Payroll tax (taxe sur les salaires) is a French specificity that often surprises foreign groups. It does not apply to every business employing staff in France, but to employers that are not, or not fully, subject to VAT. To know whether you are liable, you therefore have to start from your VAT position rather than from your industry alone.
This article explains the principle, the situations foreign companies should watch, the outline of the calculation and the useful control points. It is a natural complement to the work of a French VAT agent when your company has a branch, an office or employees in France.
The principle: a tax tied to your VAT status
Employers are liable for payroll tax if they are not subject to VAT, or if they were not subject to VAT on at least 90% of their turnover in the previous year. The tax is based on the remuneration paid to employees: it comes on top of social security contributions and does not replace them.
Which sectors and structures are typically concerned?
Sectors carrying out VAT-exempt transactions are the most exposed. Typical examples include:
- banking, finance and insurance;
- healthcare;
- exempt education and training;
- holding companies that employ staff;
- certain exempt real-estate or non-profit activities.
The list is not exhaustive: it is the actual VAT treatment of your transactions, not the label of your industry, that determines the answer. Analysing the VAT treatment of each flow is therefore a useful first step.
Situations foreign companies should watch
Foreign groups are often surprised because the tax does not exist, or not in this form, in their home country. The most frequent configurations are:
| Situation | Why the tax may apply | What to check |
|---|---|---|
| Branch of a European financial institution or insurer | Largely VAT-exempt transactions | VAT ratio and remuneration covered |
| Representative or liaison office | No VAT-taxable activity in France | Presence of employees paid in France |
| Holding company employing staff | Non-taxable shareholding management | Any share of taxable transactions |
| Mixed, partly exempt activity | 10% threshold of non-VAT transactions exceeded | Annual calculation of the ratio on turnover |
If you are unsure of your French status, for example when planning a VAT registration in France, the payroll tax question should be handled in parallel.
How is the tax calculated?
The tax is based on remuneration paid, with a progressive scale applied per employee salary band. For partly VAT-liable employers, only a fraction of salaries is taken into account: this is the VAT liability ratio, based on turnover. Allowances and a threshold exemption may reduce the charge in some cases; thresholds and bands are revalued each year and must be checked for the relevant year.
The most sensitive point is including every component of remuneration: bonuses, benefits in kind, allowances. A recurring omission leads to an adjustment, sometimes over several years.
Payments and annual return
The tax is paid at a frequency that depends on its annual amount (monthly, quarterly or annually). It is followed by an annual settlement and regularisation return at the start of the following year, which adjusts the instalments paid.
Control points not to overlook
- correct calculation of the VAT liability ratio;
- inclusion of all remuneration items, including benefits in kind;
- application of the right bands, revalued every year;
- consistency between payments made and the annual return;
- consistency with your VAT returns and employment situation.
A company that discovers late that it is liable faces reassessments, interest and, depending on the case, surcharges. It is better to document your position as soon as the French establishment is set up.
How Hanoutax can help
Hanoutax, a French VAT agent (tax agent) for foreign companies, checks whether your company is liable, calculates the tax, files the returns and monitors deadlines. We work consistently with your VAT obligations: one contact for analysing your status, filing returns and following up notices from the tax authorities.
- analysis of your situation and VAT ratio;
- calculation and filing of payroll tax returns;
- monitoring of deadlines and notices;
- regularisation of past errors.
Discover our payroll tax service or, for VAT obligations, our pages on the fiscal representative in France and on VAT returns.
FAQ
Does a foreign company with no taxable activity in France owe payroll tax?
If it employs staff in France and is not subject to VAT, it may be liable. The criterion is VAT status, not the nationality of the company.
What does the 90% threshold mean?
An employer whose previous-year turnover was not subject to VAT for at least 90% may be liable, on a fraction of salaries set by the VAT liability ratio.
Does payroll tax replace social security contributions?
No. It comes on top of social security contributions and is calculated on remuneration paid.
How often is the tax paid?
The frequency (monthly, quarterly or annual) depends on the annual amount of the tax. An annual regularisation return is filed at the start of the following year.
Can past years be regularised?
Yes, regularisation is possible, but reassessment periods and any interest must be examined case by case.
A question about payroll tax in France?
Related reading
Informational content, not legal advice. The rules that apply depend on your situation.
