The article from United Tax Network St. outlines the French Expatriate Tax Regime, a program designed to attract foreign talent by offering significant tax exemptions.
Here is a summary of the key points:
1. Eligibility Requirements
To benefit from this regime, an individual must:
- Have been a tax resident outside of France for at least the five calendar years preceding their start date.
- Be recruited by a company established in France (either through intra-group mobility or an external hire).
- Establish their primary tax residence in France.
2. Primary Tax Benefits
- Income Tax: Exemption of the “expatriation bonus” (additional compensation linked to working in France) and the portion of salary related to professional activities performed abroad.
- Passive Income: A 50% exemption on income from foreign investments, capital gains on foreign securities, and certain intellectual property rights.
- Wealth Tax (IFI): For the first five years, individuals are only taxed on property and property rights located within France, effectively exempting foreign real estate.
- Social Security: Eligible expatriates can opt out of certain French compulsory old-age insurance schemes.
3. Key Limitations & Duration
- Reference Compensation: The expatriate’s taxable salary cannot be lower than the salary paid to a non-expatriate employee in a similar position within the same company (“reference compensation”).
- Duration: The regime applies until December 31st of the eighth year following the start of duties in France.
- Capping: Taxpayers can choose between an overall cap (exemptions cannot exceed 50% of total compensation) or a specific cap on the “foreign activity” portion (limited to 20% of taxable compensation net of the bonus).
4. Administrative Procedures
No formal application is required. Instead, the employer must report the exempt amounts on social declarations (DSN), and the employee must correctly fill out their annual income tax return (Forms 2042 and 2042 C). Companies are responsible for justifying the “reference compensation” used to calculate the exemptions.
