What is the Exit Tax?

You are about to leave France and you are wondering if you are in compliance with the tax regulations?

If you leave France and change your tax residence outside of France, you will be subject to income tax and social security contributions under certain conditions on your unrealized capital gains, your claims arising from an earn-out clause, and your capital gains from the sale or exchange of assets placed under a tax deferral regime.

But what is the EXIT TAX?

L’Exit Tax n’est ni plus ni moins qu’un impôt. Il a été mis en place la première fois en 2011 puis a été modifié en 2013 après révision par la Loi de Finances. Cet impôt a été mis en place dans l’unique but de restreindre les délocalisations des français à l’étranger, notamment aux Emirats Arabes Unis. On peut voir cette taxe comme étant un moyen par le gouvernement de combler les pertes financières dues au fait que ces français n’allaient plus payer d’impôt en France.

L’Exit Tax, s’applique aux contribuables qui remplissent les conditions suivantes :

Avoir été résident fiscal français au moins six (6) ans sur les dix (10) dernières années avant le transfert de leur domicile français à l’étranger ;
S’ils détiennent des droits sociaux, titres ou droits atteignant une valeur globale d’au moins 800 000 € ou représentant au moins 50 % des bénéfices sociaux d’une société.

Ce changement de résidence fiscale entraînera l’application de l’EXIT TAX et donc l’assujettissement à l’impôt sur le revenu et aux prélèvements sociaux sur :

les plus-values en report d’imposition ;
les plus-values latentes liées à une participation (directe ou indirecte) d’au moins 50 % au capital d’une société ou à une participation directe dans une ou plusieurs sociétés dont la valeur totale cumulée excède 800.000 euros ;
les créances représentatives d’un complément de prix.

Le régime fiscal/Calcul de l’Exit Tax

Les personnes concernées sont soumises à une imposition forfaitaire de 12.8 % au titre de l’impôt sur le revenu et de 17.2 % au titre des prélèvements sociaux.

La base de calcul se fait sur les valeurs mobilières depuis le moment de leur acquisition. On fait ensuite la différence entre les valeurs mobilières au moment du changement de résidence fiscale et le prix de revient de ces mêmes valeurs pour le propriétaire.

Notez que vous pouvez bénéficier d’un sursis de paiement ainsi que d’un dégrèvement dans certains cas.

Le paiement de l’Exit Tax

The taxpayer is obliged to pay this tax as soon as he transfers his tax residence, i.e. immediately after having made the declaration.

However, it is possible to obtain a deferment of payment. This will be discussed in the next paragraph.

Tax deferral

The deferral of payment is the case where the payment can be postponed to a later date.

This deferral is granted automatically and only if you decide to settle in a member state of the European Union or in a state or territory that has concluded an administrative assistance agreement with France to fight against tax fraud and tax evasion as well as a mutual assistance agreement for tax collection (except for a state that is considered as uncooperative).

If you decide to move to a country that does not fall within the scope of the tax deferral, it is still possible to apply for this deferral in the thirty (30) days preceding the transfer of tax residence.

However, if you move to a country other than a State or territory which is not part of the EEA agreement but which has concluded an administrative assistance agreement with France, no guarantee will be required for the application of the deferment of payment

Advantage of tax deferral

If you have the possibility to benefit from this deferral, you will not have to pay the Exit tax immediately. The payment of the latter will only occur in the following cases:

sale, redemption, refund or cancellation of the securities.

In case of death of the taxpayer or a return to France of the taxpayer, then the Exit Tax may be subject to an automatic relief applied by the tax authorities.

The EXIT TAX form

If you have transferred your tax domicile outside of France after January 1, 2019 then you will have the opportunity to benefit from certain arrangements, without retroactive effect for taxpayers who transferred their tax domicile prior to this date (Article 112 of the 2019 Finance Law).

The taxpayer who transfers his tax domicile outside of France can benefit from a deferment of payment of taxes relating to the transfer of domicile. The request must be made via form n2074 ETD accompanied by a guarantee proposal.

The deferral on request that concerned taxpayers transferring their domicile to a State outside the European Economic Area no longer applies, since 2019, only to those transferring their domicile to an ETNC (State considered as non-cooperative) or to a State or territory outside the EU that has not concluded with France assistance agreements to fight against tax fraud and evasion and assistance with collection (Law 2018-1317 of 28-12-2018 art. 112).

Abatement under conditions

The new system provides for a reduction in the period after which the taxpayer may obtain a tax deferral for the exit tax (except in the event of a sale, redemption or cancellation of the shares or liquidation of the company in the meantime). This period is reduced from 15 years to 5 or 2 years depending on the case:

2 years for taxpayers whose shares are worth less than EUR 2,570,000;
5 years for those whose value is higher than EUR 2,570,000.

This system now applies to shares in companies with a preponderance of real estate assets subject to corporate income tax on the day the taxpayer transfers his or her tax domicile.

Exit tax and return to France

If you decide to leave the United Arab Emirates and return to France, the exit tax will be waived or refunded, if the shares are still part of your assets at the time of the transfer of tax residence to France.

What declarations to make?

Don’t get me wrong, there are a lot of declarations to do around the Exit Tax. In addition to the tax return, you’ll need to fill out :

the declaration n°2074-ETD for the transfer of the tax residence outside France. In the event of an express request for deferment of payment, the declaration n° 2074-ETD must also be filed (within 30 days prior to the date of the tax transfer)
the declaration no. 2074-ETS3 for the years following the transfer of the tax residence outside France (form valid for transfers that have taken place since 2014)
in the case of a total deferral of payment and if no event putting an end to this deferral or generating a tax reduction occurred in year N-1, a 2074-ETSL declaration must be filed in year N. The total amount of tax deferred must also be entered in box 8TN of the 2042C tax return (carried over from the 2074 ETS3 return when completed).

For all the steps related to the departure or the return to France, it is possible to consult directly the official website of the taxes or to approach a French tax lawyer.