By moving abroad, a taxpayer may no longer be considered a French tax resident. It is however possible that, despite this expatriation , this taxpayer remains a French tax resident. This point is seen in detail in our article entitled How to become a non-French tax resident .
But even in this hypothesis, it is possible to benefit from a very advantageous tax system intended for French tax residents working abroad.
This is what we will see in this article.
In accordance with Article 81A of the General Tax Code , employees who are sent abroad by their employer, but who retain their tax domicile in France (for example, when their tax household remains in France), may benefit from a total or partial exemption from income tax on salaries received as remuneration for the activity carried out abroad.
How to benefit from an income tax exemption in the event of expatriation?
Article 81 A, I of the CGI makes the benefit of income tax exemptions subject to four conditions, common to all exemptions:
- the beneficiary of the remuneration must be tax resident in France;
- the taxpayer must be employed;
- the employer must be established in France, or in another Member State of the European Union (EU), or in a State party to the agreement on the European Economic Area (EEA) having concluded with France an administrative assistance agreement with a view to combating tax fraud and evasion;
- the activity must be carried out in a State other than France and the State where the employer is established.
This exemption may be total or partial depending on the case.
How to benefit from a total exemption from income tax in the event of expatriation?
There are several cases in which employees can benefit from total exemption in the event of expatriation.
Employees subject to income tax abroad comparable to French tax
Salaries received as remuneration for activities carried out abroad (i.e. in a State other than France but also that of the employer's place of establishment) are totally exempt from income tax in France when the taxpayer can prove that he was actually subject on the remuneration in question, in the State where the activity was carried out, to an income tax at least equal to two-thirds of that which he would have to pay in France on the same tax base.
This provision is particularly useful in the event that the employee works in a State which is not linked to France by a tax convention aimed at eliminating double taxation.
To calculate the tax burden that would be borne in France, it is appropriate to use the methods for determining the taxable base and the family quotient normally applicable in the event of taxation in France and to disregard other income received by the taxpayer or members of his family. The second term of the comparison is the amount of tax paid abroad.
This justification can only be provided, in principle, by way of a tax claim filed within the time limits of ordinary law. It requires the production of all supporting documents necessary for examining the situation and more specifically:
- a certificate from the employer stating separately the amount of the remuneration itself, additional compensation and allowances for professional expenses;
- a tax document showing the amount of income taxed abroad and the amount of the corresponding tax: tax notice, extract from the tax roll, receipt, etc., issued by the foreign tax authorities.
Activity carried out sustainably abroad
Salaries received as remuneration for activities carried out abroad are completely exempt from income tax in France when the taxpayer carries out one of the activities strictly provided for by law and can prove a minimum period of expatriation (183 days as a general rule, 120 days for commercial prospecting activities).
These are:
- the execution of construction or assembly sites, the installation of industrial units, their start-up, their operation and the related engineering;
- the search for or extraction of natural resources;
- navigation on board vessels registered in the French international register;
- commercial prospecting activities.
If none of these conditions are met, don't panic. A partial exemption is however possible. It concerns the expatriation bonus.
How to benefit from an income tax exemption on your expatriation bonus?
When the conditions of application common to all exemptions are met and taxpayers do not fall into any of the cases of total exemption of Article 81 A, I of the CGI, they may, under certain conditions, benefit from a partial exemption. This is the exemption from additional remuneration that may be paid to them for secondment abroad provided for in Article 81 A, II of the CGI.
Three conditions must be met simultaneously:
- additional remuneration must be paid in return for stays carried out in the direct and exclusive interest of the employer;
- they must be justified by a trip requiring residence for an effective duration of at least 24 hours in another State;
- and be determined in their amount prior to stays in another State and in relation, on the one hand, to the number, duration and location of these stays and, on the other hand, to the remuneration paid to employees, excluding remuneration supplements. The amount of remuneration supplements may not exceed 40% of the remuneration previously defined.
In any event, additional compensation is capped at 40% of the compensation paid to the employee excluding additional compensation. The remuneration to be retained is understood to be the annual remuneration, fixed or variable (bonuses, bonuses or profit-sharing, etc.), paid to the employee, with the exception of additional remuneration awarded for stays in States other than France and that of the employer's place of establishment.
This system must be combined, where appropriate, with tax treaties that may exist with the country of expatriation.
In addition, if the employee was initially a non-resident before coming to work for a French company that subsequently sent him abroad, the provision related to impatriation is sometimes preferable to that of expatriation. This provision related to impatriation is studied in our article entitled " how to pay little tax by coming to work in France when you are a non-resident ".
The employee cannot benefit from the combination of these two provisions. In this case, he must opt, at the latest when filing the overall income declaration submitted for the year he took up his duties or the first year of application of the scheme, for one or the other of these schemes. This option is irrevocable.
Please note that this information has been deliberately simplified and summarized for educational purposes and does not constitute legal advice.
For any consultation request, particularly remotely, you can contact Me Nicolas Rozenbaum directly by clicking here.
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