July- August 2016
The vote held on June 23rd in the UK is on my mind tonight and overshadows everything else. This title sums up what the EU is going through. After 40 years of being in a relationship, even a bad one, splitting is always very painful and destructive. It takes a long time to establish a new balance
So even if the latest news does not make it easy, I would like to wish all of you a great summer and a very nice vacation.
Normally I never react right away to current events, but this is way too big not to make an initial analysis. Most comments are extremely negative and I share the view that it is going to be a lot worse for quite a while before it gets any better. Now I also believe that it could be a blessing in disguise. The EU must move forward after decades of staying the same in terms of creating a federal country. The UK was the main resistance to this. There could be a chance once the turmoil is over to bring back the EU vision of the1970s. I remind my readers that the UK joined the EU in 1974!
The reason Brexit is so painful to me is that the British people voted without understanding what they were voting for. They did not realize how false the anti-Europe slogans were during the campaign and how strong and solid the ties were within the EU, including the UK. They have now lost so much, certainly a lot more than they will ever gain. The rest of the EU, and especially what I consider today's beating heart of the union – Belgium, Netherlands, Germany, Luxemburg, France, Italy, Spain and Portugal – will never depart.
A little background might be useful here. From Wikipedia: "The European Coal and Steel Community (ECSC) was an international organisation serving to unify certain Continental European countries after World War II. It was formally established in 1951 by the Treaty of Paris, which was signed by Belgium, France, West Germany, Italy, the Netherlands and Luxembourg. The ECSC was the first international organisation to be based on the principles of supranationalism, and would ultimately lead the way to the founding of the European Union." I cannot imagine what it would be like to erase 60 years of living together.
FRENCH ESTATES AND SPLIT OF OWNERSHIP
In the USA, setting up a trust is quite common when one wants to settle his or her own estate while still alive. The key to the success of this process is, I believe, the fact that the rules and the beneficiaries are clearly defined. There is great peace of mind in knowing that everything is well organized.
French law does not have the same legal tool, and tradition favors two completely different legal mechanisms: indivision and démembrement de la propriété.
Under French law all the children must get the same amount of net assets. When it is difficult to sort this out, the assets are either sold and the money is split (démembrement), or each one becomes owner of his/her portion (démembrement - indivision). I believe the weakest point of the latter set-up is that if one wants to leave, he/she has priority over the others, as expressed by the legal concept nul n'est tenu à l'indivision,meaning that no one can be forced to stay in the joint ownership. Since there are no defining rules for the daily management of this arrangement – and no trustee – it often happens that as time goes by the heirs reach a point of disagreement and if the others cannot buy out the dissenter, the property is sold.
The another way of addressing split of ownership of an estate is the démembrement. The Latin-derived word used is usufruct in English, usufruit in French (from usus, the right to use, and fructus, the right enjoy the "fruit" or benefit of the property, e.g. by collecting rent). The split is between a person who holds the title but has no other rights, a concept called bare ownership or nu-propriété, and another person who has full use of the property, which means either living in it or renting it out.
Unlike the previous situation, it is impossible to get out of this situation unless both parties agree to sell their respective rights together. That is, the bare ownership, i.e. the title, can be sold but it stays just as "bare" of other rights for the buyer. But the usufruct is attached to one designated person and cannot be passed on to anyone else.
Problems often occur when upkeep, renovation or repairs need to be done. The law states that daily upkeep and small repairs go with the usufruct, and structural repairs and renovation go with the "bare ownership". One can immediately see that there might be some disagreement between these two people regarding the definitions of small repairs and structural repairs.
Recently the Cour de Cassation ruled on this issue, stating that, for example, changing the front door, the gutter, the WC, or the shutters is linked to the usufruct. To avoid lawsuits, the parties are now advised to draw up a contract that is very similar to a lease defining the rights and obligations of both parties, thus avoiding interpretation of the law specific to the matter.
About a year ago, the law changed and foreigners living in France now can choose the law of their country of citizenship to govern their estate. What I have described above may be a good reason to choose a legal regime other than that of France. It might also be advisable to speak to a notaire about the matter.
NEW REGULATIONS REGARDING MANDATORY SCHOOLING IN FRANCE
As in most Western countries, there is an obligation to school children in France between ages 6 and 16. The parents are responsible for making sure the schooling occurs, but the choice of how it happens is up to them. There are in effect four types of schooling in France:
- Public school
- Private school with a contract with the state
- Private school without a contract
- Public school, as its name implies, is run by the government; the teachers and everyone else working there are civil servants. They must do exactly what the Ministry of Education rules.
Some private schools have signed a contract with the state, and therefore are more or less government-monitored. Their teachers are paid by the state and they must have education and diplomas meeting government standards. Their teaching is monitored by the state regarding the topics for each grade. The main difference is generally that religious instruction is included on top of the school curriculum, and there may be a slightly different orientation in the teaching methods, some philosophical or religious views, and so on.
Until very recently, private schools without a contract, had no interaction with the French administration. For a long time such schools had only to send a note informing the government of their establishment and that was that. Neither the teachers nor the curriculum were verified. Now, however, new regulations have changed this: the school must obtain government approval, which means presenting the teachers, the staff, the curriculum for each grade, and so on. Time will tell how much control is exercised and how rigid the requirements will be.
Homeschooling was unheard of in France until recently. I am sure it always existed but on a minimal level, and there were objective reasons for that: the authorities did not see it as a threat. Also, when it did happen, it was done through the Centre National d'Education à Distance, a division of the Ministry of Education.
On June 9th, however, the Ministry of Education, in addition to cracking down on non-contract private schools, warned that homeschooling might be limited as well. Its reasoning is that a growing segment of the population has radical views that are incompatible with the French way of life, and that children educated at home are in danger of being taught dangerous views. Many people might immediately think of radical Muslims and terrorism, but while it is true that this danger exists, today all three monotheistic religions have among them radical groups that refuse to accept the authority of the state, preferring allegiance to their religious beliefs.
My concern is that a wide range of alternative schooling methods be preserved. Some, like Montessori, are not recognized by the French authorities, which I find odd; thus, they cannot sign a contract with the government. This type of school should easily be approved. I worry that the government is taking too narrow a view of the situation and treating proven methods of education the same as schooling by religious extremists and cults only because they differ from the traditional approach. Still, the statistics make it clear that the number of parents choosing the "Montessori type" of schooling is growing, so this issue should be addressed and these schools should be fully recognized.
A BIG STEP FOR MY PRACTICE
The family-owned SARL A Survival Kit For Paris now officially exists and has a bank account. It is premature to switch my complete accounting over to this account as long as I stay in the current office at 7 rue Ganneron. Therefore I do not yet accept payment in that name, but for me it means everything is ready to transition to the new set-up.
INCREASE OF MY FEES ON OCTOBER 1st 2016
It has been about six years since my fees last increased. On October 1st, I will raise my initial retainer from 250€ to 270€ and the hourly rate from 100€ to 110€.
MY OFFICE WILL NOT CLOSE DURING THE SUMMER VACATION
Since my office situation has not been resolved and I do not anticipate being able to move before August or early September, I am not planning any vacation time and do not expect to go away for any length of time this summer. Depending on the outcome of my office search and how quickly it proceeds, this could change some – but not much, considering the fact that any changes would be last minute.
FRENCH SHORT-TERM RENTAL AND PRIMARY RESIDENCE
We moved to Paris a few months ago from the USA on a visitor visa. While staying in a short-term rental, we tried to rent long term in Paris and it ended up being a complete mission impossible. Even when we offered to set aside six months or even a year's worth of rent, we were only offered leases that stated that this would be our secondary residence. So we gave up and agreed to sign the one that seemed to be best protecting our interests. We might be buying an apartment in a few years or even sooner so we are determined to stay in France, but can we be thrown out of our current apartment in a year or less?
Regarding lodging and tenants in France, in most cases the lease is less important than which law applies to it. The key reason is that French law heavily protects the concept of the primary domicile. The main consequence is that fewer and fewer landlords offer the barewalls lease that grants automatically the protection of the primary residence and they try to impose the secondary residence furnished apartment lease whenever possible. You have the exact profile that landlords like, since you are a newly arrived foreigner and you may not be a French fiscal resident, which makes it easy for you to accept the status of a secondary residence.
Even though it is a huge deal as it excludes you from the primary residence protection, it is possible to significantly diminish its impact for you.
The very first reason is that you wish to buy an apartment in Paris in the near future and therefore it is quite possible that this lease might not have to be renewed. A lot of the issues related to primary versus secondary residence arise when the lease needs to be renewed, or when the rent is increased, either of which means staying more than a year. The probable length of the rental protects you from being bothered by these issues.
The second reason is that the true nature of the lease does not depend on the landlord but on you. You state that you want to stay permanently in France. I assume from this that you will soon be French fiscal residents, which means staying in France more than six months per calendar year. It is even possible that by the end of this first year, you will have been in France more than six months, so that next May you will declare your worldwide income to France. Ordinarily you should not pay any income tax, or any taxes based on the amount of income you have received during the year. On the French tax form called #2042, the first page is mainly about where you live, whether you have moved, do you own a TV and so on. Sometime in late August or early September of next year, you will receive a tax document showing your taxable income as calculated by the French tax authorities and the amount of tax you should pay, which should be zero. Once you have this document, you can prove that the apartment is your primary residence. Your taxe d'habitation, the local residence tax, will be calculated as the tax due for primary residence. So, should there be any discussion between your landlord and you about your status in the apartment, very quickly, within two and a half years, you will have two different tax documents proving this status. This will stop the discussion.
The main consequence of obtaining the primary residence protection is the strict limitation of the landlord's rights. For example, in order to give you notice to vacate on the anniversary date (which requires a six-month notice), the landlord has only three possibilities to make it possible:
- He wants to live there or wants his children to live there
- He wants to sell the apartment untenanted, in which case you have the right of first refusal
- The apartment needs so much renovation that you are better off moving to a different place.
Another consequence is that any rent increase is defined by a government ratio, the indice de référence des loyers. So, as you can see, the law will supersede some of the most critical provisions found in the secondary-residence lease once you establish that this is in fact your primary residence.
Another welcome consequence is the way you will need to prove your address at the prefecture. At first the lease might be enough, as it was signed less than three months before. After that, the homeowner's insurance policy will be the only document you have if the monthly payment of rent and charges includes everything, especially the basic utilities (gas and electricity). But once you have your avis d'imposition in your hands, you can challenge the landlord and put the utilities in your own name. Yes, it will mean that you are de facto increasing the rent more than what the law authorizes, but considering how important utility bills are as proof of residence, many people consider this to be worth it.
This evolution can easily be accomplished with a one-year rental contract that is renewed automatically. It is a tad more difficult with a non-renewable lease, since every year you are signing a lease that this is a secondary residence. That said, the abovementioned French tax documents prove that your apartment is your primary residence. It is just that the chances of the landlord having a massive fit regarding the change from secondary to primary residence are quite high. The only leases that will prevent this from happening are very short-term rental contracts, which are final because such contracts are never meant to allow the tenants to stay in the place past the end date of the contract.
This illustrates very well the power the tenant has in the relationship and therefore validates the landlords' fear that they will lose control over their apartments.
As for the substantial wait for an appointment, it depends on a lot of factors; my experience is that lately carte de résident holders get their renewal appointment several months after the date of request and the process of issuing the card also takes a long time. So be ready to hold a récépissé (periodically renewed) for up to a year. It might feel unsettling, and you might be anxious to get it over with, but there is no way I know of to speed up the process and the prefecture is good about keeping you documented. You have to trust the system, which means trusting the prefecture, if you want to go through this with some peace of mind.
REGISTERING A SMALL BUSINESS IN FRANCE SINCE URSSAF CHANGED REGULATIONS ON MICRO STATUS
I obtained a professional immigration visa at the French consulate in Atlanta, as I work in the advertising industry mainly for fashion companies. After a few trips to Paris, I made enough contacts to try relocating in France. After I arrived I found out that I cannot get the professional status I want. I know that my business is going to grow slowly and it might take several years before I exceed the 32,000€ billing limit of the micro BNC income tax status. But I found out by going to URSSAF that the only way I now can get this fiscal status is by signing up for auto-entrepreneur fiscal status. Then I called the prefecture and found out that my visa does not allow me to choose that status and I must stay with the traditional BNC, which means paying TVA, keeping books and therefore hiring a French CPA to do the year-end declarations and so on. I feel like I have been cheated by the system. Can this be fixed or am I really to be penalized and have to accept this full-grown business status, which is costly and cumbersome?
In the April 2016 issue I described this change and the possible dramatic consequences it may have for people like you. Now I need to explain exactly what happened.
The micro status defines the amount of profit as a ratio of the sales made during the year. Profession libéralehas a limit of 32,900€ in sales and profit equivalent to 65% of sales. For a commerçant the latest limit is 82,200€ in sales and profit of 29%, and for an artisan it is 32,000€ and 50%. The auto-entrepreneur fiscal status, using these same limits, came into effect on January 1st 2009, and was a huge success right away.
So for seven and a half years, these two varieties of legal status have existed side by side: micro BNC/BIC andauto-entrepreneur. This was great, since it allowed non-EU citizens living in France to develop businesses following prefecture guidelines – although prefectures consider auto-entrepreneur to be similar tocommerçant-artisan, making it extremely difficult for anyone working in a profession libérale category to obtain a carte de séjour as an auto-entrepreneur.
On January 1st 2016, URSSAF put an end to the micro regimes, leaving only the auto-entrepreneur status. This really hurts non-EU foreigners, who are now stuck with the impossible choice between auto-entrepreneur(thus incurring the wrath of the prefecture) and the régime réel, the fiscal status corresponding to higher revenue, with annual sales of more than 32,900€; it requires dealing with the French value-added tax (TVA) and itemizing expenses.
That explains what happened to you. Most people only know one way to register for self-employed status in France: going to URSSAF and submitting the form called Pzero (Pø), then starting a succession of registrations – first with INSEE (the national statistics office), then with the tax office, the professional office, RSI for health coverage and CIPAV for retirement. As URSSAF is in effect the "gatekeeper" for these, you are forced to comply with its regulations.
However, there is a loophole. The tax office has the right to accept the Pø and start the registration of the business. It is not bound by the URSSAF regulation and can register you as profession libérale micro BNC. All it does is pass this information to INSEE, not to URSSAF. That means you must submit the Pø again, this time to URSSAF, and when you do, you fill it out choosing the régime reel.
Here is where it gets interesting to you: when the tax office receives your documents from URSSAF, it dismisses them, as you already have your account with them; same thing happens with INSEE. RSI and CIPAV get your file at about the same time. Since they calculate the social charges they collect based on the amount of profit you make, the system does not get blocked even though you have a status that supposedly no longer exists for URSSAF.
The only drawback to this plan is that when you go to the prefecture to get an appointment to submit yourcarte de séjour request, the appointment often is about two months later, sometimes three (but not more, as the récépissé that you obtain at this time, which allows you to register your professional status is only valid three months). This is barely enough when the registration goes through URSSAF first, and it is completely insufficient if you want to start with the tax office, since there are two registrations before it reaches RSI. The consequence is that you may need to have all the documents the prefecture expects you to have. The absolute minimum you can show will be:
- The Pø
- The INSEE statement that your business is registered
- The RSI statement that you are registered and therefore have health coverage
- Now, this is the list you will have received from the prefecture:
- Justificatif de couverture sociale, i.e. proof of health insurance coverage. To comply, you must bring the registration statement, another one showing that the coverage exists, and the invoices showing that you are paying into the system.
- Justificatif de l'inscription et du versement des cotisations à l'URSSAF, à la Maison des Artistes (pour peintres, sculpteurs, graveurs, dessinateurs, graphistes) ou à l'AGESSA (pour écrivains, auteurs dramatiques, musiciens, chorégraphes). This is proof of being registered in the "social charges" system. To comply, you must bring your Pø, the acknowledgement of the registration, and the invoices showing that you are paying into the system.
- Inscription au rôle de la taxe professionnelle, proof that you are registered with the tax office as a professional. To comply, show the welcome letter that gives your status with the tax office, plus the questionnaire regarding the contribution foncière des entreprises.
- Attestation INSEE, the statement from the French statistics agency officially giving your tax ID number (numéro SIRET) and the code related to your activity (code APE - code NAF).
Clearly you lack a lot of those documents; furthermore, you should have opened a second bank account for professional use and issued a few invoices. Either the prefecture agrees that you can prove the absolute bare minimum, whereupon your business is registered, you are covered for health and you qualify for the carte de séjour profession libérale on the spot, or it is insufficient and they give you an appointment in about two or three months, enough time to finish the process and obtain the other documents mentioned above.
Clearly, one needs cold blood and iron nerves to choose this solution, as it makes impossible to comply with the requirements of the prefecture, but it is can be done.
Please forward this message to all those who would be interested in its contents. The information contained in this newsletter is intended only as general information. I strongly urge readers to seek professional guidance concerning the legal and tax matters mentioned. This newsletter is intended as a general guide and is not to be taken as professional advice.