How does the France-UK tax treaty apply to the treatment of salaries?

Working for a British company while living in France raises a question: where to pay tax on your salary ?

Applying the France-UK tax treaty to salary income helps to allocate taxing rights between the two countries and avoid double taxation.

Why does tax residency determine how the France-UK treaty applies to salaries?

A British citizen can be a tax resident of France. Conversely, a French citizen can be a tax resident of the UK. Nationality alone, therefore, does not determine the tax treatment of a salary.

It is also necessary to distinguish between the employer's country of residence and the place of work. A British contract and a salary paid into a British account do not necessarily mean that tax is due in the UK.

When domestic laws lead to dual residency, Article 4 of the France-UK treaty provides a set of tie-breaker rules :

• The permanent home ;
• The center of vital interests, if the employee has a home in both countries;
• The habitual abode ;
• The nationality ;
• An agreement between the tax authorities if the previous criteria do not provide a resolution.

This analysis precedes the application of rules regarding salaries. The 183-day threshold for temporary assignments does not replace tax residency criteria.

How does the France-UK tax treaty govern the treatment of salaries based on the place of work?

Under Article 15 of Decree No. 2010-20 of January 7, 2010, the salary of a resident of a State is in principle taxable only in that State where the employment is exercised.

Thus, a tax resident of France working exclusively in France for a British company is normally subject to French taxation. The reverse situation leads, in principle, to taxation in the United Kingdom.

When the employee performs their work in the other State, that State may tax the remuneration corresponding to that activity, subject to the exception for temporary assignments.

A resident of France working in the United Kingdom may therefore be taxed there. This does not mean that they cease all French reporting obligations : the right to tax and the elimination of double taxation are two distinct steps.

Under what conditions does the Franco-British tax treaty reserve the taxation of salary to the country of residence?

To benefit from the Article 15 exception, The employee must meet three cumulative conditions :

1. Stay in the other country for a maximum of 183 days during any twelve-month period.
2. Be remunerated by an employer, or on their behalf, who is not a resident of that country.
3. Not receive remuneration that is borne by a permanent establishment of the employer in that country.

A mission of less than 183 days is therefore not sufficient to maintain taxation exclusively in the country of residence.

The count is based on days of physical presence, not just days worked. For a mission in France, it includes, in particular, the days of arrival and departure, as well as weekends and holidays spent on-site. Successive stays must be aggregated over the relevant period.

A UK resident sent temporarily to France may remain taxable solely in the United Kingdom if the three conditions are met.

However, when the remuneration is paid by an employer resident in France, the exception does not apply, even for a short-term assignment. You must also check whether a French permanent establishment actually bears the cost of the salary.

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How does the France-UK tax treaty apply to salaries for remote work or work split between the two countries?

Work performed from a French home constitutes activity carried out in France. For a French tax resident employed by a British company, full-time remote work in France therefore normally leads to French taxation.

This arrangement may also result in French obligations for the employer regarding withholding tax. The fact that the company is located abroad does not automatically exempt it from these obligations.

When an employee alternates between remote work and business travel, you must identify the remuneration corresponding to the activity performed in each state, generally based on the days worked.

The exception for temporary assignments must then be examined for the portion performed outside the country of residence.

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These situations apply to standard employment. A precise calendar helps justify the distribution used.

What specific provisions modify the treatment of salaries provided for by the France-UK tax treaty?

Public sector remuneration

Article 19 of Decree No. 2010-20 of January 7, 2010, generally provides for taxation exclusively in the state paying the remuneration for services rendered to it, or in the state to which the local authority or legal entity belongs of the public law entity concerned.

However, taxation reverts to the other State when the services are rendered there and the beneficiary:

• Is a tax resident ;
• Holds the nationality ;
• Does not also hold the nationality of the paying State.

A French-only national, resident in France and working in France for the British State, may therefore fall under this exception. A Franco-British dual national does not meet the final condition.

Services rendered as part of a business activity carried out by the public body are subject to the relevant ordinary rules.

Teachers and researchers

Article VII of the tax rules provided for certain income of the tax treaty covers certain teachers and researchers who are residents of a country immediately before their stay in the other. Their remuneration may remain taxable only in the country of origin if the stay does not exceed two years and concerns an officially recognized educational institution.

For research, the work must be undertaken in the public interest, and not primarily for the benefit of specific private individuals.

If the remuneration is exempt in the country of origin, the host country may tax it. A stay exceeding two years may also result in retroactive taxation of the remuneration for the first two years in the host country.

Employment in international transport

Employment exercised aboard a ship, aircraft, or railway vehicle operated in international traffic falls under the country of residence of the operator. This provision does not apply to all company employees, particularly those working on the ground.

For certain employees of Channel Tunnel concessionaires or associated companies, working exclusively or primarily on the fixed link and in both countries, Article V of the tax rules uses the country where the employer's place of effective management is located.

Director duties and artistic or athletic performances

Attendance fees referred to in Article 16 of Decree No. 2010-20 of January 7, 2010 are taxable in the country where the company is resident. They must be distinguished from a salary paid for operational duties.

Artists and athletes are generally subject to taxation in the country where their performance takes place, with exceptions for certain public funding.

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How does the France-UK tax treaty prevent double taxation on salaries?

For French residents

For ordinary salaries taxable in the United Kingdom under the treaty, Article 24 of the Synthesised text of the Multilateral Instrument and the 2008 UK-France Double Taxation Convention provides, under certain conditions, for a tax credit equal to the corresponding French tax, provided that the resident is subject to UK tax on this income.

This mechanism neutralizes the French tax corresponding to the salary in question. However, it may influence the tax rate applicable to the household's other income.

Foreign income to be declared in France must be entered on form 2047 and then carried over to the appropriate sections of the main tax return. The tax credit does not waive this requirement.

For UK residents

When the same salary is taxable in both countries, the United Kingdom provides a credit for the French tax levied in accordance with the convention.

This credit is limited to the UK tax corresponding to the income in question. Additional UK tax may still be due; the employee cannot freely choose the country of payment.

Special tax regimes

For certain types of income, notably salaries for international transport covered by Article 15, paragraph 3 of the Synthesised text of the Multilateral Instrument and the 2008 UK-France Double Taxation Convention, France grants a credit equal to the UK tax actually paid, capped at the corresponding French tax.

This difference may result in additional French tax, unlike the mechanism applicable to standard salaries. It is therefore necessary to classify the remuneration before calculating the credit.

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What documents should be kept to justify the tax treatment of your salary?

Establishing residency and places of employment

To support the analysis, it is useful to keep:

• The employment contract and its amendments ;
• The tax residency certificates ;
• The payslips ;
• The travel schedule and days worked ;
• The proof of tax paid abroad.

Consistency between these documents, the declarations, and the salary breakdown facilitates the review of the file.

Taxation contrary to the treaty may require a request for correction

Withholding tax applied by an employer does not prove that the country in question has the right to tax. A correction may be necessary after reviewing your residency, activity, and the applicable tax regime.

In the event of taxation that is incompatible with the treaty, the mutual agreement procedure allows you to refer the matter to the competent authority to seek a resolution between tax administrations.

Azmy Avocat assists you in analyzing the tax treatment of your salary between France and the United Kingdom. Before a relocation, an assignment, or a change in remote work arrangements, have your tax residency, the rules applicable to your compensation, and your reporting obligations reviewed by a professional.