Expatriation guide by a Lawyer in Paris: expatriate taxation and legal aspects for entrepreneurs and managers

Expatriation is no longer reserved for large groups: more and more entrepreneurs, freelancers, SME managers or senior managers are choosing to settle abroad for professional, family or asset reasons. However, expatriate taxation and the legal aspects of expatriation remain complex, with a high risk of mischaracterizing tax residence, double taxation or, conversely, recovery for poorly controlled “fiscal expatriation”.

The objective of this guide is to offer you, as an entrepreneur or expatriate, a clear, structured and operational vision of the main issues: tax residence, international tax treaties, French tax non-resident status, income taxation, income taxation, Exit tax, consequences on your companies, assets, matrimonial regime and inheritance. All with concrete examples to help you project yourself.

It is a subject that is both technical and regulated, at the crossroads of tax law, private international law, company law and sometimes social law. In practice, a personalized consultation remains essential to secure your expatriation project.

1. Understanding expatriate taxation: the main principles

1.1. Expatriate, tax resident, non-resident: what are we really talking about?

The term “expatriate” is a common term, but it does not correspond to a specific legal or fiscal category. You can be an expatriate in the HR sense (expatriation contract, secondment, etc.) while remaining a French tax resident, or conversely be a non-tax resident without benefiting from expatriate status in your company.

In terms of taxation, the essential criterion is fiscal residence. It determines the country in which you are taxable on all of your worldwide income, and not the simple fact of having moved or spending part of the year abroad. The status of French tax non-resident is assessed using legal criteria and, where applicable, via applicable international tax treaties.

In summary:

• French tax resident: taxable in France on all of your worldwide income (subject to tax treaties).
• French tax non-resident: taxable in France mainly on your income from French sources (real estate, French salaries, dividends, etc.).
• Expatriate (in the common sense): person who lives and works abroad, but who may or may not be a French non-resident for tax purposes.

Concrete example: A startup founder leaves for Lisbon, opens a bank account, rents an apartment, but leaves his family and his operating company in France, where he remains the operational manager. Even if he considers himself an “expatriate”, according to the criteria analyzed below, he can remain a French tax resident, with all the ensuing consequences.

1.2. French tax resident and 183-day rule: a persistent misconception

Many future expatriates think that it is enough to spend less than 183 days in France to no longer be a tax resident there. In reality, the 183-day rule is just one criterion among many, and is often misunderstood.

Under French domestic law, you are considered to have your fiscal residence in France, in particular if:

• You have in France your home (place where your family usually lives) or the place of your main stay (more than 183 days out of the year), or
• You exercise your main professional activity in France, paid or not, or
• In France, you have the center of your economic interests (main investments, headquarters of your business, center for managing your assets, etc.).

International tax treaties follow a similar logic, via successive “connection criteria”: permanent home, center of vital interests, place of usual stay, then nationality as a last resort. A taxpayer can therefore be considered a tax resident of France even if he spends less than 183 days there, if his vital interests (family, business, assets) remain located there.

Concrete example: An SME manager leaves for Dubai, but keeps her spouse and her children attending school in France, the family home and all of her real estate investments in France. Despite a majority physical presence abroad, the administration and, in the event of an audit, the judge may consider that her center of vital interests remains in France, and therefore that she remains a French tax resident.

1.3. The list of international tax treaties: a key tool to avoid double taxation

France has concluded over a hundred international tax treaties with other states, in order to avoid the same income being taxed twice (once in the State of residence, once in the State of residence, once in the State of source). Each agreement specifies:

• How to determine tax residency in case of potential dual residency.
• How to distribute the right to tax the various categories of income (salaries, dividends, interests, real estate capital gains, etc.).
• Mechanisms for the elimination of double taxation (tax credit, exemption).

The list of international tax treaties concluded by France is public. For each expatriation project, it is essential to identify whether an agreement exists between France and the host country, and what specific rules it provides for. In the absence of an agreement, the risks of double taxation increase significantly.

Concrete example: a French entrepreneur settles in Spain. The Franco-Spanish agreement provides that his wages are taxable in principle in the State of residence, and that the dividends of his French company can be taxed both in France (with a limited rate) and in Spain, but with a tax credit mechanism to avoid double economic burdens.

2. Tax residence, change of residence and non-residents: the most frequent situations

2.1. Tax residence and distinction between residence and tax residence

Tax residency should not be confused with the broader concept of “home” in the civil sense. You can have several homes in the everyday sense (primary residence, secondary residence, etc.), but you can only have one tax residence under a bilateral tax treaty.

The difference between residence and tax residence is therefore essential:

• The home (civil) refers to your main or official place of life.
• Tax residency refers to the State in which you are taxable on all of your worldwide income, according to specific legal and conventional criteria.

Focusing on the address of your home or the length of stay during the year, without analyzing the center of your vital and economic interests, is one of the most frequent mistakes in expatriation projects.

2.2. Change of tax residence during the year: what are the consequences?

A change of tax residence during the year is possible, but it cannot be decreed: it is determined by the date on which your objective situation changes (stable and lasting settlement abroad, family move, transfer of the center of economic interests, etc.). In the year of departure, you will often have to declare your income both as a resident and then as a non-resident, with a breakdown between the periods.

In practice:

• A first period during which you are a French tax resident (taxable on your worldwide income).
• A second period, after the transfer date, during which you become a French non-resident for tax purposes (taxable only on your income from French sources).

Concrete example: A manager leaves France on June 30 to settle in Canada with his family, sell his French main residence and transfer the head office of management of his investments. In principle, the administration accepts a change of residence on 1 July, subject to consistency and justification (Canadian employment contract, residence permit, lease, school attendance of children, etc.). He will then have to declare in France his worldwide income from January 1 to June 30, then his only income from French sources from July 1 to December 31.

2.3. French tax non-resident: what income is still taxed in France?

Becoming a French non-resident for tax purposes does not mean “no longer paying taxes in France”. As a non-resident, you remain taxable in France on your income from French sources, under the conditions set by domestic law and tax treaties:

• Real estate income from properties located in France (rents, capital gains, etc.).
• Certain salaries, pensions or remuneration paid in respect of activities carried out in France.
• Dividends, interests and capital gains from French sources, according to agreements.

A common mistake is to think that you automatically become non-taxable in France once you have cut off your main professional relationships. In reality, France retains fiscal jurisdiction over a large part of income from French sources, even when it is received by a non-resident.

Concrete example: An expatriate living in Singapore keeps a rental apartment in Paris and shares in his French company, from which he receives dividends. He will be taxed in France on his rents and, where applicable, on part of the dividends, with a possible tax credit in his country of residence to avoid an overall tax burden.

2.4. List of countries without a tax treaty with France: an increased risk

The list of countries without a tax treaty with France is relatively limited, but it includes states that are sometimes attractive in terms of taxation or assets. Expatriating to a State not bound by convention implies:

• The absence of a conventional mechanism for the elimination of double taxation.
• Strict and uncoordinated application of French source and residence rules.
• An increased risk of litigation and redress if France considers that you remain a French tax resident.

In this type of configuration, the legal and fiscal structure of your installation (form of asset holding, contracts, financial flows, documentation) must be anticipated with a particularly high level of requirements.

3. Expatriation fiscal, exit tax and optimization: opportunities and limits

3.1. What is fiscal expatriation?

The term “fiscal expatriation” generally refers to situations in which a taxpayer transfers his tax residence to a State with more favorable taxation, with the main objective of optimizing or reducing his overall tax burden. Legally, the transfer of tax residence is possible, but it is governed by several anti-abuse mechanisms, including the Exit Tax.

For an entrepreneur, fiscal expatriation is often structured around three axes:

• Transfer of personal fiscal residence.
• Reorganization of the holding of shares (holding, shareholders' agreements, possible prior contributions).
• Optimization of the circulation of dividends, capital gains and passive income between states.

Concrete example: a startup founder plans to sell his significant stake within two years. He decided to move to a country with low taxation on capital gains. The French administration will closely examine the reality of his transfer of tax residence and the possible application of the Exit Tax, as well as the provisions of the applicable tax treaty.

3.2. What is the exit tax?

The Exit Tax is a French device intended to fight against tax evasion linked to the transfer of tax residence abroad by taxpayers with significant participations. It aims to tax unrealized capital gains on the shares at the time of departure, even if these shares have not yet been sold.

In summary, the exit tax applies if two main conditions are met:

• You were a French tax resident for a significant period of time during the ten years preceding departure (for example at least six years out of ten).
• You hold shares with a significant global value (for example more than €800,000 or representing at least 50% of the rights in a company).

Since the latest developments, securities of companies with a predominance of real estate companies subject to corporate tax have also been fully integrated into the system. Taxation is calculated according to the rules in force in the year of departure (flat tax or progressive scale), with specific reporting obligations.

Concrete example: a founding shareholder owns 60% of an unlisted company valued at €2 million. By leaving France to settle in a state with advantageous taxation, he can fall within the scope of the exit tax on the unrealized capital gain on his shares, even if he does not consider an immediate sale.

3.3. How to avoid expatriation taxes or limit their impact?

You do not legally “bypass” taxes, but you can anticipate and optimize the consequences of expatriation. Several levers exist:

• Analyze the valuation of your shares, your disposal horizons and the exit tax thresholds sufficiently in advance.
• Study the possibility of prior contributions to a holding company, donations or restructuring before departure, when relevant.
• Use tax suspension or deferral mechanisms, subject to strict compliance with reporting conditions and obligations.
• Choose a host country that benefits from a favorable tax treaty with France, rather than a state without a treaty.

Example of a partners' agreement clause (simplified extract):

“In the event of a plan to transfer tax residence abroad by a Partner holding more than [X]% of the capital, the Partner undertakes to inform the Company and the other Partners in advance by registered letter with acknowledgement of receipt, at least [●] days before the planned date of the transfer. The parties agree to consult in good faith in order to anticipate the fiscal and legal consequences of this transfer, in particular with regard to the applicable unrealized capital gains tax arrangements.”

This type of clause aims to organize a dialogue beforehand and to avoid unilateral decisions that may expose the company and others associated to indirect tax risks.

3.4. What is the best country to expatriate for taxation?

The question of the “best country to expatriate for taxation” does not have a universal answer. It all depends on:

• The nature of your income (salaries, dividends, capital gains, real estate income, passive income, etc.).
• Your horizon of ownership or sale (short, medium, long term).
• Your family situation (couple, children, matrimonial regime, inheritance plan).
• Your need for access to certain social rights (health, pension, social protection).

Some states are attractive for capital gains, others for retirees, and still others for professional income. The analysis cannot be limited to the facial tax rate. It must include the presence or absence of a tax treaty with France, the stability of the local legal and fiscal framework, the cost of living, the legal security of structures, and possible exit tax or taxation upon arrival in the host country.

4. Expatriates in France: tax advantages and impatriate regime

4.1. What are the tax advantages for an expatriate who comes to France?

France has put in place a tax regime for impatriates that is particularly interesting to attract foreign talent or French people returning after a period of expatriation. This regime makes it possible, under certain conditions, to significantly reduce the taxation of impatriate employees and managers.

Among the tax advantages for an expatriate in France (in the sense of impatriate):

• Exemption from the impatriation bonus (element of remuneration linked to settling in France).
• Exemption from the portion of remuneration corresponding to the activity carried out abroad on behalf of the employer.
• Partial exemption (for example up to 50%) of certain income from foreign sources (passive income, movable capital, intellectual or industrial property products, etc.).
• Limitation of the tax base at the IFI to only real estate located in France.

This regime is strictly regulated (conditions for the duration of residence abroad before returning, recruitment procedures, duration of application) and requires a detailed analysis of the employment contract, remuneration arrangements and mobility scheme.

4.2. Impatriate regime: conditions and best practices

To benefit from the impatriate regime, several conditions are generally required, including:

• Not have been a French tax resident for a given period (for example the five years preceding arrival in France).
• To be recruited abroad by a company established in France or to be called from abroad by a foreign company to carry out a paid activity in France.
• Establish your fiscal residence in France and receive eligible remuneration.

Tax benefits are often capped: the portion exempt from the impatriation bonus and remuneration related to working abroad cannot exceed a certain percentage of the total remuneration. Income from foreign sources may be partially exempt (for example up to 50%). Precise documentation of flows (activity actually carried out abroad, nature of foreign income, etc.) is essential.

Concrete example: a French executive, based in London for 7 years, is recruited by a French subsidiary of an international group. By meeting the conditions of the impatriate regime, he can benefit from an exemption of part of his remuneration and certain foreign passive income, which significantly reduces his overall tax burden for several years.

5. Legal aspects of expatriation for entrepreneurs and managers

5.1. Consequences on your French companies

For an entrepreneur, expatriation has not only personal consequences but also on his French companies. Several points need to be analyzed:

• Whether or not to maintain the position of manager (manager, president, managing director) from abroad.
• Risks of requalification of the effective management seat in the State of residence, with a risk of dual fiscal residence of the company.
• Impact on the distribution of dividends, withholding taxes and applicable agreements.

An uncontrolled transfer of the entrepreneur's fiscal residence can lead to litigation over the location of the company's decision-making center, or even to adjustments on profits if the administration considers that effective management is exercised abroad without adapting the legal framework.

Concrete example: A SARL manager settles in a country without a tax treaty with France and continues to manage the company on a daily basis from abroad, without a local management body or structured organization in France. The French administration, but also that of the host country, can claim the fiscal residence of the company, with a risk of double taxation of profits.

5.2. Matrimonial regime, mixed couple and inheritance

Expatriation also changes the framework applicable to your matrimonial regime and to the transmission of your assets. A mixed couple (spouses of different nationalities or living in different states) must be particularly vigilant about:

• The law applicable to the matrimonial regime (marriage contract, choice of law, possible European regulation).
• The rules of inheritance (hereditary reserve, available quantity, inheritance tax).
• Tax treaties in matters of inheritance and gifts, where they exist.

An improperly anticipated expatriation can lead to the application of unexpected property rules (for example a hereditary reserve that is more or less protective depending on the State concerned) and to particularly complex conflicts of law in the event of separation or death. For an entrepreneur, these issues are added to those related to his company titles and professional assets.

5.3. Contracts, litigation and taxation: a triptych to be secured

Expatriation often involves the rewriting of numerous contracts: residential leases, employment contracts, partners' agreements, distribution contracts, service contracts, etc. It is essential to anticipate:

• The law applicable to each contract (applicable law clause, competent jurisdiction clause).
• The fiscal consequences of contractual flows (withholding taxes, VAT, transfer prices for groups).
• Dispute resolution procedures (French courts, foreign courts, arbitration).

Example of a (simplified) clause of applicable law and jurisdiction:

“This contract is governed by French law. Any dispute relating to its validity, interpretation or execution will be submitted to the competent courts under the jurisdiction of the Paris Court of Appeal, notwithstanding the plurality of defendants or the warranty claim.”

This type of clause allows the expatriate manager to maintain, for certain key contracts, a legal foothold in France, while assuming that cross-border tax consequences will have to be managed in a coordinated manner.

6. Practical guidelines: check your tax residence and prepare for your departure

6.1. Practical checklist: check your tax residence before expatriation

Before leaving, it may be helpful to review a structured checklist:

• Foyer: Where do your spouse and children live? Where is your actual primary residence located?
• Center of economic interests: Where are your companies, your main investments, and your wealth management center located?
• Professional activity: Where do you do your main business? Where is your employer or your customers located?
• Tax agreements: Is there an agreement between France and the host country? How does she distribute the right to tax your various incomes?
• Exit tax: Do you meet the detention and length of residence criteria that can trigger the device?

6.2. Example of an expatriation scenario for an entrepreneur

Practical case: you are the founder and manager of a French SAS valued at €3 million, of which you own 70%. You plan to move to a country with low taxation on capital gains, where you have a professional opportunity, within 18 months.

The main points to be analyzed:

• Check, with advice, if you are entering the Exit Tax field and under what conditions.
• Evaluate the opportunity to sell some of the shares before departure, to make a contribution to a holding company or to use deferral mechanisms, according to your horizon and the potential sale price.
• Analyze the tax treaty France/host country, in particular on capital gains and the concept of tax residence.
• Review your partner agreements and statutes to organize your expatriation (information for partners, remote governance, exit clauses, non-competition clauses, etc.).

7. FAQ — Expatriate taxation and legal aspects

7.1. Do expats pay taxes?

Yes, expats pay taxes. The question is not whether they pay taxes, but in which country and on what income. If you become a French non-resident for tax purposes, you remain taxable in France on your income from French sources (real estate, French salaries and pensions, dividends, etc.), while your country of residence can tax you on your worldwide income. Tax treaties aim to avoid double taxation, but they do not, by themselves, prevent being taxed.

7.2. How to avoid expatriation tax?

It is not possible to legally “avoid” expatriation taxes, but you can limit the impact by preparing for your departure early enough. This involves anticipating the Exit Tax, possibly restructuring your assets (contributions, donations, partial transfers), choosing a host country benefiting from an adapted tax treaty, and organizing your departure in a coherent manner (real transfer of vital and economic interests, solid documentation). The objective is not to disappear fiscally, but to reduce the risks of recovery and to optimize the overall tax burden over time.

7.3. What is the best country to expatriate for taxation?

The “best” country depends on your profile: entrepreneur, employee, employee, retiree, investor, etc. A country that is interesting for retirees will not necessarily be optimal for a startup founder in the process of selling. It is therefore necessary to weigh the taxation of salaries, dividends, capital gains, inheritance, the presence of a tax treaty with France, legal stability, living costs, access to health, and the schooling of children. The analysis is done on a case-by-case basis, ideally by modeling several scenarios.

7.4. What are the tax advantages for an expatriate in France?

An expatriate who comes to settle in France can, under certain conditions, benefit from the impatriate tax regime. In particular, this regime makes it possible to exempt part of the remuneration linked to settling in France (impatriation bonus), from the remuneration linked to the activity carried out abroad on behalf of the employer, as well as part of certain income from foreign sources (passive income, movable capital, etc.). In addition, the IFI base is limited to real estate located in France. In practice, this regime can substantially reduce the tax burden for impatriate managers and managers for several years.

7.5. What is the difference between an expatriate and a fiscal non-resident in France?

An expatriate is, in the common sense, a person who lives and works abroad, but this term does not have a precise fiscal definition. A French tax non-resident is a person who no longer meets the criteria for tax residence in France, which means that they are no longer taxable in France on their worldwide income, but only on their income from French sources. An expatriate can therefore be a non-tax resident, but he can also remain a French tax resident if he keeps his home, the center of his vital interests or his economic interests in France.

7.6. What is tax residency and the 183-day rule?

Tax residency refers to the state in which you are taxable on all of your worldwide income. The 183-day rule is only one of the possible criteria for assessing the place of your main stay, but it alone is not enough to determine tax residency. Other criteria, such as home (where the family lives) and the center of economic interests (where your business and main investments are located), are just as decisive. You can be a French tax resident without spending 183 days there, and conversely no longer be a resident even if you come regularly, if the center of your interests is really elsewhere.

7.7. What is a French tax non-resident?

A French tax non-resident is a person whose tax residence is no longer in France in terms of legal and, where applicable, conventional criteria. She is no longer taxable in France on her worldwide income, but only on her income from French sources, under the conditions provided for by law and tax treaties. Non-residents often have a dedicated tax department, and need to ensure that their returns accurately reflect the distribution of their income between states.

7.8. What is the exit tax?

The Exit Tax is a system aimed at taxing unrealized capital gains on securities held by taxpayers who transfer their tax residence outside France, when they have been French residents for a certain period of time and if they hold significant participations. The tax is calculated as if the tickets had been transferred on the day of departure, with the possibility, in some cases, of a suspension of payment. The objective is to prevent a taxpayer from evading capital gains tax by leaving France just before a major sale.

7.9. What is box 8RF of the tax return?

In general, box 8RF of the tax return is used for certain specific information related to income or specific situations, and may change. For an expatriate or a non-resident, the boxes in section 8 (various) are often used to report specific situations (for example information on accounts abroad, specific arrangements, etc.). It is important to refer to the instructions in the declaration for the year in question to verify the exact use of box 8RF and, in case of doubt, to seek advice to avoid a declaration error.

7.10. What is the amount of my taxes as an expatriate?

The amount of your taxes as an expatriate depends on many parameters: country of tax residence, existence of a tax treaty, nature of income (salaries, dividends, rents, capital gains, pensions), family situation, specific regimes (impatriates, attractive local regimes), etc. There is no single scale of “expatriate taxes”. In practice, the approach consists in modeling your income flows before and after expatriation, applying the rules of each country and the conventions, in order to anticipate the global impact and to adjust the project if necessary.

8. Regulated matter and the need for support

Expatriate taxation, the determination of fiscal residence, the application of international tax treaties and mechanisms such as the Exit Tax or the impatriate regime are a strictly regulated, constantly evolving matter and with high financial and asset challenges. Each situation is unique, depending on your family structure, the composition of your assets, your professional activity and the states concerned.

For an entrepreneur, an executive or an expatriate, it is illusory to pretend to secure all of these parameters alone: the advice of a lawyer, in conjunction with your other advice (accountant, financial advice, wealth advice), is necessary to anticipate, model and integrate all the legal, fiscal, economic and human considerations specific to your expatriation or return to France project.

To secure your fiscal situation in the context of an expatriation or in the event of an audit, discover our tax support dedicated to companies and managers.

Article written by Guillaume Leclerc, business lawyer, 34 Avenue des Champs-Élysées in Paris.

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