Exit Tax in France: What to Expect When Leaving

The "Exit Tax" in France is a complex mechanism designed to impose taxes on certain latent gains when a taxpayer transfers their fiscal residence outside of France. This guide provides an in-depth explanation of the key principles, scope, obligations, and implications of the Exit Tax, as well as its historical context and application within the French and international legal framework.

1. Introduction to Exit Tax

The Exit Tax, introduced in its modern form by Article 167 bis of the French Code Général des Impôts (CGI), seeks to prevent tax avoidance by imposing taxes on unrealized capital gains when a taxpayer leaves France. Its purpose is to ensure that France retains the right to tax gains accrued during the taxpayer's residence before they are realized in another jurisdiction.

2. Legal Framework of Exit Tax in France

The Exit Tax is governed by Article 167 bis of the CGI, introduced in 2011. It applies to transfers of fiscal residence on or after March 3, 2011.

Key milestones:
- 1970s-2004: Early versions challenged by EU law.
- 2011: Reintroduced with EU-aligned features.

3. Scope of Application

Who is Subject:
- Individuals fiscally domiciled in France for at least 6 out of the last 10 years.

Assets Concerned:
- Shares, securities, and rights representing over 50% of company profits or worth over €800,000.
- Includes earn-out rights and startup equity.

4. Taxation Mechanism

Latent Capital Gains:
- Tax calculated on market value at departure minus acquisition cost.

Deferred Payment Option:
- Automatic deferral (sursis de paiement) for moves within EU/EEA.
- Financial guarantees required for non-EU/EEA moves.

5. Declaration Obligations

- Form 2074-ETD is used to declare latent gains.
- Deadlines vary based on status and deferral choice; typically within 90 days of departure.

6. Exemptions and Reliefs

- Return within five years cancels Exit Tax.
- Transfers to EU/EEA often protected under EU law.
- Asset donations may be exempt under specific conditions.

7. Interaction with International Tax Treaties

- Treaties may provide tax credits to avoid double taxation.
- Conflict resolution mechanisms often apply for dual residence.

8. Judicial Decisions and European Law Considerations

- CJCE Lasteyrie du Saillant (2004): Ruled against early Exit Tax models.
- National Grid Indus (2011): Validated Exit Taxes when proportionate and EU-compliant.

9. Practical Considerations and Recommendations

- Consult a qualified tax advisor.
- Gather accurate valuations and records.
- Review treaty protections and foreign tax rules.
- Consider deferral benefits carefully.

10. Conclusion

The French Exit Tax is a sophisticated mechanism aimed at taxing unrealized gains before a taxpayer's departure. While designed to protect national tax revenues, proper planning, compliance, and awareness of reliefs can help reduce its burden.