Focus on the special inpatriate tax regime in France

​​​​​​​​​​published on 31 August 2021 | reading time approx. 2 minutes

by Timotheus Tangermann, Rödl & Partner Paris, and Marcus Schmidbauer
  
The recent arrival of the soccer player Lionel Messi at the Parisian club Paris Saint-Germain has highlighted a tax regime applying to employees and certain managers exercising their function in a company based in France, also known as the “inpatriate tax regime”. Let’s take a closer look at this system.
     

    
Pursuant to Article 155 B of the CGI, employees and certain managers coming to France to carry out their professional activity for a limited period of time may benefit, under certain conditions, from temporary income tax exemptions on:

• parts of their business income, and
• certain foreign-sourced income categories as well as a partial exemption of the French wealth tax (Impôt sur la fortune immobilière - IFI).

   
To be eligible for this tax regime, the individuals concerned must satisfy the following conditions:

• they must not have been French tax resident during the last five calendar years before the start of their function in the French company;
• the inpatriate’s taxable part of its business income cannot be lower than the ‘French reference remuneration’, which corresponds to the highest salary paid to French employees for similar functions within the company.

Time period

This regime applies only in respect to the years for which inpatriate employees:

• have their household or principal place of residence in France and,
• carry out a primary function in France.

  
This exemption is granted until 31st December of the eighth calendar year following the taking up of functions in the host company in France.
   

Income tax benefits

The expatriate regime provides entitlement to income tax exemptions on:

• the inpatriate bonus, in other words the additional remuneration directly linked to the exercise of a professional activity in France, within the limit of the ‘French reference remuneration’;
• the part of remuneration relating to the foreign activity carried out in the interests of the employer;
• 50 percent of foreign-sourced investments income;
• 50 percent of from foreign-sourced capital gains;
• 50 percent of some intellectual and industrial property rights from foreign sources.

  
This inpatriate scheme also allows to deduct contributions to supplementary retirement and supplementary pension schemes with which the applicants were affiliated before arriving in France from their taxable income. 
  

Other benefits of the regime

The regime applicable to income tax has a parallel rule of partial exemption from the French property wealth tax (Impôt sur la fortune immobilière - IFI). According to this regime, individuals who were not residents of France for tax purposes during the five calendar year prior to the year in which they establish their tax domiciliation in France are liable to the French property wealth tax only on property and property rights located in France with no conditions regarding employment.

This regime applies every year during which the taxpayer keeps his tax residence in France, until 31st December of the fifth year following the one during which the tax residence has been established in France.
Our teams will be pleased to analyze your situation and to assist you when you arrive in France.