Fact sheet: expatriate regime
Themes
Date of update
A special expatriate exemption scheme exists to help attract company directors and employees to France by providing partial income tax exemption, subject to certain conditions and for a period of up to eight years.
Eligibility
Eligible employees and company directors of any nationality called upon to work full-time in a permanent or temporary position for a company established in France.
The following types of company director are eligible for the scheme:
- Within a société anonyme (SA) or société par actions simplifiée (SAS):
- Chairman of the Board.
- CEO.
- Deputy CEOs.
- Non-executive directors with temporary delegation.
- Members of the executive board.
- Any non-executive director or member of the supervisory board with special responsibilities.
- Within a société à responsabilité limitée (SARL): Any directors who are minority or equal shareholders.
- Within other companies or establishments subject to corporate tax (impôt sur les sociétés – IS): Any directors who are considered as employees from a tax perspective.
The option to elect the capping mechanism must also be indicated in the “other information” section of the Income Tax Return No. 2042.
For persons recruited abroad by a French company, the option for the lump-sum assessment of the impatriation bonus must be expressly mentioned in the declaration.
To learn about the different legal structures, please have a look at the guide Doing Business: Succesfully setting up in France
| Helpful tip: This special expatriate exemption scheme is designed for :
-People recruited abroad by a company established in France ;and -People called upon by a foreign business to work for a company in France. Conversely, people coming to fulfill a position in France having changed their domicile at their own initiative are ineligible. |
Conditions of the scheme
To be eligible, beneficiaries must fulfill two conditions:
- They must be resident in France for tax purposes during the year in question ; and
- They must not have been domiciled in France for tax purposes during the 5 calendar years prior to taking up their duties.
| Helpful tip: These conditions must be fulfilled within the same calendar year. Where this is not the case, beneficiaries lose their entitlement in that year alone, with no effect on previous or future years. |
Validity period
The period for which this provision applies to inpatriates is 8 years for any eligible employees and directors who took up their duties on or after 6 July 2016.
This period was previously 5 years.
Thus,
- Those assuming their positions before July 6, 2016 are eligible for the scheme until December 31 of the fifth year following the date they take up their post.
- Those assuming their positions on or after July 6, 2016 are eligible for the scheme until December 31 of the eighth year following the date they take up their post.
Advantages
Exemption on items of remuneration from professional activity
- Additional expatriation-related remuneration
The part of the beneficiary’s remuneration directly related to expatriation, i.e. “expatriation bonus”, is exempt from income tax. Other pay components are not affected.
The actual bonus amount must, in principle, be provided for in the employment or directorship contract, or in an additional clause drafted prior to taking up the post.
The part of the beneficiary’s remuneration directly related to expatriation, i.e. “expatriation bonus”, is exempt from income tax. Other pay components are not affected.
The actual bonus amount must, in principle, be provided for in the employment or directorship contract, or in an additional clause drafted prior to taking up the post.
Without the amount needing to be specified expressly, in order to be exempt the bonus needs to be determined on the basis of objective and precise criteria mentioned in the employment or directorship contract.
For persons recruited directly abroad by a company established in France, the bonus may be assessed on a flat-rate basis.
In such cases, it is deemed to be equal to 30% (maximum) of an individual’s total remuneration.
Exemption from income tax on expatriation bonuses may be full or only partial. The portion of income that is exempt is not subject to withholding tax.
The share of income that is exempt from income tax under inpatriation rules is not included in the tax base used to calculate withholding tax.
It remains subject to the following condition: the beneficiary’s net taxable income (excluding the bonus) must be at least equal to the net taxable income received by employees fulfilling similar roles in the company (« Rémunération de référence »).
If this is not the case, the difference between the two pay packages must be reintegrated into the expatriate’s net taxable income.
A certificate from the employer specifying the reference income (“rémunération de référence”) and explaining this comparison may be provided to the individual, who can then present this document to the tax authorities to prove that this condition has been fulfilled.
| Helpful tip: The var remuneration corresponding to an assignment performed abroad |
Eligible beneficiaries of the special expatriate exemption scheme may also receive exemption from income tax for the part of their remuneration (basic salary and additional remuneration) corresponding to work performed abroad.
Exemption is subject to the trips being made outside France for the “direct and sole” interest of the company established in France where the beneficiary is working full-time. Proof of this may be furnished by providing details of expenses claims, travel orders or tickets.
| Helpful tip: To calculate how much of the beneficiary’s remuneration may receive exemption from income tax, days worked abroad may be counted and compared with the number of days effectively worked during the year. It may be useful to keep a day-by-day record |
- Capping
Income tax exemption on specific items of remuneration from paid employment is subject to a cap.
Every year, eligible employees and directors may choose between two capping options, depending on whichever is more advantageous in their case:
- Either an exemption on additional expatriation-related remuneration (expatriation bonus) and the fraction of remuneration corresponding to work performed abroad is calculated and capped at 50% of all net income;
- An alternative option upon request, whereby only the fraction of remuneration relating to work performed abroad is exempted, up to 20% of net taxable income, excluding expatriation bonuses.
Other exemptions
Eligible beneficiaries of the special expatriate exemption scheme may also claim income tax exemptions on:
- Many mobility-related allowances (e.g. payments for a reconnaissance trip, agency fees, moving fees and travel costs, etc.).
- Half of all income from securities, capital gains from transfers of shares and ownership interests. Payment of the sums in question must have been made by a person established outside France in a country that has signed a tax treaty with France containing an administrative assistance clause.
- Social security contributions paid to a scheme in a foreign country: contributions paid into statutory social security schemes, as well as supplementary pension and life insurance schemes, may be deducted from taxable income.
Furthermore, eligible beneficiaries are only subject to pay the wealth property tax (impôt sur la fortune immobilière – ISI) on their assets located in France for 5 years.
| Helpful tip: The items of remuneration affected by the special expatriate exemption scheme are now also exempt from payroll tax (taxe sur les salaires). This extra tax break for employers only applies to remuneration paid out from January 1, 2017. |
Changing jobs
The special expatriate exemption scheme continues to apply when the employee or director changes jobs within the same company or to another company within the same group, whether this is to fulfill a similar role or otherwise.
The scheme’s validity period may not be extended through a change of job, and remains limited to eight years at most.