Avoiding double taxation: tax credit, effective tax rate

When the same income is taxable in two countries, the tax treaty between France and the other country determines how France avoids double taxation. There are two methods: tax credit, and exemption, where the effective tax rate is applied. The tax credit is capped. With the effective tax rate, exempt income is still taken into account when calculating the tax on your other income. The method that applies to your income is specified in the relevant tax treaty.

What this page does not cover

• Details of each agreement. Method, rates and target incomes vary from country to country: this page gives the mechanism, not the answer for a country.
• Social charges. The brochure states: "French tax refers to income tax plus social security contributions." The BOFiP (Official Bulletin of Public Finances) deals separately with taxes levied on non-residents. This page does not elaborate on this point and does not publish any rates: verification should be done with the relevant sources.
• Proof of foreign tax liability. The official pages consulted do not provide a list.
• Wealth tax and inheritance tax.

The references are the BOFiP (versions indicated below) and the practical guide to income tax 2026. The BOFiP specifies that its developments are only indicative and must be supplemented by the examination of each convention.

The two paths provided for by the convention

The BOFiP (French Official Tax Bulletin) indicates that eliminating double taxation "can be considered according to two principles." The brochure discusses two methods: offsetting the tax liability with a tax credit, when the income is taxable in France, and exemption. The BOFiP refers to legal double taxation, that is, the case where the same person is taxed on the same income.

For dividends from foreign sources, the BOFiP indicates that most conventions provide for the allocation of a tax credit corresponding to the foreign tax collected in the State of source.

The tax credit, by far

Credit equal to the tax paid abroad

The brochure states it this way: "The tax credit is equal to the amount of tax actually withheld abroad." It is limited to the amount of French tax corresponding to this income. The BOFiP (Official Bulletin of Public Finances) describes the same limit: the credit "will be limited to the amount of French tax calculated on the same income.".

If the tax credit exceeds the tax owed, the brochure specifies that the excess is not refundable. It adds that this credit cannot be offset against tax owed on other household income.

Credit equal to French tax

In this method, the BOFiP (French Official Tax Bulletin) provides for a tax credit equal to the French tax corresponding to foreign-source income, provided that this income was actually taxed in the other country. The amount paid abroad is not included in the calculation. The credit is calculated using a ratio:

tax credit = worldwide income tax × (net foreign-source income by category / net taxable income)

The brochure specifies that this tax credit is granted regardless of the amount of tax actually paid in the foreign country. It describes it specifically for rental income, business profits, salaries, and certain pensions. This income is declared gross on form 2047, without deducting foreign tax, and then on line 8TK of form 2042.

The exemption with effective rate

With the exemption, the country of residence does not tax income that would be taxable in the country of source. The effective tax rate rule corrects the effect of this exemption: its purpose is "to fully maintain the progressivity of the tax.".

The calculation follows three steps, according to the BOFiP:

1. The basic contribution is calculated on all income, including exempt income; ;
2. the tax due is the product of the basic contribution multiplied by the ratio between the income actually taxable in France and the total income used for the calculation; ;
3. The tax due is then adjusted for discounts, reductions and tax credits.

Two conditions govern this rule:

• A provision of the convention. Exempt income is included in the calculation "when there is a provision to that effect." The BOFiP describes this as an express provision of the agreement.
• A tax residence in France. The BOFiP (French Official Tax Bulletin) excludes this rule for individuals whose tax residence is not in France. In the event of a change of residence, it applies to income earned during the period of residence in France. The residency criterion is addressed on our page concerning Article 4 B of the French General Tax Code (CGI).

The BOFiP version dedicated to calculating the effective rate shows an entry into force date of 12/09/2012. This is the online reference text at the date of review; the BOFiP on the elimination of double taxation bears the date of 19/02/2020.

Where to declare

A person domiciled in France who has received income from a foreign source or received income abroad must complete form 2047. Income received in foreign currency is converted into euros according to the euro exchange rate on the date of receipt.

Salaries and pensions that are exempt but subject to the effective tax rate do not go through form 2047: they are only included on form 2042 C. For income from foreign movable capital, our page on form 2047 details the reporting lines.

Without agreement

In the absence of a tax treaty, the brochure indicates that the income is taxable in France. Regarding the CSG and CRDS social security contributions for non-residents, the BOFiP (Official Bulletin of Public Finances) addresses this topic in a separate section (elimination of double taxation related to social security contributions for non-residents) and notes that "no treaty obligation requires the country of residence to eliminate potential double taxation." This point depends on your specific situation: verify this before making a decision.

Elimination of double taxation: what changes depending on your situation

• The State of the source and its convention : chosen method, taxes concerned, ceilings.
• The nature of the income Dividends, interest, wages, property income, and profits do not have the same lines.
• Your tax residence : the effective rate assumes a tax residence in France.
• The amount of foreign tax compared to the corresponding French tax : it determines if a portion of the credit remains unused.
• The income of the rest of the household : the effective rate has an impact on them.

No results are promised.

Elimination of double taxation: numerical example (fictitious profile)

Situation. Marc is a French tax resident. He receives €60,000 in taxable income in France. A tax treaty exempts €20,000 of income from another country, which is taken into account for the tax rate. He also receives taxable income in France and abroad, for which the treaty provides a tax credit equal to the foreign tax. All the values below are hypothetical: no tax brackets, actual tax liability, tax discount, or social security contributions are used.

Issue. What is the effect of each mechanism on Marc's tax?

Strategy. Marc applies the BOFiP rule. For the effective rate: basic contribution calculated on €80,000, set by assumption at €16,000, multiplied by 60,000 / 80,000. For the credit: corresponding French tax set by assumption at €3,000, with two cases of foreign tax.

Result.

This profile is fictitious. The amounts are hypothetical and illustrate the mechanism; they do not predict your situation.