Guidance On The Tax-exemption For Impatriates In France


The Paris Administrative Court of Appeal offered some crucial guidance on the special income tax exemption applying to impatriate employees in France in a recent decision issued March 16, 2021.1 After a quick overview of the system provided for by Article 155 B of the French Tax Code (1.), we will explain why this decision is good newsfor both employers and their impatriate employees in France (2.).

  1. The French tax exemption system for impatriates

Pursuant to Article 155 B of the French tax code, an employee may receive a special tax exemption if the three following conditions are fulfilled: (i) the employee relocated from a foreign country in order to work in a company based in France; (ii) the employee has not been a resident of France, for tax purposes, during the five-calendar years prior to starting to work in France; and (iii) the employee is a resident in France for tax purposes starting on the date he begins his duties in France.

When these conditions are met, for up to nine years, the employee may be eligible to an exemption of French income tax.  The exemption is subject to the following two limitations:

  1. An exemption limited to the amount of the contractual impatriation bonus agreed to or up to 30% of the total compensation

Eligible employees can opt for an exemption of income tax on either (i) their compensation directly linked to the impatriation situation and appearing as such in their employment contract2 (« impatriation bonus »), or (ii) 30% of their total compensation subject to French income tax (« 30% tax-exemption »).

« Total compensation » is defined by the French Tax Administration as the full net compensation taxable to the employee. This includes base salary, as well as bonuses and benefits taxable under the ordinary rules for wages and salaries3.

  1. A remaining taxable income at least equivalent to a « reference compensation »

The amounts of the « impatriation bonus » and the « 30% tax-exemption » are maximums. Indeed, the remaining taxable part of the compensation must be at least equal to a « reference compensation », which in principle corresponds to the amount paid for similar functions within the French legal entity, or if there are no similar functions within the French legal entity, in comparable companies based in France4.

The French Tax Administration accepts several methods to assess this « reference compensation ». Its official position states that it may be assessed (i) based on the taxable compensation paid to an employee with « comparable professional experience in similar functions » in similar companies based in France, even though similar functions to those of the impatriate employee exist in the company; or (ii) in reference to the lowest compensation earned by employees  » with similar experience to that of the impatriate employee » and « performing similar functions » within the French legal entity or within a similar company based in France, either during the year in question or in the three previous years5.

To take advantage of this benefit, the Administration requires the employee produce an affidavit from their employer justifying the « reference compensation »6.

  1. The precisions of the Paris administrative court of appeal

As a practical matter, the above-mentioned special impatriate tax exemption raises two issues: First, determining the relevant « reference compensation », particularly in the case of highly individualized compensations; second, it may require disclosure to the impatriate employee the compensation of another employee of the firm. On March 16, 2021, the Paris Administrative Court of Appeal addressed this topic with an interesting decision involving a professional football/soccer player:

  1. Guidance on determining the « reference compensation »

In this case, the French Administration denied a PSG Football Midfielder the benefit of the of impatriate tax exemption, alleging that the « reference compensation » used by the employer in its affidavit was not properly assessed. For the French Administration, the reference employee should have « similar fame » and « similar experience » to that of the impatriate employee, which was not presently the case.

The judges struck down the decision by the French administration, ruling that its denial sought to expand the requirements of the Law. Indeed, Article 155 B of the French Tax Code only refers to a reference employee with « similar functions » and does not require consideration of the specific characteristics of the individuals performing the functions. In other words, the reference employees are all those performing similar functions, despite their seniority or other unique performance based criteria.

This clarification should ease the burden of identifying appropriate comparators.

  1. Guidance on the assessment of a relevant « reference compensation »

In this case, contrary to what is suggested in the Tax administration guidelines, the employer did not provide the employee a document stating the compensation of a sole reference employee. The employer provided a document with the average compensation of various other employees with similar functions. The use of such document as a proof of the « reference compensation » was not challenged by the French tax administration or by the Court.

Thus, in practice, if there are several possible « reference employees » within the company, it seems that the employer can choose to provide a document with their average compensation as the « reference compensation ». Hence, the impatriate employee does not need to be advised of the exact compensation of any other specific employee of the company.

The guidance provided by the Paris Administrative Court of Appeal by this decision regarding « reference compensation » should be viewed as a positive development to French Companies as it offers reassurance on the attractiveness of the French tax-regime to appeal foreign talents.


1 Paris administrative court of appeal, March 16th, 2021, 19PA00956

2 French tax code, art. 155 B; BOI-RSA-GEO-40-10-40 to 70

3 BOI-RSA, GEO-40-10-80

4 French tax code, art. 155 B, I, 1

5 BOI-RSA-GEO-40-10-150

6 BOI-RSA-GEO-40-10-20160

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Authors : Alexandre Roumieu, Sixtine Gossellin.
Source : 

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