You have set up your own business and your clients are located both in France and across the border? A graphic designer based in Metz with clients in Luxembourg, a physiotherapist working in Moselle and Saarland, or a consultant who splits their working week between Mulhouse and Basel… More and more self-employed workers are operating “across borders” in two countries. This raises one question time and again: where do you have to pay your taxes? Here’s a simple overview.
The starting point: your country of residence
The first rule to remember is that the country where you live (your tax residence) generally has the right to tax all of your income, regardless of where it comes from. A self-employed person living in France must therefore generally declare all of their profits in France, including those earned abroad.
But does this mean the neighbouring country can never claim any tax? It can – and this is where tax treaties come into play.
The key question: do you have a fixed place of business in the neighbouring country?
France has signed a tax treaty with each of its neighbouring countries (Luxembourg, Germany and Belgium). These treaties are designed to allocate taxing rights between the two countries and prevent you from being taxed twice.
For self-employed workers, the key criterion is almost always the same: the existence of a fixed place of business (also referred to as a “permanent establishment” or “fixed base”). In practical terms, this means premises from which you carry out your business activities: an office, practice, workshop, shop, etc.
Two situations should therefore be distinguished:
You do not have premises in the neighbouring country. You occasionally work at your foreign clients’ premises, or work remotely from France? In this case, your profits generally remain taxable only in your country of residence, even if some of your clients are located abroad.
You have premises in the neighbouring country. Have you opened a practice in Luxembourg or rented an office in Germany? The profits generated by this establishment are then taxable in the country where it is located. The rest of your business activity (the part carried out from France) remains taxable in France.
One business, two countries: allocating profits
When you genuinely carry out your activity in both countries and have a fixed place of business in each, your profits are allocated between them: each state taxes only the share of profit attributable to the activity carried out within its territory. You must therefore be able to distinguish in your accounts which part of your business activity relates to each country.
What about double taxation?
The same income should not be taxed twice. Tax treaties provide mechanisms to prevent this. In practice, for a French tax resident, income already taxed in the neighbouring country may give rise to a tax credit or an exemption in France.
However, there is an important detail that is often misunderstood: even if these foreign income are exempt from tax, they must still be declared in France and are taken into account when determining the tax rate applicable to your other income (this is known as the “effective tax rate” rule). Declaring income does not mean paying tax twice, but failing to declare it can be costly!
💡 Good to know: taxes and social security contributions follow different rules
Do not confuse taxation and social security! While your taxes may be split between two countries, your social security contributions are generally payable in only one country.
When self-employed activities are carried out in two countries, European coordination rules determine which country is responsible for social security, based in particular on the proportion of your activity carried out in your country of residence.
This is a point you should definitely check before starting your cross-border business activity.
