Tax expatriation and exit tax: anticipate, structure and secure international mobility at high stake

Tax expatriation and taxation

International mobility of managers, entrepreneurs and holders of significant assets has increased considerably in recent years. Professional reasons, development of activities abroad, heritage organisation or search for a different economic environment: the motivations for expatriation are multiple.

However, tax expatriation cannot be seen as merely a personal or geographical decision. It is a complex legal and fiscal operation, with major financial challenges, which requires a thorough analysis and a rigorously anticipated strategy.

In this context, international taxation and, in particular, the exit tax mechanism occupy a central place in the reflection prior to any expatriation.

Tax expatriation: a change in tax residence with multiple consequences

Changing tax residence has consequences far beyond the only year of departure. It affects the taxation of income, capital gains, wealth, but also the structuring of investments, the holding of corporate securities and the long-term strategy of the taxpayer.

French tax law strictly regulates the concept of tax residence and the conditions for its transfer abroad. An insufficiently prepared expatriation exposes the taxpayer to high risks of questioning by the tax administration, in particular in the event of the maintenance of significant economic interests in France or of inconsistencies between the declaratory situation and the reality of the facts.

The challenge is therefore not only to organise a departure abroad, but to secure legally and fiscally the change of residence, taking into account both domestic law, international tax treaties and anti-abuse mechanisms.

A key mechanism to control before departure

Established to prevent the relocation of latent capital gains outside France, exit tax is codified in Article 167a of the General Tax Code.

This scheme targets taxpayers who transfer their tax domicile outside France while holding significant interests in companies or similar rights.

In practical terms, at the time of the transfer of tax domicile, exit tax results in the imposition of latent gains on certain assets, without any effective transfer. The taxable surplus value is determined by the difference between the value of the securities or rights on the day of departure and their purchase price or value.

The scope of the device is strictly framed. Taxpayers who have been tax domiciled in France for at least six of the ten years prior to departure and who directly or indirectly hold:

• securities representing at least 50 % of the social benefits of a company;
• or securities, rights or securities whose total value exceeds a threshold laid down by law, currently EUR 800,000.

The scheme applies not only to securities and securities, but also to certain specific rights, such as claims arising from additional price clauses, as well as to previously deferred capital gains.

If exit tax can result, subject to conditions, in a stay of payment, these mechanisms are strictly regulated and subject to specific reporting obligations. Failure to comply with these rules may result in immediate tax liability or loss of preferential arrangements.

A comprehensive approach to international taxation of the executive and the entrepreneur

Tax expatriation cannot be separated from other components of the international tax strategy. It involves a cross-cutting reflection on the taxation of future income, the management of international flows, the holding of shares, but also plans for divestiture, reinvestment or transmission.

For managers and entrepreneurs, this reflection must integrate the articulation between personal taxation and that of the companies they control or direct. Unstructured expatriation may result in counterproductive tax effects, in particular in the case of the subsequent transfer of the securities covered by the tax, the collection of income from French sources or the question of the suspension of payment.

On the other hand, an international tax strategy built upstream ensures secure mobility, anticipates the consequences of Article 167 bis of the CGI and optimizes the overall tax burden with a logic of economic and heritage coherence.

Cabinet support on tax expatriation and taxation

Specializing in tax law and international taxation, the Cabinet supports high-end clients facing complex international mobility issues.

Its intervention includes:

• analysis of the conditions of the change in tax residence and the risk of challenge by the administration;
• the in-depth study of the application of Article 167a of the CGI and its consequences for latent gains;
• identification of the payment suspension devices and the obligations attached thereto;
• Pre-departure heritage structure, consistent with the taxpayer's economic, professional and family objectives;
• analysis of international tax treaties and prevention of double taxation situations.

The Cabinet approach is based on a comprehensive, strategic and secure vision of international taxation, taking into account both applicable legislation and administrative and contentious practice.

Expertise dedicated to international taxation and tax strategy

Exclusively dedicated to tax law, the Cabinet intervenes in France and internationally on issues of high stake in corporate taxation, property taxation and international taxation.

Its positioning is based on a high technical requirement, a perfect mastery of international tax mechanisms and a capacity to design tailor-made tax strategies adapted to complex heritage situations.

In an environment marked by the constant strengthening of anti-abuse measures and the increased vigilance of tax administrations, the support of an international tax firm is a key factor in securing and ensuring the success of international tax expatriation and heritage structuring projects.