year n in n+1 at a date varying depending on the tax household’s department of residence between May 15 and June 10. The tax due is paid through withholding at source. The tax return allows verification of the tax paid and adjustment upwards or downwards. The declaration has become mainly an online declaration to be completed on impot.gouv.fr.

Declaration No. 2042 and its annexes

Form 2042-C: Supplementary income declaration
Form 2042-IOM: Overseas investment declaration
Form 2042-C-PRO: Supplementary income declaration for self-employed professions
Form 2042-RICI: Declaration of tax reductions and credits
Form 2042-TA: Request for reimbursement of the additional tax on lease rights

For professional activities subject to income tax with real profit taxation, other complementary tax declarations must be completed. For example, for agricultural profits, declaration No. 2139-SD and its annexes No. 2139-A-SD to 2139-E-SD must be completed if you are a farmer and subject to the simplified real taxation regime.

For rental income, the "classic" income declaration form 2042 is useful in several respects for landlords who rent out empty or unfurnished housing or premises and who received less than €15,000 of rental income for the tax year (micro-foncier).

Declaration No. 2044 will be used as an annex to 2042 if rents received exceed the €15,000 threshold. Form 2044 allows calculation of the net rental income of the year, by difference between taxable rents and deductible rental expenses, for each rented property on the one hand, and for all properties rented by the same tax household on the other.

For legal entities: the corporate tax return

Capital companies, and partnerships by option, are subject to corporate tax. At the end of the accounts, the company files its own income tax return and pays tax directly. At the next general meeting, partners will decide the fate of the net profit after tax. If this profit is distributed, it will be included in the partners’ income and their income tax. The declaration is made electronically. In most cases, the accountant files a declaration via EDI (electronic data interchange). The declaration must be made no later than 3 months after the end of the fiscal year. Companies generally have an additional 15 days to file online. As an exception, if the company closes its fiscal year on December 31 of year n, it must file its declaration between May 5 and May 20 of year n+1. But this administrative tolerance must be validated each year. Tax is calculated on the previous fiscal year. Depending on the tax level, an installment may be payable during the year. Payment of corporate tax is mandatory online.

In case of non-compliance

If you declare your income late, you will have to pay penalties, a surcharge on your taxes, and possibly late payment interest.

Tax surcharge

If you declare your income late, your tax will be increased by one of the following penalties:

10 % if no formal notice has been issued,
20 % if the declaration is filed late within 30 days following the formal notice,
40 % if the declaration has not been filed within 30 days following receipt of a formal notice.

Warning: if the administration discovers that you are conducting an undeclared activity (undeclared work or illegal activity), a 80 % surcharge will be applied without the need to send a formal notice.