LPA-CGR Avocats: Planning your return to France: how to benefit from tax advantages with the ‘inpatriate’ status?

When an individual moves to France and resides in that country permanently, they will, in normal circumstances, also become a French tax resident and be liable to pay tax on worldwide income (“Impôt sur le revenu” – IR) to the French tax authorities. Tax residents in France are moreover subject to French wealth tax (“Impôt sur la fortune immobilière”– IFI) on real estate assets and real estate rights held directly and indirectly in France and abroad should the value of the net taxable real estate assets be greater than 1.3 million euros.

In order to encourage French expatriates and foreigners to take up residence in France to work, France has introduced tax exemption measures under the so-called “inpatriate” regime.

Under this regime, employees as well as certain directors who return or move to France (referred to as “inpatriates”) can enjoy significant tax incentives for a period of eight consecutive years.

These incentives include, among others, a tax exemption on all or 50% of the following types of income:

  • any additional compensation paid to the “inpatriates”, in cash or in kind, directly linked to the “inpatriation”, which may take the form of a lump sum of up to 30% of the total net remuneration;
  • any additional compensation paid to the “inpatriates” in return for a professional activity that the “inpatriate” continues to carry out abroad after settling in France;
  • passive income from non-French sources (including all dividends and capital gains from the sale of shares in foreign companies);
  • allowances and reimbursements of expenses provided that they are used for their stated purpose (e.g. expenses related to an exploratory trip to France, agency fees for finding accommodation in France, removal expenses, furniture storage costs, etc.).

 

This very favourable regime for inpatriates is subject to specific conditions. The return to France must be related to the professional activity and the “inpatriate” status applies only to employees or directors who have not been tax resident in France for at least five years, preceding the year in which they take up their position in France, and are French tax resident after the move to France.

The “inpatriate” regime is further only available in the following two situations:

  • intra-group mobility: i.e. an intra-group secondment or transfer to a group enterprise in France; or
  • external recruitment by a French establishment: i.e. direct recruitment abroad by an enterprise in France.

 

The tax regime for inpatriates therefore does not apply to people who have come to France on their own initiative and found employment there.

In order to ensure that the conditions of the “inpatriation” regime are satisfied, careful attention should be paid to planning the date of transfer of the tax residence to France and the drafting of the French employ-ment contract and the conditions of employment.

Further, the employer should ensure that the inpatriate’s residence in France complies with the criteria for “tax residence” which must be evaluated under French law as well as international tax treaties.

As the French tax authorities are known to exercise particular care in verifying whether the eligibility cri-teria of the “inpatriate” regime are met, a French expatriate returning to France should make the “inpatriate” status and the tax benefits it offers, part of an overall tax strategy which must include a ca-reful planning of the repatriation and arrangements of his financial and patrimonial assets before the re-turn to France.

As part of this strategy, the expatriate should consider combining the various tax benefits of “inpatriation” with the implementation, on a case-by-case basis, of other appropriate preferential schemes (e.g. “split payroll”, exemption from pension contributions, etc.) which can further contribute to a reduction in the inpatriate’s tax burden after the move to France.

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