Home office: new tax and social security implications in France

With the Covid-19 crisis, working from home is expected to become the “new normal”. 2020 marks the end of many tax holidays with respect to home working arrangements within and between certain countries.  We have already featured some general comments on the implication of remote working in previous blog posts; and we will regularly feature updates by country as we learn more. 

What follows outlines the tax and social security impacts on employees and directors working remotely from France for a company located in another country. These may now become significant.

Home office tax implications in France

If the employee or director works from home in France for a foreign company, even partly, this could be considered as constituting a permanent establishment of the company in France. Especially if:

  • the premises can be considered as a fixed place of business, or
  • the employee has the ability to sign contracts on behalf of the company (in certain circumstances, the fact that the employee has the ability to negotiate the contracts can be sufficient, even if the foreign company formally has the power to sign them)

Therefore, the business could be responsible for paying tax in France on the part of the benefits which can be related to the French permanent establishment.

Obligation for foreign employers to levy French income tax

If the employee or director is regarded as a tax resident due to their stay in France, days worked in France, which are taxable according to local tax law, will remain taxable in France, even by application of relevant tax treaty provisions.

For non-residents of France, days worked in France will be taxable in France – according to most of the treaties – if the employee is present for at least 183 days in any 12-month period.

In this case, employers will have to register and withhold French income tax in France on part of the salary corresponding to the days taxable in France. The employee will also have to file a French income tax return, which may jeopardize its initial tax planning. 

Temporary agreements have been signed between France and Germany, Italy, Luxembourg, Belgium and Switzerland to mitigate the adverse effects of remote working made compulsory due to health measures, however the effect of these agreements are currently scheduled to end on March 31. 2021 (December 31. 2020 for Italy). Furthermore, they do not apply in cases where teleworking is not made compulsory or recommended as a result of health measures but is offered to employees as a longer-term company policy.

Obligation for the employer to levy French social security contributions

Teleworking from France might trigger an obligation for the employee/director to be affiliated to the French social security regime, and therefore for the employer to pay French social security contributions on the total salary. Such an obligation usually arises as soon as an employee/director works in France (no minimum threshold of days required). Within the EU, immediate affiliation to the French social security system can be temporarily avoided if the employee/director can be qualified as “seconded” to France; otherwise, French affiliation may be avoided if the person usually resides in France and spends less than 25% of their work time in France.

Note that, if the employee is affiliated in France, all their salary – and not only the portion corresponding to days worked in France – will be subject to French social security contributions.

Other impacts may include, but not be limited to:

  • French labour law obligations for work time and severance payments may apply although the employment contract was originally concluded under a foreign labour law;
  • Working permits;
  • Special regulations deriving from the type of activity performed