LeXcom Law firm

The beneficiaries of the new regime

The new provisions inserted in the French tax code apply to employees and corporate officers who are assigned by their foreign employer to perform a professional activity in a French company, for a limited period of time. Only employees who have not been French tax residents for the five calendar years preceding the date of start of the activity in France are allowed to benefit from the regime.

According to the tax circular, employees who are not assigned to France by a foreign employer but who are directly hired abroad by a French company will have to be able to demonstrate that they were still living outside of France on the date they were hired by the French company.

Regarding the date as from which the regime is likely to apply to the employee arriving to France, the Tax authorities agree to consider that the regime applies to the remunerations received as from the date the impatriate began to work in France, even if the transfer of residency of the family occurs later during such year, or the year after. His the transfer of residency occurs after such year, the benefit of the impatriate regime is not lost but will be deferred until the residency transfer.

The exempted premium

The amount of the impatriation premium likely to be tax exempt has to be provided for in the employment contract or additional agreement to the employment contract. For employees directly hired abroad, the new regime offers a possibility to elect for an estimation of the impatriation premium equal to 30% of their total net compensation (even if their employment contract provides for another amount for the premium).

Employer and employees’ reporting obligations

• Employer’s obligation: the employer must distinguish, in the annual declaration of salaries, between the "normal" compensation and the compensation items linked to the impatriation of the employee. The impatriation items have to be declared in the "exempted amounts in relation to the impatriate regime" field of the declaration. The amounts relating to the activity performed aborad must also be reported in this field.

• Employee’s obligations: the option for the exemption cap chosen must be made in the field called "other information" of the annual personal income tax return (n°2042).

Tax exemption of certain foreign source income

The new regime also provides for the exemption of personal income tax on the three following types of income:

• Dividends;
• Intellectual and industrial property income;
• Capital gains on securities when the depositary or the company which shares are sold is established in a country which signed a tax treaty with France which contains an administrative assistance clause. A list of such countries is annexed to the tax circular.

Such income is tax exempted on 50% of their amount, until December 31 of the fifth year following the beginning of their activity in France. Details regarding the filling of the tax return in respect of such income are given by the tax circular.