Conditions, remuneration and
secure implementation
The French impatriate tax regime is an exceptional regime. It must therefore be documented. It is not enough to move back to France after several years abroad. The taxpayer's status, recruitment conditions, previous tax residence, French tax residence after taking up duties and the exact nature of the income for which the exemption is claimed must all be checked.
The regime mainly applies to employees and certain corporate officers treated as employees for French tax purposes. Depending on the corporate form, it may cover executives of sociétés anonymes, SAS executives by assimilation, minority or equal-shareholding SARL managers, and executives subject to the employee tax regime in companies or bodies liable to corporate income tax.
The two entry routes into the regime
The first route is intra-group mobility. The individual was previously employed by a company established outside France and is called to work in a company established in France with links to the original foreign company. These links may be capital, legal, commercial or organisational links.
The second route is direct recruitment from abroad. The taxpayer may be recruited directly by a French company while still residing outside France. Administrative guidance and case law accept that the candidate may have applied for the French position from abroad. Conversely, a person already settled in France at the time of recruitment, or who moved to France on his or her own initiative before recruitment, is not in the same position.
Method point: evidence is central. Recruitment exchanges, foreign residence evidence, travel dates, the contract, amendments and all material showing that the real home had not already been transferred to France at the time of recruitment should be retained.
The prior non-residence condition
The taxpayer must not have been tax resident in France during the five calendar years preceding the year in which he or she takes up duties. Nationality is irrelevant: the condition may be met by a French national as well as by a foreign national. Where a tax treaty applies, treaty residence must also be reviewed.
The date on which duties are taken up is, in practice, the date on which performance of the employment contract or corporate mandate actually begins within the company located in France. This date also determines the maximum duration of the regime.
French tax residence during the regime
The regime is not a non-resident regime. On the contrary, it requires the beneficiary to be French tax resident under the home or main place of stay criterion and the principal professional activity criterion. Compliance is assessed year by year. If the conditions are not met for a year, the regime does not apply for that year, without necessarily calling into question prior or later years if the other conditions remain satisfied.
A tolerance exists for the year of arrival where professional or family constraints delay the relocation of the household. This tolerance concerns the exemption on remuneration from the date duties are taken up where the household moves to France during that year or the following year. It does not cover foreign passive income.
Impatriation allowance: actual amount or flat-rate option
The impatriation allowance corresponds to additional remuneration directly linked to the temporary exercise of professional duties in France. It may be exempt on its actual amount when it is provided for, or objectively determinable, in the employment contract, corporate mandate or an amendment established before duties are taken up.
A flat-rate option may allow the allowance to be deemed equal to 30% of total net remuneration. This option must not be applied mechanically. It must be compared with the actual allowance, the reference remuneration and the applicable caps.
Foreign duties performed during the impatriation period
The regime may also cover the part of remuneration corresponding to duties performed abroad in the direct and exclusive interest of the employer. This fraction must be substantiated by factual evidence: days worked abroad, expense reports, tickets, boarding passes, professional calendars and all documents establishing the reality of work performed outside France.
Annual caps to be chosen each year
The taxpayer must arbitrate between two caps. The first limits all exempt remuneration to 50% of total remuneration. The second caps only the exemption relating to foreign duties at 20% of taxable remuneration, net of the impatriation allowance. This choice is made each year and must be calculated.
Foreign passive income
The regime may also provide a 50% income tax exemption for certain foreign-source investment income, intellectual or industrial property income and certain gains from the sale of securities and corporate rights realised outside France. This is not a general exemption for all foreign income. The nature of the income, the place of payment, the paying institution and the reporting forms must be verified.
Reporting obligations
The exempt income is not invisible. The relevant amounts must be reported and are taken into account for the reference tax income where the applicable rules so provide. The practical review must therefore cover payroll, the annual French income tax return, foreign income schedules and the documentary file that could be produced in the event of an audit.