Tuesday, March 25, 2014

Another Word on Tax Exiles

I was critical the other day of a Times article on tax exiles fleeing France for the Anglo-Saxon fiscal paradise. Here's more on the subject from Le Monde:
Que les installations outre-Manche s'accélèrent ou non, une chose est certaine : la fiscalité n'y est pas pour grand-chose. Même M. Cadic le dit : « Il n'y a pas d'exil fiscal vers le Royaume-Uni. » La raison en est simple : la fiscalité britannique n'est guère plus intéressante que la française. L'impôt sur le revenu comprend trois barèmes à 20 %, 40 % et 45 %, qui sont proches de ce qui se pratique dans l'Hexagone. Pour les familles avec enfants, la France est même plus intéressante, dans la mesure où le quotient familial n'existe pas outre-Manche. Bref, pour échapper au fisc, mieux vaut partir à Monaco ou dans un canton suisse.
Cela ne veut pas dire que la fiscalité n'y est pour rien du tout. Les oligarques russes en savent quelque chose : pour les très grandes fortunes, il existe un statut de « non domicilié », qui permet de ne pas payer d'impôt sur son argent hors du Royaume-Uni. Pour les entrepreneurs aussi, l'imposition est moins lourde, particulièrement au niveau des charges patronales. L'impôt sur la fortune n'existe pas non plus.


Kirk said...

"Pour les entrepreneurs aussi, l'imposition est moins lourde, particulièrement au niveau des charges patronales."

I'll be simple, but there are a few variables that make this number a bid fungible, but not much. I'm a freelancer, and I set up a company in the UK. The company pays 20% corporation tax. It pays me a nominal salary, and the rest of the money I get is paid as "dividends." The net result is that - aside from the 20% the company pays - I can earn up to about £37K without paying any personal income tax or national insurance (the equivalent of charges sociales personelles). The company doesn't pay NI on my salary, because I'm paid an amount below the threshold.

When the accountant I met with a year ago January explained this to me, I was incredulous. For the same amount of money in France, I would be paying about half in various taxes and charges socials.

Now, this only applies if you set up a company; as a regular salaried employee, you don't get the same advantages.

Kirk said...

I meant half of my gross income.

Passerby said...

The income tax rate (i.e. what you pay on your net income) in France is actually relatively competitive.

If you are employed and making less than EUR 1 million per year, you'll pay about the same whether you live in France or in Switzerland. France was often more attractive if you had kids, before the goverment capped the "Quotient familial" last year.

It's the social charges (i.e. difference between gross & net income) that are high compared to neighboring countries. ~30% in France, to continue the comparison it's only 10% in Switzerland (although private health insurance needs to be paid separately, which could be 3%-10% more depending on coverage and base salary).
By the way it's the same for employers: the social charges rate (~50% of paid gross income) is much higher than most neighbors.

Hence in my opnion, any comparison on income tax rates alone is misleading.

Passerby said...

Sorry for the double post, but I just stumbled upon the following post (in French) that was right on the topic that I was talking about earlier today. And the comparison is better explained than in my comment.
I find that the author is a bit conservative with the social charges % that he uses for France. But even with these lower rates the difference is striking.


Anonymous said...

Kirk, I don't know what you do and where you work and live, but it sounds like the IT people I know in Germany, working as freelancer (really full time for a big company) and using English, Swiss or even Cyprian shells. They pocket most of the tax differences, but quite a lot got big tickets from the German finanzamt, and no one get pension, unemployment or paid holidays.

Kirk said...

I'm a freelance writer, and I've been a freelancer for 17 years. You're suggesting that what I said above is illegal; it's not. It's the way the system works. I saw an accountant here, and I've talked to plenty of other freelancers who have the same setup.

No, I don't get a state pension, but I have my company making large contributions (deductible) to a pension fund. I paid a fortune to obligatory pension schemes in France, and probably won't get more than a pittance. So I'm better off in all ways here.

Anonymous said...

@Kirk. Legal and accounting advise I was given is that if your centre of activities (and residence) is France you must establish your business in France and cannot use a UK-based sole trader operation to circumvent the social charges. Here of course the autoentrepreneur scheme works very favourably up to certain income ceilings. There is also the portage system. But agree, levels of tax and charges using a UK incorporated firm are considerable lower.

Kirk said...

Sorry, I wasn't clear. I moved to the UK a year ago.

And it's not just taxes and charges, it's personal income tax: as long as I have a company, I can earn £37K and not pay any personal income tax.

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bernard said...

This UK tax paradise meme has been around for a long time and it is pure British genius that it is.

20 years ago - before Tony Blair etc... -, I was about to move to the City on a very well paying job - 100,000 UKP plus bonus, not an übermensch incomme, but very high by my standards - that was going to pay 30% more gross than what I had in France.

I did a serious check on taxes AND social contributions because the rumour was already then that you paid a lot less in the UK than in overtaxed France. The conclusion was that, given the fact that I was married and had two children, my take home income would be higher than in France, but by less than the 30% higher gross amount. In other words, even with a salary higher than that of over 95% of workers, my taxation and social security tax level was higher in the UK than in France.

The people who calculated this for me were professional tax people and they told me that this supposed UK tax advantage only existed for people who were single - I was not - and who made a lot - which I did and of course for the überrich. The rest were better off in France. I am not discussing here being an entrepreneur as I do not have the exact data for that, only hearsay.

So maybe things have changed and the advantage has shifted countries, but on one thing I am pretty clear, it was worth going to the City if you were a kid, unattached, making really a lot of money, otherwise not really. The flight of French smart kids to the UK is a problem by itself, but it is a somewhat different problem than this one, actually: I would argue that, because firms in the City can fire people in an instant, they can also hire people in an instant, forget about loyalty from any side of the equation. Mercenaries are always better paid than civil servants, they also lead a more dangerous life.

kirkmc said...

Income tax in the UK is not dependant on marital status or children. Unlike France, you don't pay lower taxes because you have more dependents. If it was that way in the past - as you say, under Blair - I don't know when it was changed. There has been talking of a tax credit for married couples, which would be something in the order of a couple hundred pounds.

Mitch Guthman said...

I would note that for a Frenchman to become a tax exile implies that he or she originally made their fortune in France. Which, in turn, suggests that France is not nearly as inhospitable to entrepreneurs as popularly thought.

In addition, looking at the most recent high profile French tax exiles, it's interesting to observe that in every instance they have structured their lives to minimize taxes while continuing to enjoy unfettered access to the benefits of living in France. None of these people have sought to relocate to Somalia, the ultimate in low taxation and freedom from government interference.

So it seems to me that by focusing on whether Kirk enjoys a lower tax burden in England than in France we are losing sight of the bigger picture. England, particularly under Conservative governments, has chose to organize itself differently from its European neighbors with lower taxes for the rich, a lower quantity and quality of public services and a particularly accommodating policy towards those with vast wealth.

That’s good for those individuals but bad for everybody else. Certainly, people should be free to choose but they shouldn't be able to enjoy the benefits without paying the freight. Someone who wants to be a tax exile can move to Mogadishu, pay less in tax but get nothing in services; what people shouldn’t be able to do is live in Paris and have a residency in Mogadishu for tax purposes.

bernard said...

you misunderstood or I wasn't clear enough. The point is that there is a major tax break with children in France and a very minor one in the UK. If you have kids, you pay relatively low income tax in France, not in the UK. This helps mitigate the impact of social taxes (though the benefits are also different...).

kirkmc said...

Bernand: I understand that. There is currently no tax break in the UK (though there are some new things planned, such as a tiny marriage deduction, and a future child-care deduction that could be as much as £2000).

But you still pay taxes. In my scenario - which I admit is only for freelancers or people with companies - I can make a decent amount of money and pay no taxes at all. For the same income in France, I'd be paying high charges sociales on the business (or on myself if I were a travailleur indépendant, which I was in France), plus still be paying income tax on the money I get. If I did have several kids, that income tax would be lower, but if not, then it would be the same.

kirkmc said...

Mitch: as far as public services are concerned, there's not that much of a difference. I do think the NHS is inferior to the French system, but this difference is only something you'll see in certain areas (such as chronic disease). But there's no need to pay for a mutuelle, as all medical coverage is free (as in paid by taxes); there's no co-pay. There is, however, a charge for prescriptons, of around £8 for each drug. But this is mitigated by purchasing a card - I think it's £120 a year - which covers all drug costs.

One thing that is better in France is broadband access. I lived for a dozen years in a small town in the Alps, where I had about 6 Mbps DSL. Here, outside of cities, you get about 2; I've had to get satellite internet for my work.