Overseas Chambers of Peter Harris

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Brexit and France: attracting talent from the United Kingdom by the use of income tax breaks? It may not be so. Article 155B CGI is not as simple as it is made out to be.

March 26th 2018

France is offering employees, or senior executive shareholders of French groups  who relocate to France under the Brexit scenario a partial exemption from French income tax on foreign income for eight years under article 155B CGI.

It might seem that "the gloves are off", but the actual exemption itself is very limited in its application and a degree of care needs to be taken, both by the French employer and by the employee or executive taking up an offer of employment in France under this adapted régime.

Prior to 2018, employees hired by French companies from other countries were exempted from French income tax for the first five years of employment, so long as the recruits declared France as being their primary residence. That has now been extended to eight years, and effectively amounts to a backdating to acceptances of employment made after 6th July, 2016. Offers accepted prior to that date only enable a 5 year exemption.

However, the exemption is not an absolute, it is limited to either all the foreign employment income and certain other forms of income related to the employment or function, or a 50% percentage of total employment income.

There are anti avoidance provisions built in to the mechanism to counter attempts made to inflate either foreign or French income in this equation  to reallocate otherwise exempt income into taxable income.

What is clear is that non-EU vehicles wil only be acceptable if the jurisdiction housing them not only has a TIEA arrangement in place, but also one which enables enforcement of French tax liabilities. Most TIEAs do not have that enforcement facility, and will therefore not enable the use of offshore vehicles as part of a bonus or payment structure  in this ocntext.

The new incentive will now be backdated to include those employees who signed employment contracts after 6 July 2016 into the eight year holiday.

The change in French policy also offers tax breaks on bonuses earned outside of France and such assets as intellectual property.

Such impatriates are also exempt from French wealth tax on all assets held outside France for the first five years of residence in France. Whilst this is of limited significance, as all movable investments were excluded from the remodelled wealth tax under the change to the IFI or impôt sur la fortune immobilière. That remodelling only applies after 1st January, 2018.

It will therefore be possible to structure investments in foreign immovable property or property funds so as to retain the IFI exemption.

The conditions for qualifying for the expatriate tax breaks include:

1. Securing a fixed-term or permanent employment contract in a company based in France either through a company based abroad, or recruited directly by the company based in France.

2. Not been tax resident in France during the five prior calendar years; and

3. Declaring France as the employee's principal tax residence (domicile).

The main aim of the 2018 régime is to enable aso-called impatriatio bonuses to be paid tax free.

Before considering or agreeing to such an "opportunity", seek independent advice from Peter Harris.

Whether the exemption will also be applied to prélèvements sociaux on exempted foreign income or gains has yet to be clarified.