1. 1 Impatriates: French tax regime CABINET SEVESTRE, 71 avenue Marceau – 75116 PARIS Tél : 33 (0) 1 53 57 90 10 – Fax : 33 (0) 1 40 70 09 65 y.sevestre@cabinet-sevestre.com www.cabinet-sevestre.com

2. 2 Impatriates can benefit from a favourable tax regime concerning both their income tax and their wealth tax

3. 3 Who can be considered as an impatriate and so benefit from the favourable tax regime? Are considered as impatriates : - employees and - managers of companies subject to corporate tax subject to the employee’s tax regime Who were previously tax resident of another country and come to France in order to perform a professional activity for a limited period in a company located in France. Are also concerned self-employed people under strict conditions (outstanding contribution to France, research and experimental development activity, prior approval given by the minister of Economy and Finance….).

4. 4 Who can be considered as an impatriate and so benefit from the favourable tax regime? People who come to work in France at their own initiative are not concerned What are the conditions in order to benefit from the favourable tax regime ? Both employees and managers can benefit from a favourable tax regime if: -They were not French tax resident during the 5 years preceding the year when they start performing their activity in France and; - They become French tax resident as of the effective start date of their work in France

5. 5 If the conditions described are fulfilled, employees and managers will benefit from favourable measures regarding: -Their income tax -Their wealth tax (general measure – not only applicable to impatriates)

6. 6 1. Favourable measures regarding income tax

7. 7 Impatriates will be income tax exempt regarding both their professional income and some of their “passive” income. This tax exemption is granted until December, 31 st of the fifth civil year following the year of their effective start date of work in France. Example: an employee comes to France and starts working on February, 1 st 2011. He will be income tax exempt until December, 31 st 2016.

8. 8 Professional income

9. 9 Income tax The income tax exemption will first concern the additional salary received by an employee (or manager) directly linked to his professional activity in France: it is called the “impatriation bonus”. The amount which will be tax exempt would be the effective amount of the additional salary. For those who have been directly recruited abroad by a French company, they can choose to be tax exempt on a lump sum of 30% of their total net salary. Limit: the amount of the taxable salary in France must be comparable to the salary paid for similar functions in the company or in similar companies established in France (i.e. the reference salary). Otherwise, the difference of salary will have to be included in the taxable basis subject to income tax.

10. 10 Income tax Example: An employee receives a salary amounting to € 150,000, which includes the impatriation bonus amounting to € 50,000. If, for similar functions in the company or in similar companies established in France, the paid salary amounts to € 100,000, then the amount of € 50,000 will be tax exempt. However, if for similar functions in the company or in similar companies established in France the paid salary amounts to € 120,000, then the amount subject to income tax would be € 120,000 (and not € 100,000) and only € 30,000 would be tax exempt.

11. 11 Income tax The income tax exemption will also concern the portion of salary corresponding to the work performed abroad if the time spent abroad is guided by the direct and exclusive employer’s interest: it is called the “expatriation bonus” (note: this is a different regime from the one applicable to the expatriate). The tax exemption of both the impatriation bonus and the expatriation bonus is limited : -Or the salary tax exempt (impatriation bonus + expatriation bonus) is limited to 50% of the total salary received; -Or the sole expatriation bonus is tax exempt within the limit of 20% of the taxable salary in France.

12. 12 Income tax Example 1: an impatriate received in 2010: -A total net salary amounting to € 220,000, including an impatriation bonus of € 130,000 and an expatriation bonus of € 30,000. -The reference salary amounts to € 100,000. a)Amount of the impatriation bonus’ exemption The base salary received by the impatriate, prior taking into account the amount of the expatriation bonus, amounts to €90,000 (220,000 – 130,000). Since the reference salary amounting to € 100,000 exceeds the base salary (€ 90,000), the taxable salary would be € 100,000  € 10,000 will have to be included in the taxable basis. The amount of the impatriation bonus’ exemption is € 120,000

13. 13 Income tax b) Amount of the expatriation bonus’ exemption The portion of the salary corresponding to the activity performed abroad would be totally tax exempt, i.e. € 30,000. c) Limitation of the tax exemption Option 1: global limitation The portion that could be tax exempt prior the limitation amounts to €150,000 (€ 120,000 + € 30,000). The limitation according to option 1 amounts to € 110,000 (€ 220,000 X 50%). Therefore, in case of option 1, the impatriate will be income tax exempt on an amount of € 110,000.

14. 14 Income tax c) Limitation of the tax exemption Option 2: limitation of the sole expatriation bonus The taxable salary amounts to € 100,000 (220,000 – 120,000) The expatriation bonus will be tax exempt within the limit of 20% of the taxable salary, i.e. a tax exemption amounting to € 20,000 (€100,000 X 20%). Therefore, in case of option 2, the impatriate will be income tax exempt on an amount of € 140,000 (€ 120,000 + € 20,000). Conclusion: the impatriate should choose option 2.

15. 15 Income tax Example 2: an impatriate received in 2010: -A total net salary amounting to € 140,000, including an expatriation bonus of € 30,000. -The reference salary amounts to € 100,000. a)Amount of the impatriation bonus’ exemption The salary received by the impatriate, prior taking into account the amount of the expatriation bonus, amounts to €140,000. Since the reference salary amounting to € 100,000, the amounts of the impatriation bonus will be € 40,000.

16. 16 Income tax b) Amount of the expatriation bonus’ exemption The portion of the salary corresponding to the activity performed abroad would be totally tax exempt, i.e. € 30,000. c) Limitation of the tax exemption Option 1: global limitation The portion that could be tax exempt prior the limitation amounts to €70,000 (€ 40,000 + € 30,000). The limitation according to option 1 amounts to € 70,000 (€ 140,000 X 50%). Therefore, in case of option 1, the impatriate will be income tax exempt on an amount of € 70,000.

17. 17 Income tax c) Limitation of the tax exemption Option 2: limitation of the sole expatriation bonus The taxable salary amounts to € 100,000 (140,000 – 40,000) The expatriation bonus will be tax exempt within the limit of 20% of the taxable salary, i.e. a tax exemption amounting to € 20,000 (€100,000 X 20%). Therefore, in case of option 2, the impatriate will be income tax exempt on an amount of € 60,000 (€ 40,000 + € 20,000). Conclusion: the impatriate should choose option 1.

18. 18 “Passive” income

19. 19 Income tax Impatriates will also be able to benefit from a tax exemption amounting to 50% of their “passive” income paid and received abroad. Are concerned the following income: - Income deriving from intellectual property or patent rights; - Dividends, interest, income deriving from securities, from life-insurance contracts…; - Capital gains (the capital losses are therefore taken into account for 50% of their amount) Important: the social contributions (amounting to 13,5%) apply to the total amount of the income received, i.e. application also to the 50% tax exempt.

20. 20 2. Favourable measures regarding wealth tax

21. 21 Wealth tax Are liable to wealth tax people whose net assets (i.e. assets – liabilities) exceeds or is equal to € 1,300,000. As from January, 1 st 2012, the wealth tax would amount to: -0,25% of the net assets if the nets assets is equal or exceeds € 1,300,000 without exceeding € 3,000,000 or; -0,50% of the net assets if the nets assets is equal or exceeds € 3,000,000 In principle, French tax resident must included in the taxable basis of their wealth all assets they own, wherever they are (location in France or abroad). However, impatriates benefit from favourable rules as far as wealth tax is concerned.

22. 22 Wealth tax Impatriates will be liable to wealth tax only on their assets located in France. Therefore, their assets located abroad will not have to be included in their wealth taxable basis. This favourable measure is granted to people who transfer their tax residence in France after having been a tax resident of another country during the 5 years preceding the year of transfer. This weath tax exemption is granted until December, 31 st of the fifth civil year following the year of their transfer of domicile to France.

23. 23 3. New points which may impact impatriates’ situation

24. 24 Trust

25. 25 Trust We draw your attention on the case where an impatriate is the settlor of a trust. In fact, the 2011 amended finance bill created a legal definition in order for the French tax system to be able to determine the tax consequences of such trusts. Regarding income tax: the income which are distributed by the trust is liable for income tax. We assume that in such case, incomes will benefit from the 50% allowance. However, note that if incomes are not distributed but are reinvested in the trust, no income tax will be due. Regarding weath tax: for the 1 st 5 years (re. above) impatriates who hold assets in a trust will be liable for wealth tax as from January, 1 st 2012 if the amount of the French assets included in a trust (plus other assets located in France) exceeds 1,300 K€.

26. 26 Exit Tax

27. 27 Exit tax The 2011 amended finance bill created an “exit tax” which concerns individuals who transfer their tax residence out of France and who have been living in France for 6 years within the past 10 years. This exit tax applies to: -unrealized capital gain on shares held in companies, subject or not to corporate tax, and representing either 1% of its rights or having a value exceeding K€1,300; -on some claims on additional price and; -on profit on shares with suspended taxation.

28. 28 THANK YOU