Welcome (bienvenidos, willkommen, karibu, bienvenue) to a world of tax incentives

Welcome (bienvenidos, willkommen, karibu, bienvenue) to a world of tax incentives

Wed 16 Dec 2020

The pandemic has led to many people choosing to relocate.  Many are leaving densely populated cities to work remotely to where they feel are more desirable locations for themselves and family.  Others are holding steadfast to their crowded city dwellings.  Either way, geographies are challenged to retain (or welcome) existing residents and newcomers.  Many are doing so by highlighting tax incentives that make their location attractive for people to live and work.  While some are relocating to sunny islands like tax havens, there are yet still some traditionally surprising moves that you could miss without deeper research. Here we consider the situation in France.

French tax “welcome incentives” for newcomers

France is infamous for being a high tax jurisdiction, but here are some considerations for newcomers which contradict this unfounded popular belief.

Favourable impat tax regime during the first 8 years

Impats are workers who newly arrive in France because they are recruited by a French employer, including via intergroup mobility. If their move is well-prepared, they can benefit from various income tax exemptions on their professional income including:

  • Impat bonuses;
  • Certain benefits-in –kind, such as accommodation, move costs, etc.; and
  • Remuneration attributable to work performed outside France.

In addition, investment income sourced in their country of origin may benefit from a 50% income tax allowance, leading to an effective income tax rate of 23.6% incl. social security contributions.

Exemption of wealth tax on real estate

Since 2018, wealth tax has focused only on real estate, whether held directly or through intermediate structures.

There are various exemptions that may apply, notably:

  • Full exemption of the fair market value of taxable real estate when below €1.3m; and
  • Exemption of real estate used for businesses.

In addition, newcomers can benefit from an exemption of real estate located out of France during the first 5 years after their arrival in France.

Temporary exemption of gift and inheritance tax

Newcomers are usually settled with their family or parents outside of France before arriving.

If they benefit from a gift from a donor living outside of France where the gifted asset or right is also located outside of France, the beneficiaries can benefit from a full exemption of gift tax during the 6 years following their arrival, with no limitation as to the amount.

The same exemption may also apply for inheritance tax.

Specific allowances for US citizens and green card holders…

The US-French tax treaty allows US citizens and green card holders to benefit from tax allowances on US-sourced dividends, interest, capital gain and royalties. Those allowances are granted with no time limit.

France is just one of many places that has some great incentives for its residents and newcomers.  What’s happening in your country?