The tax convention for the avoidance of double taxation and the prevention of tax evasion with respect to income taxes between the French government and the Canadian government was signed on May 2, 1975 and was amended in 1987, 1995 and 2010 (the " Convention ”) [1].
The objectives of this Convention are multiple. First, the two countries wish to promote their economic relations and cooperation in tax matters. Furthermore, they wish to eliminate double taxation with respect to certain taxes expressly covered by the Convention.
However, the Convention has provided a safeguard: the scheme or strategies put in place by taxpayers, whether individuals or legal entities, must not have the sole and exclusive aim of obtaining tax relief provided for by the Convention.
The French and Canadian taxes covered by the Convention are limited to:
- income tax including in the case of real estate sales;
- tax on companies registered in France or Canada; and
- tax on gift tax (only for France).
This article will help you better understand the tax implications of your income between the two countries if you are an individual. If you are a business, we have also written an article to guide you.
The concept of tax residence: what are the criteria?
The key concept within this Convention, as with any tax convention, is that of tax residence. France operates on a set of indices concerning the tax residence of a French citizen.
Therefore, you will be domiciled for tax purposes in France if:
- your family home remains in France (spouses/children); and/or
- if you carry out a non-ancillary professional activity in France, whether as an employee or not; and/or
- if you have the center of your economic interests in France (investment of any kind, head office of a company, parent company), i.e. it is in France that you earn the majority of your income (in comparison with Canada).
What about dual residency?
However, if you reside in Canada for more than 183 days, you are also a Canadian tax resident, which is when the Convention becomes very important in determining which country you are tax dependent on.
The Convention provides that in the event of dual tax residence, reference must be made to:
- to the taxpayer's permanent home;
- if the latter has two usual homes, it will then be necessary to position oneself on his vital centers of interest (most pronounced personal and economic ties);
- if the latter does not have a residence and does not habitually reside in either country, the tax residence will be that of his nationality.
As a reminder, the concept of tax residence is very important because, if the French authorities consider that you are a tax resident in France, then all income and profits originating in Canada will be taxable in France.
This article will help you shed light on the Tax Convention if you are a French citizen with tax residence in Canada.
French real estate income
The Convention provides that real estate income is taxed respectively in the country where the property is located.
Thus, even if you are a tax resident in Canada due to the above criteria, income from real estate located in France will be taxable in France. As such, even if you own shares in real estate companies and not real estate, as long as the ownership of these shares gives you the enjoyment of the property, you will still be taxed in France.
Conversely, if the shares and stocks of a real estate company do not give you the right to dispose of the property, this income will not be considered as real estate income and will be taxed as income from securities.
Dividends
If you have invested in shares/financial securities of French companies and you receive dividends, then this income will be taxable in Canada but you will also be subject to withholding tax in France of an amount fluctuating between 5 and 15% of your income.
However, if you reside in Canada and receive dividends from a French company that are taxed in Canada and that would give rise to a tax credit if you resided in France, the amount equivalent to this tax credit may be paid to you by the French tax authorities.
There is also an exception that will be found for all types of income covered by the Convention – if these dividends are linked to a professional activity carried out in France (industrial, commercial or even independent profession) then in this case, the taxes on these dividends will only be payable in France.
Income from movable capital of any kind
If you are a tax resident in Canada and you receive interest from French debts, you are taxed on this income in Canada.
However, as with dividends, these interests will also be taxable in France (tax which will be limited to 10% of the gross amount of the interests), except in the event that they are linked to interests from public companies or States.
Similarly, if this income is linked to a professional activity carried out in France (industrial, commercial or even independent profession) then in this case, the taxes on these dividends will only be payable in France.
Royalties
All remuneration arising from intellectual and/or industrial property rights (e.g. copyright, patent, trademark, manufacturing process, computer coding, etc.) will be paid in the recipient's country of residence. However, here again, if you are a tax resident in Canada and you receive remuneration from royalties originating in France, you would also be taxable in France, up to a limit of 10% of the gross amount of income.
There are, however, exceptions to this double taxation, which are exhaustively set out in the Convention, including when the royalties arise from copyright, the use or concession of computer software, patents or even cultural cinematographic films.
It should also be noted that if these dividends are linked to a professional activity carried out in France (industrial, commercial or even independent profession) then in this case, the taxes on these dividends will only be payable in France.
Capital gains
If you own real estate in France, or shares, units or rights in a company whose assets consist mainly of real estate located in France, then the gains from the sale of these properties or these shares are taxable in France.
If you hold movable property through a permanent establishment (part of a company in the other country) in one country, the alienation of the property will be taxed in that country and not in the country of the main company.
Independent professions
If you are a tax resident in Canada but continue to practice an independent profession in France, you will continue to pay taxes on the income from this activity.
On the other hand, if you carry out your independent activity through a fixed base or a permanent establishment in the Emirates, then this income will be exempt from tax in France.
Employee income
If you are a tax resident in Canada and you receive income from salaried employment in this country, then you are exempt from French taxes.
There is one exception: if you are employed as an employee of a Canadian company and you physically work in France, then France reserves the right to tax you on income from Canadian sources unless the following three conditions are cumulatively met:
- you reside in France for less than 183 days during the tax year concerned; and
- your employer is not a French resident; and
- the cost of remuneration is not borne in France (through a permanent establishment for example)
French private sector pension
With regard to pensions and remuneration paid for salaried work prior to the change of tax residence in France (excluding work within the civil service), they are in principle only taxable in the State from which they originate, in this case France.
For example, pensions paid under social security legislation in France are taxable in France, which is the case for example of voluntary insurance against old age risk.
Annuities from France are also taxable in France.
Wealth tax
If you are a tax resident of Canada but own real estate not related to a professional activity in France and the amount of which makes you liable for wealth tax in France, you will then have to pay it. Wealth derived from shares, units, or rights in a company primarily consisting of real estate located in France is also taxable in France.
However, if you hold shares or units of a company that entitle you to at least 25% of the profits of a Canadian company, the capital derived from these shares and units will be taxable in Canada.
Exchange of information
Both States have undertaken to exchange information not limited to taxes covered by the Convention.
To learn more about what the Tax Convention provides for businesses, you can refer to the article “Focus on the tax treaty between France and Canada: its impacts on companies”
[1] https://www.canada.ca/fr/ministere-finances/programmes/politique-impot/conventions-fiscales/pays/france-convention-refonte-1975-1987-1995-2010.html
