5 things foreign employers should know about the French inbound expatriate regime
The inbound expatriates tax regime as provided for by Article 155 B of the French tax Code is one of the most efficient tax exemption mechanisms currently in force under French tax law. Beneficiaries of such regime who transfer their tax residence to France are allowed to reduce their taxable professional income up to 50% (exemption of the impatriation premium and of the remuneration for days worked abroad), and may benefit from a 50% rebate on their passive income. This, however, is provided certain conditions are met.
However, such a regime does remains rather unknown, both in its principle and conditions, especially in situations when an employee is sent to work in France by a foreign employer. Here are 5 things foreign employers should know about this regime:
- The regime is available to employees directly hired from abroad by a French company, but also to employees seconded to France by their foreign employer. It remains applicable, provided all conditions are met, in case there is any change of position within the same group before the 31st December of the 8th year following the first date of start of activity in France. An employee first seconded to France by their foreign employer may therefore keep the benefit of the regime if transferred to the French host company (or any other company of the group) once the secondment has ended.
- Tax exemption applies to compensation items paid as a result of the impatriation to France. The “impatriation premium” may be assessed on a flat rate basis, up to 30% of the employee’s global remuneration of the year, even when he employer pays for specific compensation items such as housing or school fees. Originally, this benefit was only available only to employees hired directly from abroad by French companies, and not to intra-group mobility. It was extended to all beneficiaries of the regime in 2018.
- The maximum 30% rebate is limited in comparison with a “reference salary” to be determined with the help of the French host company. Indeed, as an anti-abuse rule, French law provides that the part of the salary which is effectively subject to personal income tax (i.e., any impatriation premium excluded) must not be lower than the one of employees performing similar activities at the same seniority level within the French company or within similar companies established in France. If such “reference” salary is higher than the net taxable salary (after deduction of the impatriation premium), the tax exemption will be reduced so that the taxable salary would be at least equal to such reference amount. Consequently, the 30% is a cap, which may not be reached if the reference salary is higher than the impatriate’s remuneration. Cooperation between the foreign employer and the French host company is therefore crucial to be able to determine the amount of the rebate the employee will be entitled to.
- French tax residents are subject to wage tax withholding on a compulsory basis, even when they remain employed by a foreign employer: Payroll should take into account the exempt impatriation premium in the basis of computation of wage tax to be withheld to avoid further complexity with the French tax authorities.
- Although the special regime is purely tax related, contributions paid in foreign supplementary occupational pension schemes are deductible for tax purposes subject to more flexible conditions for inbound expatriates. This applies whether the employee is seconded for social security purposes or whether they are affiliated to the French social security regime. Separate rules also provide for a possible exemption from pension contributions in France once they become subject to the French social security regime, provided certain conditions are met.
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This article was produced by Stephanie Le Men-Tenaileau, co-founder of Galahad cabinet d`avocats, France, a CELIA Alliance member firm.
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