Expatriation return or when a French citizen returns to France
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Impatriation is a tax regime created for the benefit of French citizens who are tax residents abroad, also known as "expats," wishing to return to France permanently.
The purpose of this status is to encourage French citizens to return to live in France after their expatriation.
Thus, an impatriate may avoid paying French tax upon their return to France by benefiting from an exemption on certain sources of French and foreign income.
In this article, we will go through this impatriation regime point by point.
The nature of the exempt income
the expatriation allowance, i.e., the additional compensation directly linked to the performance of a professional activity in France;
the portion of compensation relating to the activity carried out abroad in the interest of the employer within the framework of an intra-group mobility;
50% of investment income from foreign sources[1];
50% of income from foreign-source intellectual or industrial property[2];
50% of capital gains from the sale of foreign-source securities and social rights;
professional expense allowances and reimbursements[3]; and
the housing allowance, tax equalization[4] and other allowances relating to expatriate employees. [5]
This status also allows for the deduction from taxable income of a portion of the contributions paid to supplementary pension and contingency schemes to which the expatriate was affiliated before arriving in France.
Conditions for benefiting from the tax exemption
In order to obtain these exemptions, the expatriate must meet several criteria regarding their employment :
– They must be an employed individual or a corporate officer ; and
– They must have been transferred as part of an intra-group mobility by a company whose registered office is abroad to a position in a company in France that has a link with the foreign company; or
– have been recruited directly from abroad as part of an external hiring by a company in France[6].
In addition, they must satisfy two cumulative conditions regarding residence, namely :
– a condition of tax non-residency for 5 years prior to returning to France ; and
– a condition of tax domicile in France[7]i.e., having their household or primary place of residence in France and principally exercising a professional activity there at the time of returning to France.
Practical implementation of the expatriate regime and its duration
The regime will only apply for the years in which the expatriate :
– has their household or primary place of residence in France ; and
– principally exercises a professional activity.[8]
It is accepted that the regime applies to the year of taking up office in France if the establishment of the household in France occurs at the latest before the end of the calendar year following the year of taking up office.
Finally, the duration of use for the regime is 8 years and is fixed at a maximum until December 31 of the eighth calendar year following the taking up of duties in the host company for any taking up of duties from July 6, 2016.
Focus on the expatriation bonus
For the expatriation bonus to be tax-exempt, the employee/officer must be taxed in France on an amount at least equivalent to the remuneration received in the same company by a non-expatriate employee for a similar position.
Furthermore, the expatriation bonus must be clearly stated in the employment contract or within the corporate mandate or, if applicable, in an amendment, established prior to taking up duties in France.
Regarding the amount of the bonus, for it to be exempt, this amount must be determined or determinable by objective elements stipulated in the employment contract.
The capped tax-exempt amount of the expatriation premium
Regarding an external hire, and in the event that the bonus amount is not established within the employment contract, the impatriation bonus can be assessed on a flat-rate basis, being deemed equal to a maximum of 30% of the total remuneration.
Regarding impatriates within the framework of intra-group mobility and if the amount of the bonus is not determined, the latter must be determinable on the basis of objective and precise criteria mentioned in the employment contract.
On the other hand, if taking up the position within the framework of intra-group mobility occurred after November 15, 2018, the evaluation of the exempted amount can be done using the flat-rate evaluation in the same way as external hires.
A cumulative exemption of the expatriation premium is possible but also capped
The ceiling on the exemption of the expatriation premium can be combined with an exemption on remuneration relating to activity carried out abroad, but this combination is capped at the taxpayer's choice:
Either a global cap, in which case the exemption of the expatriation premium and the share of remuneration corresponding to the activity carried out abroad cannot exceed 50% of the total remuneration;
Or a cap solely on the exemption of the remuneration corresponding to the activity carried out abroad, in which case the exemption of this share cannot exceed 20% of the individual's taxable remuneration net of the expatriation premium.
[1]On the condition that the payment of this income is carried out by a person established outside of France in a State or territory that has concluded a tax treaty with France containing an administrative assistance clause to combat tax fraud or evasion
[2]under the same condition as described in 1
[3]Article 81 para. 1 of the French General Tax Code
[4]This refers to the full or partial reimbursement of the cost of the housing constituting the residence of the inbound expatriate employee in France, as well as the income tax and mandatory social security contributions paid in France.
[5]Article 155B of the French General Tax Code
[6]the benefit of the scheme is not conditional upon the employment contract or its amendment mentioning the duration of the employment in France, nor that the employment contract be concluded for a fixed term.
[7] Within the meaning of Articles 4 a) and b) of the French General Tax Code.
[8]Failure to meet one of these cumulative conditions in respect of a given year does not exclude the benefit of the scheme in respect of previous or subsequent years – for which they are met.
