Tax Benefits for Expatriates Moving to France: Understanding the French Regime

The expatriate tax regime allows individuals to benefit, under certain conditions, from income tax exemptions. These exemptions are applicable until December 31st of the eighth calendar year following the first employment in a company established in France. The tax advantages granted are as follows:

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Exemption on Additional Compensation Related to Expatriation ("expatriation bonus")

This bonus corresponds to the additional compensation, in cash or in kind, specified in the employment contract or its amendments, directly linked to the expatriation. In principle, the actual amount of the bonus must be set before the commencement of duties in France and clearly indicated in the employment contract or the corporate mandate (or in an amendment if necessary).

However, if the bonus cannot be precisely defined to the exact euro in advance, due to its nature or calculation methods, it is sufficient that it be determinable based on objective criteria stated in the employment contract or corporate mandate. For example, this applies to an "expatriation bonus" consisting of providing accommodation in France or set as a percentage of the expatriate's base salary, which may itself include a variable part [1].

At the employee's option, the bonus can be evaluated at a flat rate of 30% of the total net salary, excluding benefits related to employee savings or stock ownership schemes, in the income tax declaration. The flat-rate assessment of the expatriation bonus also includes severance payments [2].

Limit:

The taxable salary in France must not be lower than that of another employee performing similar duties within the same company or, if unavailable, in similar companies established in France ("reference salary"). If the salary is lower than the reference salary, the difference is added back to the employee's taxable income.

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Exemption on Compensation Linked to Foreign Activities

This tax exemption applies to the portion of the salary corresponding to work performed outside of France, provided that the stays abroad are carried out "in the direct and exclusive interest of the company for which they perform their duties" [3].

These two provisions (exemption on the expatriation bonus and exemption on foreign activity-related compensation) can be combined.

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Limitations on the Overall Exemption of Provisions

In the income tax return, the employee must choose between two options:

1. Limit all tax exemptions to 50% of the total salary.
2. Opt to limit only the part of the salary related to activities performed abroad to 20% of the taxable income, with the expatriation bonus being fully exempt.

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Example

Let’s consider an expatriate with the following situation:

• base net salary = €90,000
• net expatriation bonus = €130,000
• net reference salary = €100,000
• days worked abroad = 80 (out of 240 workdays)

Given these details:

• The net taxable salary will amount to €100,000, in line with the reference salary.
• The tax-exempt expatriation bonus will be limited to €120,000 (€220,000 minus €100,000).
• The portion of the salary related to days worked abroad will be €33,333 (calculated as follows: €100,000 / 240 * 80).

Option 1 – Global Limit

• Exempt income before the cap = €153,333 (€120,000 + €33,333)
• Cap (50% of €220,000) = €110,000

Option 2 – Limit on Salary Linked to Days Abroad

• Cap on salary linked to days abroad = €20,000 (20% of €100,000)
• Expatriation bonus = €120,000 (limited by the reference salary)

Thus, the total income tax exemption would be €140,000 (€120,000 + €20,000).

Based on this example, option no. 2 is more advantageous for the expatriate (€140,000 versus €110,000).

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Scope of Application

Eligible for the expatriate tax regime are employees and executives called to hold a position, for either a fixed or indefinite period, in a company established in France, either through a foreign company or directly through a company in France [4].

The expatriate regime also applies to executives fiscally defined by the provisions of points 1°, 2°, and 3° of section b of article 80 ter of the French General Tax Code (CGI). This regime concerns:

• For joint-stock companies (SA) and simplified joint-stock companies (SAS), it includes the chairman of the board, the CEO, the deputy CEO, executive committee members, as well as any director or supervisory board member with special functions.
• For limited liability companies (SARL), it includes minority or equal-share managers.
• For other types of companies or establishments subject to corporate tax, the regime applies to executives treated as employees for tax purposes.

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Eligibility Conditions for the Expatriate Tax Regime

To benefit from the expatriate tax regime, the individual must meet the following conditions:

• Be called from abroad to hold a position in a company established in France: The provision targets individuals transferred by a foreign company or directly recruited abroad by a company in France.
• Not have been fiscally domiciled in France: According to article 4 B of the CGI or international tax treaties, the individual must not have been a resident in France during the five calendar years preceding the start of their duties in France.
• Have their main residence or principal place of stay in France: The residence must be considered the place where the taxpayer usually resides and where their family interests are centered [7].
• Exercise their main professional activity in France: The main activity is the one to which the taxpayer devotes most of their time or the one that generates the highest portion of their global income [8].

Verification of these residence conditions must be performed each year the provision is applicable. If these conditions are not met for a given year, the expatriate tax regime will not apply for that year. However, this does not affect the eligibility for the regime in previous or subsequent years, provided that the conditions are met during those periods. The exemption period is always calculated from the date of the first employment.

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[1] BOI-RSA-GEO-40-10-20 n. 70 (date de début de publication du BOI : 21/06/2017)

[2] Conseil d'État, 9ème - 10ème chambres réunies,04/10/2023, 466714

[3] BOI-RSA-GEO-40-10-20 n. 220(date de début de publication du BOI : 21/06/2017)

[4] BOI-RSA-GEO-40-10-10 n. 10 (date de début de publication du BOI : 21/06/2017)

[5] BOI-RSA-GEO-40-10-10 n. 70 et n. 80 (date de début de publication du BOI : 21/06/2017)

[6] BOI-RSA-GEO-40-10-10 n. 150 (date de début de publication du BOI : 21/06/2017)

[7] Conseil d'Etat, Section, du 3 novembre 1995, 126513,publié au recueil Lebon

[8] BOI-IR-CHAMP-10 n. 220 (date de début de publication du BOI : 28/07/2016)

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