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25Mar

France – practice note on new expat regime

 

Context

As explained in a previous headline, a new special tax regime for foreign executives temporarily working in France was introduced into French law on 1 January 2004.

Essentially, the new tax regime provides impatriates in France with:

- a tax exemption for the extra pay and benefits they receive because of their activities in France;
- a tax deduction for premiums paid to the contingency fund and/or supplementary pension schemes the impatriate was affiliated to (out of France) before working in France and to which they continue to pay contributions.

In addition, the new regulation confirms that, as a rule, statutory foreign social security paid within the scope of EU Regulation 1408/71 is tax-deductible (not only for persons benefiting from the special tax status).

The remuneration and benefits received by an impatriate that are subject to French income tax may not fall below what a French employee with similar functions would receive in the same or a similar company.

News

On 21 March 2005, the French tax authorities published a Practice Note(*) regarding this new special tax regime. The Practice Note sets out which persons qualify for the special tax regime and confirms that it only applies to persons that become French tax-resident. It also sets out which elements of a remuneration package offered to an impatriate can be tax-exempted.

The Practice Note explains how the (maximum) exempted amount of benefits relating to the impatriation is calculated and how the comparison with a similar French-resident package is to be done. It also confirms that the new special tax regime does not replace the existing practice note on inbound assignees working at company headquarters and logistic centres. Combining the two favourable regimes is not possible, however (with exceptions).

However the exemption of impatriate premium payments as explained above may be combined with the statutory exemption for expatriate premium payments (should the impatriate work part of his time outside France), as long as the taxable income of the impatriate is not less than the remuneration a French company would pay for a similar function in France.

(*) http://news.hrservices.be?lk200503251

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Posted: March 25th, 2005