France's ministry of finance building
13 December 2018

Exit tax: a more targeted anti-optimisation mechanism

On 11 December 2018, the Senate voted, just as the National Assembly did in November, to abolish the current exit tax, which is damaging to France’s attractiveness, replacing it with a new mechanism.

The exit tax (a tax imposed on the capital gains of top earners) as it is today will be abolished altogether, as announced by the President of the Republic. The tax is being abolished because it seriously damages France’s attractiveness, due to its indiscriminate nature. It applies to nearly every departure abroad and is imposed even when entrepreneurs sell their assets a very long time after leaving France (up to 15 year after they left). This is why the mechanism is a deterrent and can discourage foreign investors.

Exit Tax
The exit tax requires entrepreneurs who settle abroad to pay tax on potential capital gains if they were ever to sell their company assets after leaving France ("unrealised capital gains"), or an equivalent amount to be frozen (for example via a bank guarantee or by using a house as security) so that the tax authorities can impose capital gains tax in the event the assets are sold.

The new system that will replace it focuses on combating tax optimisation by only targeting divestments occurring shortly after a person leaves France, so as to deter people from making short trips abroad in order to optimise tax efficiencies on capital gains.

The time limit is therefore set at two years and application of the mechanism is conditional on ownership of moveable assets worth more than €800,000 upon leaving France. On the initiative of the National Assembly’s Finance Committee, a time limit of five years has been added to the mechanism when the person liable to pay tax has moveable assets whose value is greater than or equal to 2.57 million.

It will be less onerous from an administrative point of view for the taxpayer. The provision of guarantees will only be maintained for individuals leaving for a country which has no tax recovery assistance agreement with France, based on the same rationale of targeting suspicious situations.

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