What is the expatriate tax regime (in France also known as “Régime Des Impatriés”)
According to French authorities website, the expatriate tax regime in France can be summarised as follows:
The tax scheme for expatriate employees provides for partial tax exemption for part of the income, expatriation bonuses and compensation related to assignments carried out abroad of foreign employees and senior managers taking up positions in France. It also provides benefits in terms of liability for property wealth tax (IFI).
To bolster its appeal, this temporary regime (maximum of eight years in addition to the year of arrival in France) has been enforced and completed. There is now an exemption on payroll taxes.
Under the special regime, expats seconded to France, satisfying the residency requirements are able to exempt from French tax certain compensation items which can be identified as relating to the assignment to France.
This could include a cost-of-living allowance, housing cost reimbursements, children’s school fees, tax equalization payments, etc.
These are essentially payments / benefits the employee is receiving directly as a result of the assignment to France.
The exemption from income tax also applies to a portion of the salary provided as a premium for accepting the transfer to France.
This is commonly referred to as the “impatriation bonus”.
Lastly, an expatriate is also able to exempt remuneration which can be apportioned to duties performed outside of France but for the benefit of the French host company.
Eligibility requirements for the French expatriate tax regime
The main requirements to be eligible for the expatriate tax regime are:
- not to be resident in France for the past 5 tax years prior to the assignment; and
- never been a tax resident in France before; and
- to be French tax resident during the year(s) in which the special regime is claimed; and
- recruited directly from overseas by a company established in France; or
- called upon to work for a limited period in a company based in France (this includes employees seconded or made available within the framework of intra-group mobility, for example, from a foreign parent company to its subsidiary established in France)
In addition to these main requirements, the employee’s base salary (that is, without the additional benefits / allowances mentioned earlier) should be at least equal to the pay of a local employee in the same or equivalent roles in the French company or in other similar companies in France.
Expatriate employees who do not have separately identifiable compensation items over and above the base pay, can still benefit from the régime des impatriés.
In these cases, the employee can apportion up to 30% of their remuneration as an implied “impatriation bonus”.
The remaining remuneration must still be at least equivalent to the salary of a local employee in an equivalent or similar role in France.
Of the remaining remuneration after apportioning to the “impatriation bonus”, the employee can then apportion up to 20% of this compensation as relating to duties performed outside of France for the benefit of the French company.
This has to be apportioned in a reasonable manner, most commonly by a days worked in / outside of France.
Applicability period of the expatriate tax regime in France
The duration of application is set at most until December 31 of the eighth calendar year following the taking up of duties in the host company in France.
This duration of application allows, for example, a person taking up his duties in France on January 1, 2020 to benefit from the scheme until December 31, 2028, i.e. in total for nine years.
Régime Des Impatriés application process explained
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.
However, most tax consultants / payroll experts in France will need to see the remuneration package and items which are to be exempted clearly identified so they can ensure they are exempt in the payroll.
The employee will also have to indicate the amount of their remuneration which is exempt from income tax in their French Tax Return and the basis for this exemption.
We would strongly encourage companies to draft the French employment agreement (or assignment letter) for their employee so that it clearly separately identifies the additional remuneration items which can be subject to the exemptions mentioned above.
This will provide an easier evidence base for supporting the exemption when the employee claims this which is going to be particularly useful in case of a tax audit by the French tax authorities.
Furthermore, in order to benefit from the regime, the taxpayer must request its application in his French tax return at year-end.
Moreover, the taxpayer will have to submit a document called “mention expresse” specifying the choice for the 30% option and the number of days worked abroad (if any).
Practical example illustrating how the impatriate tax regime in France works
An employee taking up his duties in France in January 2020 can claim the benefit of the scheme from the taxation of income for the year 2020 if he sets up his home in France no later than December 31, 2021.
If he sets up his home in France after this date, he will not, however, be definitively excluded from benefiting from this regime.
He will be able to claim it for income received from the year during which the move takes place.
For example, if he took up his duties in January 2020, but sets up his home in France from March 2022, he will be able to benefit from the scheme for income received since January 1, 2022 and, at the latest, until January 31, 2022.
Expatriate Tax Scheme In France FAQ
What is considered Tax Resident in France?
There are several cascading measures of tax residency in France.
Nationality by itself is not the primary measure. So the dual nationality does not automatically invalidate the eligibility of an individual for the expatriate tax scheme.
The primary measure is whether the employee has been maintaining an habitual place of residence in France.
This is not necessarily where they own a home, but more where their family resides (spouse and dependents).
Clearly, owning or renting a home is contributory to this, but it comes down to where the employee habitually goes home to.
If this measure is not determinative, perhaps because the employee is not married and travels significantly and owns / rents a home in more than one country, the authorities will look at where their economic centre of interest lies.
Where is the employer located, which office does the employee work from, where do they hold investments, etc.
If neither of these measures are conclusive, it may then come down to nationality, and in this case because of dual nationality, there may be a requirement to invoke an international tax treaty.
This is why in some cases it is difficult to state whether the expatriate tax regime exemption will apply for an individual without a more detailed analysis of their circumstances.
What happens if the employee changes position or company?
Workers remain eligible for the tax regime for expatriate employees even if they change position within a group of companies based in France or change company within the same group whether to carry out similar duties or not.
The scheme ceases to apply though if the employee leaves the host company before this term, even if he remains resident in France for tax purposes.
Are there any risk in connection with the special expatriates tax regime in France?
Individuals should be aware that the applicable expatriate tax regime is the one in force at the beginning of expatriation.
Subsequent favourable legislative amendments on that regime are not available for the individuals already residing in France, even if there are still benefiting from such a regime.
Therefore, attention should be paid, during the entire length of the regime applicability, to the rules in force upon arrival in France.
Is it possible to benefit from the inpatriates tax scheme even if I work for a public organization in France?
No. Unfortunately, the scheme is only available for employees / managers of private companies.
Is it possible to benefit from the Régime Des Impatriés if I work as a contractor / self-employed?
No. Unfortunately, the scheme is only available for individuals who have an employment contract / secondment letter with a company.
Have any concessions / adjustments been made to the expatriate tax regime as a result of Covid?
We are not currently aware of any special arrangements as a result of Covid for people spending more days than they intended to in / out of France.
Is the process started by the employer or the employer?
The employee, via the French tax return, reports in box 1DY and/or 1EY, the fraction of remuneration which benefits from the exemption.
Is it the expat tax scheme retroactive?
Unfortunately, it is not possible to adjust beyond the last tax year of filing.
However, if the conditions of the expat scheme were met and an individual did not benefit from it, he / she can still benefit from it in the current and future tax years.
Does the Visa used to work in France impact the expatriate tax regime?
No. It does not.
Contact us should you require further clarifications on the expatriate tax regime in France (Régime Des Impatriés) and/or have a look at some of the other insights we have published