Tax regime for expatriates

Tax regime for expatriates

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A special expatriate exemption scheme exists to help attract company directors and employees to France by providing partial income tax exemption, subject to certain conditions and for a period of up to eight years.

 

Eligibility

 

Eligible employees and company directors of any nationality called upon to work full-time in a permanent or temporary position for a company established in France.


In addition to employees, the following types of company director are eligible for the scheme:

  • Within a société anonyme (SA) or société par actions simplifiée (SAS):
    • Chairman of the Board.
    • CEO.
    • Deputy CEOs.
    • Non-executive directors with temporary delegation.
    • Members of the executive board.
    • Any non-executive director or member of the supervisory board with special responsibilities.
  • Within a société à responsabilité limitée (SARL): Any directors who are minority or equal shareholders.
  • Within other companies or establishments subject to corporate tax (impôt sur les sociétés – IS): Any directors who are considered as employees from a tax perspective.

 

To learn about the different legal structures, please have a look at the guide Doing Business: Succesfully setting up in France

 

Helpful tip: This special expatriate exemption scheme is designed not only for people recruited abroad by a company established in France but also for those called upon by a foreign business to work for a company in France.

Conversely, people coming to fulfill a position in France having changed their domicile at their own initiative are ineligible.

 

 

Conditions of the scheme

 

To be eligible, beneficiaries must fulfill two conditions:

  • They must not have been a tax resident in France during the five years prior to the date they take up their post within the company established in France.
  • They must be resident in France for tax purposes during the year in question.

 

Helpful tip: These conditions must be fulfilled within the same calendar year. Where this is not the case, beneficiaries lose their entitlement in that year alone, with no effect on previous or future years.

 

Validity period

 

The validity period of the special expatriate exemption scheme was extended from five years to eight years for eligible employees and directors assuming their new positions from July 6, 2016:

  • Those assuming their positions before July 6, 2016 are eligible for the scheme until December 31 of the fifth year following the date they take up their post.
  • Those assuming their positions on or after July 6, 2016 are eligible for the scheme until December 31 of the eighth year following the date they take up their post.

Advantages

 


Exemption on items of remuneration from professional activity

 

Additional expatriation-related remuneration

 

The part of the beneficiary’s remuneration directly related to expatriation, i.e. “expatriation bonus”, is exempt from income tax. Other pay components are not affected.

The actual amount of the bonus must be stipulated in the employment contract or terms of appointment.

Furthermore, exemption from income tax on expatriation bonuses may be full or only partial, and is subject to the following condition: the beneficiary’s net taxable income (excluding the bonus) must be at least equal to the net taxable income received by employees fulfilling similar roles in the company (« Rémunération de référence »).

If this is not the case, the difference between the two pay packages must be reintegrated into the expatriate’s net taxable income.

Employees may provide the beneficiary with a declaration explaining this comparison to prove that the condition has been met.

 

Helpful tip: The variable part of the expatriation bonus also counts towards these calculations.
 
 
Remuneration corresponding to an assignment performed abroad

 

Eligible beneficiaries of the special expatriate exemption scheme may also receive exemption from income tax for the part of their remuneration (basic salary and additional remuneration) corresponding to work performed abroad.


Exemption is subject to the trips being made outside France for the “direct and sole” interest of the company established in France where the beneficiary is working full-time. Proof of this may be furnished by providing details of expenses claims, travel orders or tickets.

 

Helpful tip: To calculate how much of the beneficiary’s remuneration may receive exemption from income tax, days worked abroad may be counted and compared with the number of days effectively worked during the year. It may be useful to keep a day-by-day record

 

 

Capping

 

Income tax exemption on specific items of remuneration from paid employment is subject to a cap.


Every year, eligible employees and directors may choose between two capping options, depending on whichever is more advantageous in their case:

  • Either an exemption on additional expatriation-related remuneration (expatriation bonus) and the fraction of remuneration corresponding to work performed abroad is calculated and capped at 50% of all net income;
  • An alternative option upon request, whereby only the fraction of remuneration relating to work performed abroad is exempted, up to 20% of net taxable income, excluding expatriation bonuses.

 

Other exemptions

 

Eligible beneficiaries of the special expatriate exemption scheme may also claim income tax exemptions on:

  • Many mobility-related allowances (e.g. payments for a reconnaissance trip, agency fees, moving fees and travel costs, etc.).
  • Half of all income from securities, capital gains from transfers of shares and ownership interests. Payment of the sums in question must have been made by a person established outside France in a country that has signed a tax treaty with France containing an administrative assistance clause.
  • Social security contributions paid to a scheme in a foreign country: contributions paid into statutory social security schemes, as well as supplementary pension and life insurance schemes, may be deducted from taxable income.

Furthermore, eligible beneficiaries are only subject to pay the wealth property tax (impôt sur la fortune immobilière – ISI) on their assets located in France for 5 years.

 

Helpful tip: The items of remuneration affected by the special expatriate exemption scheme are now also exempt from payroll tax (taxe sur les salaires). This extra tax break for employers only applies to remuneration paid out from January 1, 2017.

Changing jobs


The special expatriate exemption scheme continues to apply when the employee or director changes jobs within the same company or to another company within the same group, whether this is to fulfill a similar role or otherwise.


The scheme’s validity period may not be extended through a change of job, and remains limited to eight years at most.

In practice

 

For employees and eligible directors

 

The special expatriate exemption scheme applies statutorily to all eligible employees and directors and does not therefore involve any preliminary procedures with the French tax authorities.

Eligible beneficiaries should indicate the amount of their remuneration which is exempt from income tax in their Income Declaration Form no. 2042.

Their preferred capping option should also be indicated in the “autres renseignements” (“Other information”) section of the same Income Declaration Form no. 2042.

 

For employers

 

When completing their annual employment declaration (DADS), employers should provide:

  • The amount of payroll subject to income tax.
  • The amount of payroll exempted in the box marked “somme exonérées au titre du régime des impatriés” (“sums exempted under the special expatriate exemption scheme”), by indicating the total amount corresponding to the sum of all expatriation bonuses and fractions of remuneration received for work performed abroad

 

Further information

 

The Tax4Business help desk service, run by the French government’s Public Finances Directorate (DGFiP), is a single contact point for all tax queries involving foreign nationals.


The help desk can be contacted by email at the following address: tax4business@dgfip.finances.gouv.fr

Please do not hesitate to get in touch with us by using the contact form