It is common for a French company to use the services of a non-French tax resident. This situation may arise in particular in the context of intra-group mobility but not necessarily. From a tax technical point of view, this is called impatriation.
Many tax questions arise in this type of situation. Can the employee still be considered a non-French tax resident after taking up his position? This question has already been addressed previously in the article how to become a non-French tax resident . If not, is there one or more mechanisms to limit the applicable taxation?
This article aims to provide an update on this last hypothesis.
Exemption related to impatriation to France : What does it consist of?
Article 155 B of the General Tax Code allows employees coming to work in France to benefit from several income tax exemptions:
an exemption from the expatriation bonus granted by the company to employees in return for their arrival in France. This bonus can, optionally, be assessed at a flat rate of 30% of the amount of net remuneration
an exemption linked to the activity carried out abroad
an exemption of up to 50% of the amount of certain “passive” income received abroad (dividends, capital gains, etc.)
How can non-residents benefit from these exemptions?
Condition #1: Having been “called from abroad”
This system is aimed at non-residents called by a foreign company to work for a company established in France (intra-group mobility) as well as people recruited directly abroad by a company established in France.
At the time of recruitment, the persons concerned may therefore, for example, already be employed in a company established abroad, be self-employed or have no activity (students starting their first job, for example).
The employee (or manager) must therefore be able to provide proof that, when he was recruited, his actual domicile was still abroad and that he had not already transferred it to France. This proof may result from multiple documents: supporting documents for contacts with the company, proof of domicile, proof of travel, family situation, etc.
The question arose as to whether the employee had to prove, in accordance with the letter of the text, that he was strictly speaking "called" by a French company (meaning "solicited by a company"), or whether it was sufficient that he had applied for an offer issued. The doctrine of the tax administration refuses to recognize any exemption in the latter case.
The Paris Administrative Court of Appeal, however, contradicted this position in a ruling dated June 10, 2022 ( CAA Paris 10-6-2022 n° 20PA02279 ).
The court has in fact ruled that a computer systems developer domiciled abroad when negotiations began with a view to his recruitment by a company established in France and his installation in France with his wife can benefit from the provisions of Article 155 B of the CGI, even though he does not establish that his recruitment resulted exclusively from an initiative of the French company.
Condition No. 2: Not having been a tax resident for a certain period prior to taking up office
The employee must not have been domiciled for tax purposes in France during the five calendar years preceding the year in which they took up their duties (see the article how to become a non-French tax resident for more information on this subject ).
Condition no. 3: be an employee or a manager “deemed an employee”
In addition to employees, eligible persons are all managers who, mentioned in article 80 ter, b-1°, 2° and 3° of the CGI, are fiscally assimilated to them. These are:
- in public limited companies, the chairman of the board of directors, the general manager, the deputy general manager, the provisionally delegated director, the members of the management board and any director or member of the supervisory board entrusted with special functions. The same applies in simplified joint stock companies (SAS), in application of the principle of assimilation of the SAS to the SA laid down, for the application of the provisions of the CGI and its annexes, by article 1655 quinquies of this Code;
- in SARLs, minority or equal managers;
- in other companies or establishments subject to corporation tax, managers subject to the employee tax regime.
Condition No. 4: Duration of the contract
Under the terms of Article 155 B of the CGI, employees and managers called upon to take up employment in a company established in France for a limited period are affected by the regime.
The administrative doctrine, which can be opposed to the tax authorities, is however more favourable. The administration specifies, in fact, that employees and managers called upon to occupy a position for a fixed or indefinite period in a company established in France can benefit from the special tax regime provided for in Article 155 B of the CGI. It remains to be seen whether the legislator will reconsider this condition.
How long does this exemption last?
This system is applicable until December 31 of the eighth year following the year in which the beneficiaries took up their duties in France.
If the date of taking up duties is before July 6, 2016, the exemption is applicable until December 31 of the fifth year following the date of taking up duties in France.
Is this exemption limited?
Yes. To avoid obvious situations of abuse, such as the payment of a reduced basic salary and a large expatriation bonus, there is a cap on the exemption.
In fact, if the reference salary for similar functions exceeds the amount of remuneration excluding expatriation bonus, the difference cannot benefit from the exemption.
In addition, another rather complex mechanism of capping the exemption applies, requiring a choice by the employee.
In fact, at the option of expatriate employees and managers:
- either the total exempt remuneration is limited to 50% of the total remuneration;
- either only the portion of the exempt remuneration relating to the activity carried out abroad is limited to 20% of the taxable remuneration of the person concerned, net of the expatriation bonus.
The choice of capping results each year from an option made by the taxpayer.
Example :
An executive, employed by a company established in Sweden and not having been tax domiciled in France since at least January 1st N - 5, is seconded by his employer to a company established in France from January 1st of year N. He is required to regularly travel abroad.
His net annual remuneration for year N is €220,000, including:
- €130,000 corresponding to an expatriation bonus;
- €30,000 corresponding to his activity carried out abroad.
The “reference salary” in France is €100,000.
Determination of the amount of income tax exemption for year N
has. Impatriation bonus (CGI art. 155 B, I-1)
Given the amount of the reference remuneration, the expatriation bonus is only likely to be exempt up to €120,000. The balance (€10,000) is taxable. Otherwise, the expatriate's taxable salary (€90,000), before taking into account the exemption of the portion of the activity carried out abroad, would be lower than the "comparable net salary" (€100,000).
b. Portion of the remuneration corresponding to the activity carried out by the person concerned abroad (CGI art. 155 B, I-2)
The portion of the remuneration corresponding to the activity carried out by the person concerned abroad is likely to be exempt up to €30,000.
c. Ceiling (CGI art. 155 B, I-3)
- Option 1: global cap
The amount of remuneration eligible for the exemption before capping is €150,000 (€120,000 + €30,000).
The amount of the exemption cannot, however, exceed €110,000 (€220,000 × 50%).
In the case of option 1, the expatriate executive is exempt from income tax up to €110,000.
- Option 2: capping of remuneration corresponding to the activity carried out abroad
The amount of taxable remuneration excluding exempt expatriation bonus is €100,000 (€220,000 − €120,000).
The portion of the remuneration corresponding to the activity carried out by the person concerned abroad which may be exempt is limited to €20,000 (€100,000 × 20%).
In the case of option 2, the expatriate executive is exempt from income tax up to €140,000 (€120,000 + €20,000).
Conclusion: in this case, it is in the taxpayer's interest to choose option 2.
Therefore, this choice must be carefully considered by the employee because it presents a financial challenge that can be considerable.
This reflection is all the more necessary since there are other tax systems, such as the system specific to expatriate and non-impatriate employees. However, it is sometimes preferable for the employee to opt for the latter system instead.
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