Exit tax : The price to pay for leaving France

France has a reputation for heavily taxing its residents, but did you know you can even be taxed when you leave the country? Since 2011, the “Exit tax”, or “exceptional contribution on the value of certain assets,” aims to deter wealthy individuals and companies to flee the country or to come and go in and out of France for purely fiscal reasons. The law was, however, reformed in 2019 under president Macron, and there are ways to prevent that taxation or to minimize its impact.

The law states that when a tax payer who has been a French fiscal resident for at least 6 of the previous 10 years transfers his tax residency outside of France, they become liable to income tax and social contributions on interests and profits for financial assets exceeding 800 000€.

The tax is calculated on the unrealized gains of one’s financial assets, i.e. the difference between their market value at the date of departure and their acquisition price, which is then subject to a flat rate of 30%. Before 2019, the rate was 47,2%, the taxpayer had the option of paying in installments over 5 years if they kept the assets in France over that period, and could get tax abatements if some of the investments were in small or medium enterprises (SMEs).

President Macron’s reform was based on several factors that made this tax inefficient: according the ministry of economics in only brought in between 10 and 15 million euros per year, and taxpayers avoided it by simply moving from France early on in their careers when the financial assets they owned had little or no unrealized gains.

In practice, before 2019 the taxpayer got a tax deferral until the assets were actually sold, and the exit tax was canceled if the taxpayer came back to live in France, or if the assets were sold after more than 15 years of ownership. Since the reform, the timeframe has changed: taxpayers are exempt if they keep financial assets worth less than 2,57M€ for more than 2 years, and 5 years for financial assets worth more than 2,57M€.

Keep in mind that these assets will be taxed when they are effectively sold, given, or transferred to a holding company, in the country where the taxpayer is liable to capital gains tax.

Let’s see an example of how this reform would affect a taxpayer. Let’s take taxpayer A, who plans to move from France to Switzerland, and owns 1M€ in shares of company X, with current unrealized gains of 500 000€.

• Under the old method, the tax paid would have been 236 000€.
• Under the new method, the tax would be a flat rate of 30% on the unrealized gains of 500 000€, i.e. 150 000€. If the stock is owned for more than two years, there will be no taxation.

Anyone subject to the exit tax should be aware that the declarative obligations are quite heavy:

• a first tax form has to be filed at least 30 days before the effective date of departure
• the sums then have to be declared each year of tax residency outside of France
• finally, another tax return has to be filed in order to get the correct tax deferral if returning to France or if the assets have been owned for a long enough period

It is therefore very important to have proper legal support during the whole process, as the French tax administration will be very attentive to details.