Since 1 January 2019, the amounts received by French employees for working overtime can be exempt from income tax, up to an annual ceiling of €5,000 net.
Due to the COVID-19 crisis, this amount was raised up to €7,500 for overtime work accumulated between 16 March 2020 and the end of the health emergency state in France. However, the exempted remuneration for overtime outside of the health emergency state shall not exceed the €5,000 ceiling.
The question arises as to whether or not this measure of tax exemption for overtime applies to cross-border workers, in particular French employees working for Monegasque employers.
A French ministerial reply (known as the "Reitzer reply"), published in the Journal Officiel on 22 December 2020, provided clarification on the subject, and appeared almost untouched in another ministerial reply, published on 9 March 2021.
The French Minister for the Economy, Finance and Recovery thus confirmed that the tax exemption (including the increased ceiling of €7,500 for the period concerned) for overtime work of cross-border employees is applicable:
- to persons residing in France and working in Monaco;
- to French nationals who reside and work in Monaco and who, unless they hold a certificate of tax domicile, are subject to income tax in France by application of the 1963 Franco-Monegasque tax convention;
- for overtime hours worked by employees in excess of the legal working hours in the State where the activity is carried out, i.e. 39 hours for Monaco.
Thus, beyond the conditions linked to the employee's status as a tax resident, the conditions of a strictly employment law nature must be assessed, as to the existence in the first place of overtime according to the criterion of Monegasque law.
Steps to be taken & attention points for employers
In order to benefit from this exemption, French employees of a Monegasque employer will have to add to their income tax return filed in France, a self certification on their honor, as corroborated by a certificate from their employer, of the amount of overtime work.
Before establishing such certificates to their employees, Monegasque employers shall carefully assess its scope, not only from a tax point of view, but first and foremost with regards to the requirements and constraints of Monegasque employment law.
Indeed, far from only serving the purpose of exempting employees from income tax under French law, these certificates have evidential value as to the existence of overtime work according to the criterion of Monegasque law, as recently confirmed by Monegasque courts at the expense of unwary employers.
In this respect, the conditions for recognition of overtime work may differ in Monaco compared to other jurisdictions, constituting a significant risk factor for Monegasque employers.
It will therefore be necessary to assess and verify whether the remuneration received, and the subject of the certificate requested, actually corresponds to overtime work, both in terms of its effectiveness and its amount.
Employers will have to analyze if the overtime hours have:
- actually existed and can be proven, by a statement set per calendar week mentioning for each week:
-
- the total number of hours actually worked over 39 hours
- the applicable basic hourly rate
- the additional hourly rate
- were worked either with the explicit agreement of the employer or with his implicit agreement, resulting from:
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- an extraordinary increase in workload, or
- a control within the framework of his power of direction, having thus been endorsed
- were carried out without any requests.
If the above criterion are not met, the hours worked may not constitute overtime, so that confirmation of their effectiveness by a Monegasque employer would be problematic and may cause risks.
Retroactivity to 1 January 2019
Although the French Minister did specify that the tax exemption measures apply to cross-border workers only as of 22 December 2020, they are able to benefit from them since 1 January 2019.
Cross-border workers who have not requested the exemption of the amounts received in respect of overtime in the 2020 return relating to their 2019 income could request it from their Monegasque employers in order to obtain reimbursement of the overpayment, by way of a contentious claim.
The issuance of such certificates for the past should also be carefully assessed by Monegasque employers, in order to verify that the conditions of employment law in our jurisdiction are indeed fulfilled, insofar as the possible risks for the employer are subject to a five-year statute of limitations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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