Note on the special tax regime for expatriate employees and the conditions under which they are eligible for this special regime with other taxpayers who select domicile in France.
Taxation of expatriate employees – Impatriates employee
Article 155 B of the French General Tax Code (GTC) provides the possibility for expatriate employees in France to benefit from a special tax regime. The GTC provides number of conditions for the application of the “impatriation” scheme.
Scope of the General Tax Code – The conditions
- The status of the taxpayers
In application of article 80 ter of the GTC, there are a statute requirement to benefit of the impatriate regime :
– For public limited company Chief Executive Officer, the directors or members of the Supervisory Board, the members of the Management Board and the provisional managing director.
– For minority managers of limited liability companies.
– For all other companies or establishments subject to corporation tax, managers subject to the employee tax regime.
- Executive expatriation
The GTC requires, for those taxpayers to be called from abroad to take up employment with a company established in France for a limited period (in a maximum of 8 years). The expatriation may not exceed 8 years, in which the expatriate is considered as a resident in France for tax purposes. To be eligible, the expatriate must not have been domiciled in France for tax purposes in the 5 years prior to expatriation.
Consequences of impatriate employee status
- Impatriate workers taxation
Impatriate workers benefit from a special tax regime to the extent that they are subject to tax on the remuneration received directly in connection with their new position carried out in France.
Nevertheless, expatriates can still opt out for a taxation equal to 30 % of their remuneration received in France. Expatriates are granted by a continuity of this scheme, even though they are replaced for a new function in the same company, but also if they are replaced in a new company detained by the same group, if the new company is located on French territory.
Expatriates can also benefit, in case of a work trip in a foreign country, which implied a remuneration, only if this trip was directly and exclusively bound to the French employer interest. Expatriates will also be able to benefit from a 50 % reduction in the amount of income from transferable securities, income from patents or copyright, and gains from the sale of securities or company rights, paid from outside France or by a person residing in a territory bounded with France by a tax treaty including an administrative assistance clause to fight tax fraud.
According to the highest administrative court decision, the Conseil d’Etat, of the 21st of October 2020 (no. 444799), the exoneration of transferable capital provided by article 155 B of GTC point II, is not linked to an actual remuneration for the activity in France.
There is no taxation for any expatriation bonuses. On the 27th Septembre 2023, the French National Assembly rendered a Report establishing that the situation of impatriate employees’ property wealth taxation in France was limited to assets located in France.
- Advantages of the expatriate scheme in France
The expatriate employee in France, if he is seconded for a significant period abroad, will not be able to hope for an exemption from the remuneration he will have received abroad, under the yoke of article 81 A of the GCT, it will only be subject to the exemption provided for by article 155 B of the GCT.
A decision of the Conseil d’Etat, dated on March 26, 2003 (no. 226400), establishes the maximum duration of the expatriation at 24 months, beyond this period, the exemption of income obtained abroad provided for by article 155 B of the GCT is no longer guaranteed for the taxpayer.
The expatriated taxpayer is granted by an extended limited period than taxpayers submitted to article 81 A of the GCT. Which are subject to assessment by the administrative courts, which determine a reasonable duration on a case-by-case basis (EX: Conseil d’Etat decision of March 14, 2011, no. 318129).
Taxation of taxpayers electing domicile in France
The main principle in Taxation law is territoriality. In France, this principle is provided by article 4 of the GTC:
“Persons whose tax domicile is in France are liable to income tax on all their income. Those whose tax domicile is outside France are liable for this tax solely on the basis of their French-source income.”
Conditions for tax liability in France
Prior to be subject to taxation in France, foreign taxpayers must have close or at least significant ties with France.
According to article 4 B of the GTC, if foreign taxpayers want to be subject of French tax law, they must have their main home or place of residence in France, be employed or self- employed in France, or have their center of economic interests in France.
A Conseil d’Etat’s ruling of the 15th of June 2007 (no. 284449) stated that foreign cannot opt for French taxation if there are no ties with France.
Consequences for taxpayers
If we refer to article 4 B paragraph 1 of the GTC, it can be determined that taxpayers who opted for tax domicile in France is taxable on his universal income, even foreign income is subject to an allowance from French tax.
In this case, taxpayers will be taxed in accordance with the agreements entered by France and the country of the source of the income.
Taxpayers will be subject to the international agreements concluded with France and the countries of the source of the income.
In the absence of agreements, taxpayers will be subject to double taxation in the country of source, which will lead to a tax credit against French tax authorities, depending on the amount of this tax, if taxpayers are subject to a higher tax than what is provided in French law.
Otherwise, taxpayers will have to pay the difference between the tax at source and the French tax in France.
Med venlig hilsen / Kind regards
Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NICE
Camilla Nissen MICHELIS
Assistante – Traductrice
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
Camilla.nissen.michelis@brahin-avocats.com
www.brahin-avocats.com
