Do I have to pay an "Exit Tax"?
Conditions of taxation
If you transfer your residence for tax purposes outside France, you are, under certain conditions, liable for income tax and social levies connected with unrealised capital gains, receivables originating from an earn-out clause, and capital gains realised on the disposal or exchange of securities subject to tax deferral.
This affects your situation if you have been a resident of France for tax purposes for at least six years out of the previous ten prior to the transfer of your residence abroad and if you own stocks or shares whose value is equal to or greater than €800,000 or represents at least 50% of a company's corporate profits.
You are nevertheless entitled to a stay of payment or tax relief in certain circumstances.
As regards transfers of residence for tax purposes outside France as from 1 January 2019, a number of arrangements have been added to this scheme, without retrospective effect for taxpayers having transferred their tax residence prior to this date (Article 112 of the 2019 Budget Act).
Stay of taxation
If you transfer your residence for tax purposes to another EU Member State or to a country or territory which has signed a mutual administrative assistance agreement to fight tax evasion and tax avoidance and a mutual tax recovery assistance agreement with France (unless the country is considered as being non-cooperative), you are automatically entitled to a stay of payment on your taxes, without collateral.
If you transfer your residence for tax purposes to a country other than those mentioned above, you must expressly request a stay of payment when you file return 2074-ETD within the 30 days prior to the transfer.
You must declare the amount of the capital gains in question. You must also appoint a tax representative prior to your departure and provide collateral to ensure that the receivables can be collected by the Treasury. You no longer have to invoke professional grounds to be exempt from the requirement to provide collateral (French General Tax Code, Article 167 bis, IV and V-a).
Please note: Entitlement to the automatic stay of payment (and the option of making an express request) may be compromised in the event of a new transfer to a country for which an express request is required. This measure applies when the taxpayer benefited from the automatic stay of payment in respect of the initial transfer of his/her residence for tax purposes outside France, irrespective of the date of this initial transfer (before or after 2019), provided the new transfer takes place as from 1 January 2019.
The new arrangements provide for the mainstreaming of the automatic stay of payment of the exit tax for transfers to EU Member States and all other countries or territories which have signed a mutual administrative assistance agreement to fight tax evasion and tax avoidance and a mutual tax recovery assistance agreement with France (except for non-cooperative countries and territories, NCCTs), as well as a reduction of the timeline after which the taxpayer may obtain relief on the exit tax subject to the stay of payment (except if the sale, redemption/cancellation of shares or liquidation of the company occurs in the interim). The timeline is reduced from 15 years to five or two years accordingly:
- Two years for taxpayers whose shares coming under the scope of the exit tax are worth less than €2,570,000
- Five years for those whose value is more than €2,570,000
The new exit tax arrangements now focus on the shares of companies investing predominantly in property that are liable for corporation tax on the date of the transfer of the taxpayer’s residence for tax purposes. The purpose of this extension is to mitigate instances of double exemption that may arise in respect of companies investing predominantly in property which, subsequent to the transfer of tax residence, may leave the scope covered by the provisions of Article 244 bis A of the French General Tax Code.
Tax on unrealised capital gains is subject to automatic relief, or repayment if it was paid immediately when the transfer was carried out, fifteen years after the departure date for transfers taking place as from 2014, or eight years for transfers having taken place between 3 March 2011 and 31 December 2013.
This relief is contingent on the shares being part of the taxpayer’s assets at this date. For transfers prior to 2014, it only extends to income tax. For those carried out as from 1 January 2014, it covers both income tax and social levies.
As from 1 January 2019, the relief timeline was reduced to two years, or five years for those taxpayers whose shares had an overall value of more than €2.57 million on the transfer date (French General Tax Code, Article 167 bis, VII-2).
• Lastly, the conditions for adjusting the exit tax subsequent to the transfer of residence for tax purposes have been altered.
• In order to reduce the taxpayer’s filing obligations, the annual return for monitoring taxes subject to a stay of payment now only concerns receivables originating from an earn-out clause and capital gains subject to tax deferral. In practice, a taxpayer who is only entitled to a stay of payment in respect of unrealised capital gains is only obliged to report this on return 2074-ETD which is filed the year after the transfer, and in the event of the expiry of the stay of payment. On the other hand, he or she no longer has to file a return for monitoring the taxation of unrealised capital gains subject to a stay of payment every year.
Exit tax arrangements revolve around two returns:
- Return 2074-ETD to be filed in respect of the transfer of residence for tax purposes outside France for declaring unrealised capital gains, receivables originating from an earn-out clause, and capital gains subject to tax deferral that are held on the date of the transfer.
In the event of an express request for a stay of payment, return 2074-ETD should also be filed during the 30 days prior to the transfer of tax residence.
- Return 2074-ETS to be filed in respect of the years following the year when the residence for tax purposes is transferred outside France. This enables your taxes to be monitored. There are several versions of this return depending on the date of the transfer:
- Return 2074-ETS1 if you transferred your residence for tax purposes outside France in 2011 or 2012
- Return 2074-ETS2 if you transferred your residence for tax purposes outside France in 2013
- Return 2074-ETS3 if you have transferred your residence for tax purposes outside France since 2014. If you transferred your tax residence outside France in 2018, you should file return 2074-ETS3 (on the first page of the return, you should indicate your address when the return is filed on the “votre adresse” line. You should also mention your former address).
These returns are to be filed according to the same deadlines as your income tax return.
If you are entitled to a full stay of payment, either automatically or optionally, and if no event curtailing this stay of payment or triggering tax relief occurred in 2018, you must file return 2074-ETSL.
In addition, on line 8TN of return 2042C, you must report the overall amount of taxes subject to a stay of payment (carried forward from return 2074-ETS when this has been filled in).
If, once you are based abroad, you again transfer your residence for tax purposes to another country, this new transfer may have an impact on your tax arrangements. As a result, within two months of this change of residence for tax purposes, you must write a letter to inform the Individual Tax Department for Non-Residents of the Non-Residents Tax Directorate (DINR).
DINR, Service des Impôts des Particuliers Non-Résidents, 10 rue du Centre, TSA 10010, 93465 Noisy-le-Grand Cedex
If the forms (return and instruction sheet) are not yet available for the year when you leave, use the ones for the most recent year.
UPDATED DINR PART on 18 MAY 2020