Basic principles of the tax regime for impatriates in France
Impariate tax regime in France is considered to be one of the most attractive in Europe due to its multiple advantages. If you are an impatriate or thinking of becoming one, here are the essential points to know.
The preferential tax regime for impatriates
Definition:
Implemented in France in 2004, the impatriation tax regime allows individuals who have recently settled in France to benefit from favorable income tax treatment.
This scheme is aimed at individuals who were domiciled outside France for tax purposes during the five years prior to taking up employment with a company established in France (either as part of a move within a group or as part of an external recruitment abroad).
It is important to note that people who have come to work in France on their own initiative or who had already established their residence in France at the time of recruitment cannot benefit from the impatriation scheme.
How does the impatriate regime work?
The advantage of this scheme lies in the exemption from income tax for the additional part of the remuneration directly linked to carrying out a professional activity in France. This additional amount generally takes the form of an impatriate bonus.
To be eligible, the portion of remuneration taxable in France must be comparable to that paid to another employee for similar duties in France. If it is not, the difference will be added back and taxed.
Another specificity of the regime is the exemption of the portion of remuneration corresponding to working abroad days in the direct and exclusive interest of the company. Employees must keep a calendar of the days worked in each country where they carry out their duties on behalf of their employer. It is in such a case important to keep all the supporting documents to prove that the working abroad days were linked to a meeting, a traineeship, a specific mission etc..
However, this scheme is subject to a ceiling. Impatriate employees can only benefit from a limited exemption. Each year, when filing their tax returns, impatriates must choose between two options:
- An exemption of up to 50% of total remuneration (impetrate bonus and fraction of remuneration for working abroad).
- Exemption of up to 20% of total taxable remuneration (excluding impatriate allowance and employee savings or share ownership schemes) for the remuneration corresponding to the activity carried out abroad.
In addition, impatriate employees benefit from a 50% exemption on foreign-source income from transferable securities, certain intellectual property products and gains from the sale of securities, provided that the payment is made by a person established outside France in a country or territory that entered into a tax treaty with France containing an administrative assistance clause to combat tax fraud.
Since July 6, 2016, this regime applies until December 31st of the eighth calendar year following the assumption of duties in France.
With regard to property wealth tax (IFI), the impatriate regime also makes it possible to limit the tax base to property assets located in France. This advantageous tax measure applies for 5 years.
Options available to impatriates :
In principle, supplementary remuneration linked to impatriation is exempt on the basis of its actual and accurate amount. However, it is also possible to opt for a flat rate of 30% of the impatriate net annual salary. This choice between exemption from the impatriation bonus for a fixed amount stated in the contract or the flat-rate assessment at 30% is irrevocable for the impatriate, who must indicate his choice when filing his first tax return in France.
French PACTE Act: preferential treatment for social security contributions
This advantageous tax measure has now been supplemented by the PACTE Act, which enables impatriates to optimise their social security contributions. This law allows impatriates to remain affiliated to the basic and supplementary pension scheme in their country of origin (or another country) during their assignment in France, while paying contributions for other risks under the general French social security scheme.
Overview:
The PACTE Act, enacted on May 22 2019, introduces a scheme allowing impatriates to deduct social security contributions relating to retirement in their country of origin or another country from their taxable remuneration, while they contribute to the other risks of the general French scheme (health, provident fund, mutual insurance, industrial accident, etc.).
This scheme takes the form of a temporary exemption from compulsory old-age insurance for impatriates. This exemption can represent a significant saving in terms of social security contributions for impatriates.
Persons concerned:
This exemption applies to employees who come to work in France from July 11 2018, provided that they have not been affiliated to a compulsory French old-age insurance scheme during the previous 5 calendar years, except for ancillary, seasonal or related activities.
Legal requirements :
Here are the requirements to be verified to qualify :
- The exemption is optional and requires a joint application from the employee and their employer.
- The employee must prove that they have coverage for old-age risk, which involves making a minimum contribution towards a French or foreign old-age insurance. The minimum annual contribution set by the decree is 20,000€ per year. Such contribution can be paid solely by the employee or both, the employer and employee.
Duration :
This exemption from affiliation is valid for a period of 3 years, with the possibility of renewal once. The request for exemption applies to both the basic old-age regime and the supplementary old-age regime.
Advantages and limitations :
The possibility for impatriates to continue contributing to their home country’s retirement system during the first 3 years of their stay in France is groundbreaking but goes against the fundamental principle of the European Regulation on the coordination of social security systems, i.e., the principle of unity, which states that individuals should be affiliated with only one social security system.
This new measure enhances the attractiveness of the French system and the impatriation on the national territory. It allows impatriates staying in France for a duration less than 3 years, with the possibility of renewal, to avoid being subject to multiple retirement systems at the end of their professional careers.
However, the implementation of this system remains complex for international payroll administrators, both in France and abroad.
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MFL registered lawyers remain at your disposal should you have any queries regarding the impatriate regime from a tax and social security standpoint.They will provide you with their best advices to secure your interest.