Planning to expatriate? Beware of the exit tax!
Do you live in France and plan to transfer your residence abroad?
What are the tax consequences of moving abroad? Find out everything you need to know about “exit tax” and its scope.
What is “exit tax”?
In principle, the transfer of a tax residence outside France entails immediate taxation of:
- Existing unrealized capital gains on corporate rights when the taxpayer :
- holds more than 50% of a company’s profits, or
- When their value exceeds €800,000
- Price complement receivables,
- and capital gains tax deferred.
Taxpayers who have not been continuously resident in France for the 10 years prior to departure are eligible for special arrangements.
“Exit tax” only applies to entrepreneurs or investors with a significant stake in a company.
How to avoid exit tax?
Taxpayers faced with exit tax issues can benefit from a deferment of payment of the capital gains tax due, which is automatic if they settle in a European Union member state or in a country that has signed an agreement with France on assistance in preventing tax fraud and recovering tax debts.
If this is not the case, an express request must be made prior to departure. The taxpayer must also provide guarantees to the Treasury.
What happens in the event of a sale or gift of the shares benefiting from the tax deferral?
Capital gains become taxable in France under ordinary law, on the basis of the value of the shares at the time of the event ending the deferral.
Capital gains are also subject to the social levies in force at the time of the transfer of domicile outside France (currently 17.2%).
How long does the obligation to retain shares last?
At the end of a period of :
- 2 years from the date of departure from France,
- 5 years for taxpayers whose total value of shares exceeds €2.57 million on the date of transfer,
The taxpayer, presumably still residing abroad, will be able to sell the deferred shares without incurring exit tax in France. However, the potential tax consequences of such a sale will need to be carefully considered, both from the point of view of taxation in the taxpayer’s country of residence, and from the French point of view.
The donation of deferred securities does not necessarily result in the immediate taxation of unrealized capital gains, provided that the taxpayer can demonstrate that the main purpose of the donation is not to evade tax.
Some taxpayers are required to file an annual declaration to monitor deferred taxes.
Only an in-depth analysis of your personal situation will enable you to plan the conditions of your departure so as not to be subject to exit tax.
We would like to draw your attention to the fact that the “exit tax” system is currently under discussion as part of the Finance Bill for 2023, and that discussions are moving in the direction of tightening the system. Only an in-depth analysis of your personal situation will enable us to advise you on the best practices to follow in order to secure your tax situation.
Our lawyers are at your disposal to answer all your questions and advise you. Our meetings can be held in person or by videoconference. You can make an appointment directly online at www.agn-avocats.com.
AGN AVOCATS – Tax Department
09 72 34 24 72