Be cautious, you may be subject to exit tax on your intangible personal property…
In 2011 an exit tax was put in place to curb tax relocations before the disposal of financial investments. Amended in 2014, the taxpayers concerned are those transferring their tax residence outside France as of 3 March 2011.
Exit tax system
When a taxpayer was a French tax resident for at least six of the ten preceding years, and transfers his/her tax domicile abroad this entails tax and social security contributions on:
- unrealized gains arising on:
- either direct or indirect investments, of at least 50% of the share capital of the company,
- direct investments in one or more companies (including OPCVM’s/UCITS), whose total value exceeds € 800,000
- deferred capital gains,
- claims on an earn-out payment.
Are not subject to exit tax:
- gains realized on real estate,
- shares of open-ended investment companies (SICAV) ;
- shares or securities of companies predominantly comprised of real estate (including SCI’s) ;
- shares or securities referred to in article 244 bis A, I-3 of the French general tax code (CGI), particularly:
- shares, securities or other rights of unquoted real estate companies, whether said companies are subject to corporation tax or not,
- and shares, securities or other rights of real estate listed companies when the taxpayer owns directly or indirectly at least 10% of the company’s capital.
And many more…
A tax-deferral is automatically granted when the move is made to a member state of the European Union or a State that has concluded a tax assistance agreement with France. And if the move is made to another country, the taxpayer may request a tax-deferral providing certain financial safeguards are ensured.
Said tax-deferral is then terminated upon sale, redemption, or repayment of the respective securities.
Capital gain tax is relieved or can be recovered if the taxpayer proves he/she still owns the investment(s) after a period of eight years after the move abroad. However social security contributions remain due.
For all moves abroad after December 31st, 2013, capital gains tax and social security contributions are exempt or refunded if the taxpayer can prove he/she still owns the investment(s) after a period of fifteen years after the move abroad.
Investment of shares subject to exit tax in a new company
Before doubts existed when it came to the tax neutrality of such a transfer.
New article 167 bis of the CGI provides us with clearer wording: the investment of securities, subject to exit tax after departing France, does not terminate tax-deferral when said deferral was granted under the conditions of article 150-0 B of the CGI (contribution of shares in a company subject to corporation tax, « offre publique », merger, division …) or postponed under article 150-0 B ter of the CGI (contribution to a company controlled by the contributor).
Gift of shares subject to exit tax
The law in place up until 2013 provided that a donation of shares subject to exit tax entailed the end of tax-deferral, unless the taxpayer could prove the gift was not solely granted for tax purposes only.
On July 12th, 2013, the French Conseil d’Etat judged that this requirement was contrary to the freedom of establishment within the European Union (case N° 359995).
The law was therefore amended: a taxpayer leaving France to settle in a European Union member country (or a country in the European Economic Area which has entered into a tax agreement with France) has no longer to prove the non-tax purpose of the donation.
However, the probationary requirement is maintained for those who leave to settle in another state and said requirement has even been made heftier: the taxpayer must demonstrate that the gifts main motivation was not to evade exit tax.
When a taxpayer sells investments subject to exit tax after leaving France, and pays relevant capital gains tax in his/her new state of residence, the foreign tax is deducted in France as follows:
- First of all the foreign tax is deducted from the social charges resulting from the exit tax,
- Secondly the remainder shall be credited against the income tax resulting from said exit tax.
Depreciation of the shares
In its initial version article 167bis of the CGI adapted exit tax to the effective gain made by the taxpayer transferring his/her tax resident outside France.
From now on, the text also allows to deduct the realized loss on a sale of securities subject to exit tax on the capital gain realized on the sale of other securities subject to exit tax. Said deduction is allowed on the sale of investments representing more than 25% in a French company or on future capital gains achieved after returning to France.
Equally, a capital loss realized before, or after leaving France on the sale of securities representing over 25% in French companies is deductible from any exit tax relating to investments sold within 10 years.
Tax reporting obligations in the event of exemption or refund
The taxpayer must now declare the nature and date of the event triggering an exemption or refund of exit tax and, on the same occasion, expressly request relief or restitution. This claim must be made within the year of said event and within the period stipulated in article 175 of the CGI (deadline for tax returns).
For more details on your tax reporting obligations upon departure, and then on a yearly basis; or if you have any question regarding penalties in case of non-compliance please do not hesitate to contact us.