Changes to the inpatriate scheme
made by the Economic Modernisation Act of 4 August 2008
The Economic Modernisation Act (LME) of 4 August 2008 introduced a new “inpatriate” scheme, codified by
Article 155 B of the French General Tax Code (CGI). It replaces the scheme provided for by Article 81 B of the
same code, which nevertheless continues to apply to employees taking up their posts in France before 1 January
2008.
This new scheme is for employees and managers who are treated as such for tax purposes, who have
taken up their post in France since 1 January 2008.
Persons eligible for this new scheme
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Employees and managers who are treated as such for tax purposes (managers mentioned in 1°, 2° and 3° of b of
Article 80 ter of the CGI, e.g. chairman of the board, managing director, deputy managing director, managers with a
minority or equal interest) ;
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Called upon by a company established abroad to work in a company established in France, which has links
with the first company ;
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Or directly recruited by a company established in France.
The company in which the inpatriate has to hold the post
The company must have its registered office or an establishment in France, regardless of its legal form.
The conditions governing residence for tax purposes
Taxpayers may not have resided for tax purposes in France as defined by Article 4 B of the CGI or have had their
residence for tax purposes in France in the event of the application of an international tax treaty in the five
calendar years preceding the year they take up their post.
From the moment they take up their post, they must moreover reside for tax purposes in France as defined by a
and b of 1 of Article 4 B of the CGI, i.e.:
- Have their home or main abode in France
- And carry on a professional activity in France as their main activity.
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What inpatriate income is exempt from income tax ?
Inpatriation allowance
It is a bonus, which corresponds to the additional remuneration, in kind or in cash, directly associated with the
temporary exercise of a professional activity in France.
This “inpatriation” bonus is exempt from income tax for its real sum, as stipulated by the employment contract or
rider to such contract drawn up before taking up the post in France or optionally for a sum evaluated on a lump
sum basis, taken to be equal to 30% of total net remuneration (However, employees and managers called upon
by a foreign company to work in a company established in France are not entitled to this option).
Exemption is nonetheless subject to the condition that the inpatriate’s remuneration (excluding the inpatriation
bonus valued at its real sum or evaluated on a lump sum basis) liable for income tax is at least equal to the
remuneration received for equivalent duties in the same company or, failing this, in similar companies established
in France. Where necessary, the difference between the remuneration net of the “inpatriation bonus” and the
reference remuneration is added to the taxable remuneration.
The remuneration fraction corresponding to work abroad
The share of the remuneration corresponding to work abroad while the inpatriate is in France is exempt from
income tax when the trips abroad are conducted in the exclusive and direct interest of the company for which the
taxpayer works.
The exempt remuneration fraction is therefore the fraction paid in return for the work conducted abroad (basic
salary and, where relevant, additional remuneration relating to the work abroad).
Should an employee satisfy all the conditions to benefit from the provisions of Article 155 B and Article 81 A of the
CGI, s/he must opt for one or the other of these schemes.
The ceiling on exemption from the inpatriation bonus and the remuneration fraction
corresponding to work abroad
Exemption of the “inpatriation” bonus and the share of remuneration corresponding to work abroad
may not exceed 50% of the total net taxable remuneration pursuant to the rules on wages and
salaries for the year considered, before application of the scheme provided for in Article 155 B of the
CGI or taxpayers may choose the option whereby exemption of the remuneration corresponding to
work abroad may not exceed 20% of the party’s taxable remuneration (excluding the inpatriation
bonus).
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Exemption of certain “passive income” arising abroad and certain capital gains from the sale of stocks
and shares held abroad
Inpatriates may benefit, under certain conditions, during the application of the special taxation scheme concerning
certain elements of their remuneration (the “inpatriation” bonus and/or the fraction of remuneration corresponding
to work abroad), from exemption from income tax on 50% of the sum of certain passive income arising abroad
and certain capital gains made on the sale of stocks and shares held abroad.
The passive income and capital gains concerned are as follows:
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Income from the intellectual or industrial property rights mentioned in 2° and 3° of 2 of Article 92 of the CGI, the
payment of which is made by a person established outside of France in a country or territory that has
concluded a tax treaty with France containing an administrative assistance clause to combat tax evasion and
avoidance.
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Investment income, the payment of which is made by a person established outside of France in a country or
territory that has concluded a tax treaty with France containing an administrative assistance clause to combat
tax evasion and avoidance.
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Gains made from the sale of stocks and shares, when the securities depositary or, failing a depositary, the
company whose securities are sold, is established outside of France in a country or territory that has concluded
a tax treaty with France containing an administrative assistance clause to combat tax evasion and avoidance.
Length of effect of the scheme
The exemption of this income applies through to 31 December of the fifth calendar year following the
beneficiary’s taking up of the post in France for each of the years in which the inpatriate resides for tax
purposes in France as defined by a and b of 1° of A rticle 4 B of the CGI.
For more information, see the French Tax Gazette – Bulletin Officiel des Impôts (BOI) 5 F 13 09
This document may not be used to challenge the DGFiP’s administrative doctrine as derived from its instructions.
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