Table of contents

Who can benefit from the expatriate tax regime?

From when and for how long can expatriates benefit from the expatriation scheme?

What are the advantages of the expatriate tax regime?

Income tax benefits

Property wealth tax benefits

Payroll tax benefits

Non-fiscal benefit: exemption of certain social security contributions

How to benefit from the expatriate tax regime?

Procedures to be carried out

Conditions for exemption of the expatriation bonus

Determining the reference compensation

Legal certainty: advance tax ruling and guarantees in the event of a tax audit

How to obtain more information about the expatriate scheme?

Who can benefit from the expatriate tax regime ?

The expatriate tax regime applies to individuals who have been tax resident outside France for at least five calendar years before they start working for the company based in France that recruits them.

The expatriate tax regime, provided for under article 155 B of the General Tax Code (CGI), is aimed at people domiciled for tax purposes outside France or, where a tax treaty applies, who have not been resident in France for the five calendar years before the year in which they take up employment with the company established in France that recruits them, and who transfer their tax residence to France as from the date they take up employment. The date on which the employee takes up employment is defined as the date on the employee actually begins to work for the company in France.

They must have been recruited in one of two ways:

• The employee is "recruited by a company" established in France, which has links with the company of origin established abroad [intra-group mobility]. These links may be of a capital, legal or commercial nature, etc.  This includes employees who have been seconded or posted abroad as part of an intra-company mobility scheme, e.g. someone from a foreign parent company who comes to work for a subsidiary based in France. It is accepted that the host company may not exist legally in France on the date of the expatriate employee taking up his or her duties, if the purpose of his or her arrival in France is related to the creation of that company.
• The employee is directly recruited abroad for a position in a company in France [external hire].

Note: entitlement to the regime is not contingent on the employment contract or its rider stipulating the period of employment in France, nor on the contract having been executed for a fixed term.

The expatriate tax regime also applies to certain company executives who are considered as employees for tax purposes under the provisions of paras. 1°, 2° and 3° of article 80ter (b) of the tax code (Code General des Impots or “CGI”). An employee or executive who directly or indirectly holds all or part of the shares of the company that recruits him or her may also benefit from the scheme, as long as he or she meets all the conditions set out in the text, receives remuneration that is taxable as salary and wages and remains taxable for income tax purposes on an amount equivalent to the reference compensation (see below).

Employees asked by their employer to take up new duties within a company in France (reactivation of a previous employment contract or creation of a new employment contract) after more than five years spent in a company located abroad belonging to the same group [return from expatriation] may benefit from the expatriate scheme as long as they meet all the conditions set out in the text.

On the other hand, individuals who have come to work in France on their own initiative or have already established their residence in France at the time of recruitment are not eligible for the expatriate tax scheme.

From when and for how long can expatriates benefit from the expatriation scheme?

The expatriate regime runs until December 31st of the eighth calendar year following the date on which the expatriate takes up employment with the host company.

This means, for example, that a person taking up employment in France on January 1, 2025 will benefit from the scheme until December 31, 2033.

The scheme applies only to years in which the expatriate employee, on the one hand, has his or her household or principal place of residence in France, as defined in a and b of 1 of Article 4 B of the General Tax Code, and, on the other hand, carries out a primary occupation in France. Compliance with these cumulative conditions is assessed for each of the years in which the scheme applies. Failure to comply with one of these cumulative conditions with respect to a single year does not exclude entitlement to the scheme in respect of previous or subsequent years in which the conditions are met. 

However, taking into account the constraints which may exist, particularly professional constraints (e.g. a probationary period for the individual in question, the spouse’s professional situation) or family-related (such as schooling for children), it is admitted that the regime may apply for the year in which employees take up their duties in France,  provided that the household is set up in France subsequently, at the latest before the end of the calendar year following that in which the employee takes up their duties, all other conditions being met.

For example, an employee taking up duties in France in January 2025 may benefit from the regime as from the taxation of income for the year 2025 if their household is set up in France by 31 December 2026 at the latest.

If the employee's household is set up house in France after that date , the employee will not be permanently rendered ineligible to the tax scheme. He or she will be able to benefit from the tax scheme with respect to income earned as from the year in which the household is established, all other conditions being met.

For example, if he or she takes up his or her duties in January 2025, but establishes a household in France from March 2027, he or she would be able to benefit from the regime for income earned as from 1 January 2027 until 31 December 2033 at the latest.

In addition, eligibility for the scheme ends if the employee leaves the host company before this term ends, even if he or she remains resident in France for tax purposes. Entitlement to the scheme shall, however, be maintained in the event of a change of functions within the host company or in the event of a change of employer within the same group, regardless of whether the duties performed are similar to the original ones.

Continuation of the regime in the case of a change of function does not extend its total duration, which is calculated based on the date the employee first took up his or her duties. If the expatriate employee continues to work in France beyond the duration of the regime, all his or her remuneration is taxable under the conditions of ordinary law.

 What are the advantages of the expatriate tax regime?

Income tax benefits:

Under the expatriate tax regime the following are exempt from income tax, under certain conditions:

• additional compensation directly linked to the exercise of a professional activity in France (expatriate bonus);
• the share of compensation relating to the foreign activity carried out in the interests of the employer;
• 50 % of income from investments from foreign sources (payment of which is made by a person based outside France in a State or territory which has concluded a tax treaty with France that contains an administrative assistance clause to combat tax evasion and avoidance);
• 50% of certain intellectual and industrial property rights from foreign sources (payment of which is made by a person based outside France in a State or territory which has concluded a tax treaty with France that contains an administrative assistance clause to combat tax evasion and avoidance);
• 50% of capital gains on the sale of securities and ownership interests from foreign sources (in cases where the depositary of the securities or, failing that, the company whose securities are to be sold is based outside France in a State or territory which has concluded a tax treaty with France that contains an administrative assistance clause to combat tax evasion and avoidance).

In addition to these exemptions, the expatriate regime allows beneficiaries to deduct from their taxable income certain contributions paid to supplementary retirement and life insurance schemes to which they were affiliated before arriving in France.

Property wealth tax benefits

Individuals who were not residents of France for tax purposes during the five calendar years prior to the year in which they establish their tax residence in France benefit from a partial exemption of property wealth tax (impôt sur la fortune immobiliere or “IFI”): they are only taxable on their property and property rights located in France. As a result, in practice they remain under the same taxation regime as when they were non-residents of France.

The regime applies for each year when the taxpayer is resident in France for tax purposes up to 31 December of the eighth year following the year when he/she set up his/her tax domiciliation in France.

Unlike the special income tax regime which is specific to expatriates, no conditions regarding employment are attached to the property wealth tax partial exemption. Where applicable, this partial exemption applies without prejudice to the special income tax regime which is specific to expatriates.

Payroll tax benefits

Employers are liable for payroll tax (taxe sur les salaires or “TS”) when they are based or domiciled in France, they pay salaried compensation, and they are exempt from VAT for at least 90% of their turnover during the calendar year prior to the pay¬ment of salaried compensation. 
The expatriation bonus paid to expatriate employees  is exempt from payroll tax up to the amount of the expatriation bonus exempt from income tax. For expatriate employees who opt for a flat-rate assessment of the expatriate bonus (see How to benefit from the expatriation scheme?), this exemption applies to a fraction of 30% of their compensation.
The payroll tax exemption applies under the same conditions regarding tax domiciliation and duration as those laid down for entitlement to the income tax exemption.

Non-fiscal benefit: exemption of certain social security contributions

In accordance with Article L767-2 of the Social Security Code, expatriate may also elect not to be affiliated to the compulsory French Social Security schemes for basic and supplementary old-age insurance and to benefit from an exemption from the contributions relating to these schemes. Full details of this exemption can be found on the Urssaf website.

How to benefit from the expatriate tax regime?

In principle, to be eligible for exemption, the expatriate bonus must appear in the employee’s – or corporate officer’s – contract or, where applicable, in a rider to such contract drawn up prior to taking up the position in France. 
By way of exception, the bonus may be assessed on a flat-rate basis, even if their contract does not stipulate an expatriate bonus.

Procedures to be carried out

By the employee:

The employee's declarations must be made during the annual income tax campaign, which takes place during the spring, for income earned during the previous calendar year. Income received in respect of year N must therefore be declared during the income tax campaign in the spring of year N+1.

1. If the employee chooses to have the expatriation bonus assessed on a flat-rate basis, he or she must indicate this in the "other information" (“autres renseignements”) section of the overall income tax return form no. 2042/2042C. If the expatriation bonus exemption is combined with the exemption for the part of the remuneration relating to an activity carried out abroad, the choice of capping method must be indicated in the same way.
2. The employee must check the amount of salary subject to income tax which is pre-filled by the tax authorities on the overall income tax return. If the employee believes that this amount is incorrect, he or she shall modify it.

The net taxable salary after deduction of the exempt portion must be entered in section 1AJ or 1BJ of the main form no. 2042.
Exempt salaries and bonuses must be entered in section 1DY or 1EY of the supplementary form no. 2042 C.
The amount of the salaries, including the exempt part, is used to calculate the reference tax income.

NB: the exemption of the expatriation bonus, or the portion of the remuneration deemed to represent it, is subject to the condition that the remuneration of the expatriate persone remaining subject to income tax is at least equal to that received for similar functions by employees of the same company or, alternatively, in companies carrying out a similar activity in France (see chapter Determining the reference remuneration).

By the company:

1. The company is required to report on the unified annual declaration of social data (“DADS-U”) or on the nominative social declaration (“DSN”) the remuneration paid to expatriates, mentioning separately, on the one hand, the amount of the salary subject to income tax and, on the other hand, the amount of the salary exempt from income tax. 

In this respect, it must indicate in the box "amounts exempted under the expatriate tax regime" (“sommes exonerees au titre du regime des impatries”), the total amount corresponding to the sum of the expatriation bonus and the fraction of the remuneration received in return for the activity carried out abroad, which benefits from the exemption pursuant to I of article 155 B of the CGI.

2. The company shall determine the amount of the reference compensation subject to income tax on behalf of the employee or executive, on the basis of information that the company must be able to justify to the tax authorities.

Conditions for exemption of the expatriation bonus

The preferential regime consists mainly in a temporary exemption from income tax on additional remuneration directly linked to the expatriate’s professional activity in France (i.e. expatriation bonus).

Consequently, it is not sufficient to be recruited by a company established in France while having a household or principal place of residence abroad for more than five years to benefit from the expatriate regime. It is up to the expatriate employee to demonstrate that a bonus (additionnal remuneration) has been expressly linked by the employer to the transfer of the individual's professional activity and tax residence to France.

In principle, the expatriation bonus is exempt for its actual amount, which must appear in the employee’s – or corporate officer’s – contract or, where applicable, in a rider to such contract drawn up prior to taking up the position in France . Alternatively, it must be determined on the basis of objective and precise criteria mentioned in the employment contract or rider to be exempt. 

By way of exception, the expatriation bonus may be assessed optionally on a flat-rate basis, in which case it is deemed to be equal to 30% of the expatriate's net taxable remuneration. This option is available both for people recruited directly abroad by a company established in France, and to those recruited by a company established in another country to work for a company established in France.

However, the exemption of the expatriation bonus or the portion of the remuneration deemed to represent it is subject to the condition that the employee must be taxed in France on an amount at least equivalent to the compensation received in the same company by a non-expatriate employee performing similar duties the same company or, failing that, in similar companies established in France.

The latter, known as the “reference remuneration”, is taxable under ordinary law and corresponds to the total net annual remuneration taxable as salaries and wages received for similar duties in the year in which the expatriation bonus qualifies for exemption.

The expatriate bonus exemption may be combined with the exemption of the share of compensation arising from an assignment carried out abroad.

Nevertheless, this combination is capped and can take one of two forms, which the taxpayer can freely choose: 
   • An overall cap: in this case, the expatriate bonus exemption (possibly limited with respect to the reference compensation) and the portion of compensation corresponding to the assignment carried out abroad may not exceed 50% of the total compensation;
   • A cap solely on the exemption on compensation corresponding to the assignment carried out abroad: in this case, the exemption for this portion may not exceed 20% of the taxable compensation of the individual in question, net of the ex¬patriate bonus (possibly limited with respect to the reference compensation).
 
The above-mentioned conditions related to the company's reference remuneration must be assessed and met for each of the years during which the expatriate employee is eligible for the scheme, in order for the expatriation bonus to be effectively exempted. However, this condition may be assessed for the year of installation only, if the amount of the expatriation bonus is fixed and if the expatriate's duties do not change during the period of expatriation (this measure does not apply if the expatriation bonus is determined as a percentage of the remuneration, or if the expatriate employee chooses to opt for the flat-rate). 

Determining the reference compensation

It is the responsibility of the company employing the expatriate employee or manager to determine the reference compensation and to inform the employee or manager accordingly. 

Defining the reference remuneration is a matter of fact specific to each company with the latter being required to have supporting evidence justifying the method used.

However, to take account of any practical difficulties in identifying relevant terms of comparison, particularly in the case of highly individualised compensation, the tax administration accepts several methods:
   • The situation may be assessed by reference to compensation paid to an employee with comparable professional experience in similar functions to those of the expatriate employee in similar companies based in France even though similar functions to those of the expatriate employee may be undertaken in the company;
   • The “reference compensation” may be also equal the lowest salary earned by an employee with similar experience to that of the expatriate employee and performing similar functions within the company or within a similar company based in France, either during the year in question or in the three previous years;
   • The situation may be assessed solely with respect to the year in which the employee takes up his or her duties if the amount of the expatriate bonus is determined and fixed, and if the employee’s duties do not change during the period of expatriation.

As a result, to provide the option of broadening the benchmark, even if there are in-house comparable in the company, the reference compensation may be the same as that paid for similar functions in comparable companies based in France. 

Lastly, although it requires that the expatriate’s professional experience be taken into account, the term “similar functions” allows for internal or external comparable to be used as regards functions that are not exactly the same.

Legal certainty: advance tax ruling and guarantees in the event of a tax audit

Expatriate taxpayers and their employers can make use of existing procedures that provide significant legal certainty.

Taxpayers are able to ask the Public Finances Directorate General (Direction generale des finances publiques or “DGFiP”), either at local or central level, to make a decision concerning a point of tax law (Book of Tax Procedures - LPF, Art. L.80 A, 1st para.) or actual circumstances (LPF, Art. L.80 B). 

In this respect, responses to individual taxpayer requests may be relied on by the interested parties under Article L.80A, 1st para. of the LPF provided they include an interpretation of tax legislation, i.e. when their purpose is to specify in law the meaning and scope of the legislation and regulations applying to the preferential regime for expatriates. 

In turn, the guarantee set out in Article L.80 B-1° of the LPF allows the taxpayer to rely on the authorities’ formal decisions concerning the assessment of actual circumstances based on tax legislation. Such decisions must have been taken prior to the end of the time limit for submitting returns. They must relate to the taxpayer him/herself and have been made following a specific, full and genuine request made by a person acting in good faith. 

Examples with respect to the expatriate regime:

The above-mentioned formal decisions, taken either to interpret tax legislation, or by assessing specific circumstances, may be relied on by the relevant taxpayers vis-à-vis the tax authorities pursuant to an audit procedure.

For example, when an expatriate taxpayer has received confirmation that the additional compensation related to the expatriation, which is exempt in this respect, is not excessive in relation to the reference compensation for similar duties, the exempted amount of the bonus may not be called into question by criticizing the chosen amount of reference compensation.

All the information on the tax ruling procedure can be consulted on this page.

How to obtain more information about the expatriate scheme?

All of the tax authorities' doctrine can be consulted online on the bofip.impots.gouv.fr website.

Expatriate employees who have already been recruited by a company established in France and who have set up home in France should contact their local tax office (https://www.impots.gouv.fr/contacts). 

Individuals who have not yet been recruited by a company established in France and who are domiciled abroad can address their questions to the tax4business office: tax4business@dgfip.finances.gouv.fr
 

UPDATED DINR PART on 15 MARCH 2021