QROPS Advice: Taxation of Expatriates Living in France

An individual is deemed a French resident for tax purposes if:
􀂃 They have a home in France or, if they have no home in France or abroad, France is their principal place of abode; or
􀂃 France is the place where they perform principal professional activities; or
􀂃 France is the centre of their economic interests.
Only one of these criteria needs to be met in order to qualify as a French resident for tax purposes. If an expatriate working in France is considered to be a resident in both France and in their home country, reference will be made to the relevant tax treaty, if any, to determine the country in which the individual will be regarded as resident. France has an extensive network of double taxation treaties, with over 110 negotiated and in place.
Allowances and annual progressive tax rates apply in the same way to part-year and full-year tax residents. However, because of French income-splitting rules, a married taxpayer with children may not reach the maximum marginal tax rate during their first year in France. This means that there may be a significant benefit to an expatriate in shifting income into the first year or last
year of the assignment, depending on the date of arrival/departure. When a French tax resident leaves France during the course of a tax year, they remain liable to French personal income tax on the aggregate of world-wide income earned as a French tax resident and also their sole French-source income earned as a non-French tax resident, subject to the provisions of an applicable tax treaty.
A new ‘inbound assignee’ regime came into force on 6th August 2008 (Article 155B of the French Tax Code) and is applicable to employees assigned to France by their foreign employer as from 1st January 2008 or to employees directly recruited abroad by a French company as from 1st January 2008. In both cases, the individuals must not have been French tax resident during the five calendar years preceding the year of starting their assignment/employment in France. Under this new regime, individuals
assigned to France by their foreign employer can benefit from a French income tax exemption in relation to salary supplements connected with their assignment. For employees directly recruited abroad, the new regime would offer an option with regard to their tax treatment as follows:
• The exemption of the actual amount of salary supplements received; or
• In the event that there are no such salary supplements, upon election, a flat rate exemption of 30% of the total remuneration.
However, the new regime provides for a “floor” of reportable compensation (i.e. the taxable compensation cannot be lower than the taxable remuneration paid for a similar job in the same or a similar company established in France). It also provides for an exemption of part of the remuneration based on foreign workdays. However, the total exemption (i.e. on salary supplements – actual or not – and foreign workdays) is limited to 50% of the total remuneration, or the individual can elect for an exemption of French tax connected with foreign workdays limited to 20% of the taxable remuneration.
The availability of this new inbound regime is limited to five years as from the year of arrival.
Inbound assignees who benefit from the new inbound regime can also exempt 50% of the amount of their foreign interest, dividends, royalties, capital gains and industrial and intellectual property gains, under certain conditions.

http://www.ailo.org/common/externalPage.asp?intURL=/publications/default.asp&extURL=/downloads/France 2009.pdf