1. The Impatriate tax regime
In order to make France more attractive, the government has put in place a favorable tax regime for “impatriates” codified under the article 155 B of the General Tax Code.
This regime, created by the Law n°2008-776 dated of August 4th, 2008, provides income tax exemption benefiting the category of taxpayers knows as “impatriates” and can be applied to employees and to corporate officers who meet some specifics conditions and are recruited by a French based company.
Two types of “impatriates” can benefit from this tax exemption.
- The “impatriate” recruited directly from abroad by a French company
- The “impatriate” employed by a foreign company to work within a French company
With the application of the special tax regime, the following income received by the “impatriates” could benefit from the tax exemptions:
- Exemption for supplementary bonuses/premiums directly linked to the “impatriation” or “impatriation” bonuses. Such bonuses must be provided for in the employment contract or corporate appointment before the commencement of the duties in France, or on option could be fixed at 30% of the total net remuneration
- the part of income relating to the activity carried out abroad (outside France) in the interests of the employer (working days abroad);
- 50 % of the investments income from foreign sources (interests, dividends);
- 50 % of the capital gains on the sale of securities from foreign sources;
- 50 % of certain intellectual and industrial property rights from foreign sources.
However, the 30% option was not opened to people hired as part of intra-group transfer mobility before November 2018.
NB: the “impatriation” bonus (the 30% option) is limited to the reference salary applicable to local employees in similar positions.
Indeed, the part of the remuneration which remain taxable must be equal to the remuneration earned by a non-Impatriates employee in the same condition as the Impatriates employee (same company, similar functions, etc.). If there are no similar functions within the company, the French rules provides that the reference compensation may be the same as that paid in the comparable companies based in France.
In all cases, all the exempt remuneration is capped, on option at:
- 50 % of the total remuneration, or
- only the part corresponding to the working days abroad will be capped at 20 % of the taxable income excluding the net impatriation allowance.
Option should be made every year through the tax return and available to the first five or eight fiscal years following the year of arrival. It is five years for the “impatriates” appointed in France before the 6th July 2016 and eight years for those appointed after the 6th July 2016.
2. What are the conditions to be fulfilled in order to benefit from this tax regime?
The benefit of this special tax regime is subject to the following conditions:
- Have a fixed-term or permanent employment contract in a company based in France either through a company based abroad (intragroup mobility), or recruited directly by the company based in France
- Have not been considered as French tax resident within the 5 years preceding the beginning of the assignment in France, regardless of the impatriate’s nationality;
- Be domiciled in France for tax purposes.
3. What is the duration of application of this tax regime?
The duration of application of this regime will depend on the date on which the Impatriates took office:
- If the Impatriates took office before July 6th, 2016: the duration of application is fixed at most until December 31 of the fifth calendar year following the taking up of functions in the host company;
- If the Impatriates took office after July 6th, 2016: the duration of application is fixed at most until December 31 of the eighth calendar year following the taking up of functions In the host company
4. What are the reporting obligations to be able to benefit from this tax regime?
In order to benefit from the regime, the taxpayer must request its application in his tax return. Indeed, the regime will not be applied automatically.
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).
The best way to manage your tax return in France is get a tax expert. Elitax will work with you to ensure you take full advantage of the treaty arrangements which are relevant to your situation. Request a 15 minute free consultation with us.