The Tax Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income between the Government of France and the Government of Canada was signed on 2 May 1975 and amended in 1987, 1995 and 2010 (the "Convention"). [1]
The objectives of this Convention are manifold.First, the two countries want to promote their economic relations and cooperation in tax matters.In addition, they wish to eliminate double taxation in respect of certain taxes expressly covered by the Convention.
However, the Convention has provided a safeguard: the set-up or strategies put in place by taxpayers, whether natural or legal persons, must not have the sole purpose of obtaining tax relief provided for by the Convention.
The French and Canadian taxes concerned by the Convention are limited to:
- income tax, including in the case of a sale of immovable property;
- corporate tax registered in France or Canada; and
- tax on transfer duties free of charge (only in the case of France).
This article will help you better understand the tax impacts of your income between the two countries if you are an individual. If you are a company, we have also written an article to guide you.
The concept of tax residence: what are the criteria?
The essential concept in this Convention, as in any tax treaty, is that of tax residence.France operates as a bundle of clues concerning the tax residence of a French citizen.
Thus, you will be domiciled for tax purposes in France if:
- your family home remains in France (spouses/children); or
- if you carry out a non-ancillary professional activity in France, whether it is as an employee or not; or
- if you have in France the center of your economic interests (investment of all kinds, head office of a company, parent company) i.e. that it is in France that you derive most of your income (in comparison with Canada).
And in case of double residence?
However, if you reside more than 183 days in Canada you are also a Canadian tax resident, which is when the Convention is very important in determining which country you are tax-dependent on.
The Convention provides that in the case of dual tax residence, it is necessary to refer to:
- the taxpayer's permanent home;
- if the latter has two usual homes, it will then be necessary to position himself on his vital interests (the most pronounced personal and economic ties);
- if the latter does not have a residence and does not habitually stay in either country, the tax residence will be that of his nationality.
As a reminder, the notion 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 that come from Canada will be taxable in France.
Thus, this article will help you shed light on the Tax Convention if you are a French citizen with his 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 due to the criteria mentioned you are a tax resident in Canada, income from real estate located in France will be taxable in France. As such, even if you are the owner of shares in real estate companies and not of a property, as long as the ownership of these shares gives you the enjoyment of the property you will then be taxed in France.
On the other hand, if the shares and shares 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 taxed in Canada from a French company 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 related to a professional activity carried out in France (industrial, commercial or independent profession) then in this case, the taxes on these dividends will only be payable in France.
Income from movable capital of every kind
If you are a tax resident in Canada and you receive interest on French debts you are taxed on this income in Canada.
However, as for dividends, this interest will also be taxable in France (tax which will be limited to 10% of the gross amount of interest), except in the hypothesis is linked to interests of public companies or States.
Similarly, if this income is linked to a professional activity carried out in France (industrial, commercial or independent profession) then in this case, the taxes on these dividends will only be payable in France.
Royalties
All remuneration resulting from an intellectual and / or industrial property right (e.g. copyright, patent, trademark, manufacturing process, computer coding etc.) will be paid in the beneficiary's country of residence. However, here again, if you are a tax resident in Canada and you receive remuneration from royalties from 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 where the royalties are derived from copyright, the use or licensing of computer software, patents or 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 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, shares or rights of a company whose asset consists mainly of real estate located in France, then gains from the sale of such property or 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 enterprise.
Self-employed occupations
If you are a tax resident in Canada but you continue to practice an independent profession in France, you will continue to pay taxes on 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.
Income of employees
If you are a tax resident in Canada and you receive income from paid employment in that country then you are exempt from French taxes.
There is still an exception: if you are employed as an employee with a Canadian company that you work physically 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 burden of remuneration is not borne in France (through a permanent establishment for example)
French pension in the private sector
As regards pensions and remuneration paid for paid employment prior to the change of tax residence in France (excluding work in the civil service), are in principle taxable only in the State from which they come, in this case in 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 the risk of old age.
Annuities from France are also taxable in France.
Wealth tax
If you are a tax resident in Canada but you own real estate not related to a professional activity in France and whose amount makes you liable for wealth tax in France, you will then have to pay it. Wealth derived from shares, shares or rights in a company consisting mainly of immovable property located in France is also taxable in France.
Nevertheless, if you hold shares or shares of a corporation entitled to at least 25% of the profits of a Canadian corporation, the wealth derived from those shares and units will be taxable in Canada.
Exchange of information
The two States have undertaken to exchange information that is not limited to the taxes covered by the Convention.
To learn more about what the Tax Convention provides for companies, you can refer to the article "Focus on the Tax Convention 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