French exit tax: who is affected and how to plan ahead

The exit tax, provided for in Article 167 bis of the Code général des impôts, taxes unrealised capital gains on securities held by a person who moves their tax domicile out of France. It does not target a disposal: it taxes a gain that has not been realised.

A first condition relates to the length of the connection with France. The taxpayer must have been a French tax resident for at least from 6 years¹ during the ten years preceding the transfer.

A second condition relates to assets. The tax applies when the shareholdings, securities, instruments or rights held reach a total value of at least more than €800,000², or when they represent at least more than 50%³ of a company's profits.

The two limbs of this second condition are alternatives, which is often misunderstood. A business owner holding half the profits of a company of modest value is affected, even if their portfolio remains well below the value threshold.

The base covers unrealised capital gains, but also earn-out receivables and certain capital gains under tax deferral. This is a wider scope than one would instinctively think.

The tax is due at the time of the transfer, but a payment deferral allows settlement to be postponed. This deferral is a right and automatic when the taxpayer settles in a member state of the European Union, or in another state of the European Economic Area bound to France by an administrative assistance agreement.

For other destinations, the deferral requires an express application, the appointment of a tax representative in France and the provision of guarantees to secure collection of the tax.

The application must be filed no later than from 90 days⁴ before the transfer of tax domicile, for departures since 22 November 2019.

This deadline is the point that causes difficulty for the largest number of cases. A departure decided quickly, or a move to a state outside the European Economic Area considered late in the day, makes the application impossible and the tax immediately payable.

The choice of destination country therefore has an impact on cash flow. The same assets qualify for an automatic deferral on a move to Portugal, and for a cumbersome procedure with guarantees on a move to Dubai or Singapore.

The tax is not final. It is relieved, or refunded if it has been paid, when the taxpayer keeps their securities for a set period after departure.

This period is 2 years⁵ when the total value of the securities is below €2,570,000⁶, and 5 years⁷ when it exceeds that amount.

Relief also applies in the event of a return to France, or on the taxpayer's death. It does not apply, however, if the securities are sold during the period: the tax then becomes definitively due.

The practical consequence is clear. For assets below the threshold, it is generally enough not to sell the securities for two years after departure for the exit tax to lapse. It is a timing constraint, not a cost.

For larger assets, the five-year constraint is considerably heavier and may conflict with a planned sale — sometimes the very one that motivated the departure.

1. Value your securities as at the intended date of departure, both in value and as a percentage of company profits.
2. Decide on the destination: within the European Economic Area, the deferral is automatic; elsewhere, it requires guarantees and a tax representative.
3. Where applicable, file the application at least from 90 days⁴ before the transfer.
4. File the unrealised capital gains return in the year of departure, then the follow-up returns each year for as long as the deferral runs.
5. Do not sell the securities before the applicable relief period has expired.

The fourth point is the one that leads to the most late regularisations. The deferral is not granted once and for all: it requires annual follow-up reporting, failure to file which can make the tax immediately payable.

We do not publish the tax rate applicable to unrealised capital gains, the rate of social security contributions, or the rules for crediting tax paid abroad: they do not appear in the extracts we have been able to verify. They must be established with an adviser before any departure.

Finally, the exit tax combines with the ordinary departure rules. The transfer of domicile is assessed under Article 4 B of the Code général des impôts — household, main place of stay, activity, centre of economic interests — and a poorly documented departure can be challenged, which makes the exit tax irrelevant but exposes the taxpayer to a reassessment of another kind.