Tax regime for impatriates

In their decision of 4 October 2023, France’s Conseil d'Etat validated the application of the impatriate regime for the determination of income tax due on severance payments made to  professional footballers.

The impatriate regime provided for in Article 155B of the French General Tax Code (CGI)

Article 155B of the French General Tax Code provides for a special tax regime for impatriate employees, including professional football players who play in the French League.

To benefit from this preferential tax regime, employees must not have been resident in France for tax purposes in the five years prior to their arrival in France and must be resident for tax purposes in France from the time that their professional duties start.

Under certain conditions, impatriate employees may benefit from a tax exemption on an impatriation bonus paid to them, i.e. the additional compensation they receive for working in France. Employees recruited directly from abroad by a company established in France may opt to have their impatriation bonus assessed at a flat-rate of taxation.

If such an option is chosen, the impatriation bonus is considered to be equal to 30% of their net remuneration. This net remuneration amount includes all bonuses and allowances provided for in the employment contract and is taxed in accordance with the rules applicable to salaries and wages under ordinary law.

Case study

In a previous case, a professional footballer who had signed a contract with a French club had his personal tax situation assessed for the tax years 2012 to 2014./p>

In regard to 2013, the French tax authorities challenged the application of the 30% exemption provided for under Article 155B of the General Tax Code on the severance payment made by his club.

The French Administrative Court of Appeal upheld the decision on the grounds that the reason of a severance payment was intended to compensate for a loss of employment and did not correspond to compensation paid in return for work or a service provided by the employee.

Decision

The Conseil d'Etat however, recalls that Article 80 duodecies of the French General Tax Code provides that any compensation paid on termination of an employment contract constitutes taxable income, with certain exceptions (in particular, the fraction of severance payments not exceeding the thresholds determined by law or collective or interprofessional agreements).