Essentials of the French favorable tax regime for impatriates - Article 155 B of the French tax code

1. Presentation of the regime

In a global economy that has become increasingly competitive, attracting talent and skilled labor remains a highly important and differentiating factor. All countries are going in their own way to attract the best human resources to their economic ecosystem. In France, the favorable tax regime for impatriates enshrined in Article 155 B of the General Tax Code (CGI) plays this role of strengthening attractiveness in order to encourage employees and executives to settle there. In concrete terms, this scheme allows eligible employees to benefit from exemptions, in particular in respect of their remuneration, of up to 50% of this amount.

This regime, initially set up by article 81 B of the CGI, concerns employees domiciled in France for tax purposes and whose duties have taken place since January 1, 2008. Remaining in the dynamics of strengthening the attractiveness of France, the finance law for 2017 will increase the maximum duration of application of the regime from 5 to 8 years.

2. Conditions for the application of the regime

Employees eligible for the French favorable tax regime for impatriates are those who:

• Are called from abroad: either in the context of intra-group mobility or recruitment;

people who have come to work in France on their own initiative or who have already

established their tax residence during recruitment are therefore excluded.

• must not have been tax residents of France during the five years preceding their taking office;

Taking office means the date on which the performance of the contract, either of employment or of corporate office, begins within the company located in France.

• have their tax domicile in France when they take up their duties according to the a and b of 1 of article 4 B of the CGI

These are only people who have their tax home in France and those who mainly carry out a professional activity there.

3. Benefits of the regime

Employees eligible for the French tax favorable regime benefit from the following advantages:

• Exemptions relating to the remuneration of the employee

The additional remuneration

These are payments whose purpose is to encourage mobility or to compensate a difference in standard of living compared to the home country. Thus, allowances for accommodation, mobility, cost of living, holidays in the home country and so many others, called "impatriation premium", are likely to be eligible for the exemption provided for by the French favorable regime of impatriates.

This impatriate premium must in principle be provided for in the contract, the corporate mandate or the engagement letter. The employee can opt for an exemption from the premium on a flat-rate basis up to 30% of the net taxable remuneration.

The portion of the remuneration relating to the foreign workdays

The employee eligible for the French favorable regime for impatriates, who is brought in the direct and exclusive interest of the company to perform is professional activity abroad, may also benefit from the exemption of his remuneration related to his foreign workdays.

• Exemption relating to certain passive income and certain capital gains

The French favorable tax regime for impatriates also gives the right to exemption up to 50% of the amount of certain passive income and capital gains received abroad. In this case it is:

Proceeds from copyrights and proceeds received by inventors

These are products paid for by persons established outside France in a country that has signed a tax treaty with France which includes an administrative assistance clause to combat fraud and tax evasion.

Foreign investment incomes

We are mainly talking here about dividends and bank interests paid by a person established outside France in a country that has signed a tax treaty with France that includes an administrative assistance clause to combat fraud and tax evasion.

Capital gains from the sale of securities

The depositary of the securities or, failing that, the company whose securities are transferred, must be established outside France in a State or territory which has concluded a tax treaty with France which contains an administrative assistance clause with a view to combating fraud or tax evasion.

4. The limits of the regime

There are two types. These are the reference salary and the exemption cap.

• The reference salary

To benefit from the exemption provided for by the provisions of article 155 B of the French tax code, the remuneration of the impatriate employee subject to income tax must be greater than or at least equal to the remuneration received for similar functions in the same company, or failing that, in similar companies established in France.

• The capping of the exemption

The exemption under article 155 B is optionally capped:

Either 50% of the total compensation

The exemption here cannot go beyond 50% of the total remuneration (impatriation premium included).

Or 20% of the remuneration relating to the activity carried out abroad in addition to the impatriation premium

The exemption is in this case limited to 20% of the net remuneration, to which must be added the amount of the impatriation premium to determine the amount of the ceiling.

5. Annual tax return

To benefit from the application of this regime, there is no prior administrative formality to be completed with the tax authorities.

Indeed, once the employee fulfills the conditions to benefit from this regime, it is implemented directly in the annual tax return through specific reporting methods in the forms.

If you want to know if you are eligible to benefit from this regime and/or need assistance for its implementation in your tax return, your tax Lawyer, Maître Camara, proposes to discuss it with you.