This section requires to look at both personal and professional aspects of the life of an individual.
Professional situation : Where will the employee work ? For how long ? For which company ? All these aspects can all have an impact on the tax residency of an employee.
Personal situation : Family status (i.e. married, single, etc), employee living location, family situation (i.e. wife and children remaining home location, family joining the employee, etc) or personal income can also have an impact on the tax residency of an employee.
Therefore, it is important to review the tax residency of the individual prior to making any tax optimization on the employee’s expatriation package. Indeed, many optimizations are only available to certain employee’s tax status (i.e. resident or non-resident).
In order to identify the tax residency of one of its employees, find below a list of questions (not exhaustive) to be answered :
- Is the employee married (religious, civil union, etc) or not?
- If married, will the family join the employee?
- What is the duration of the assignment? More or less than one year?
- What kind of personal income does the employee earn?
Determining tax residency is a factual analysis. Each country has its own tax residency method of determination. Therefore, an employee can be considered as a tax resident in more than one country. In this case, you must look at the tax treaty between the two countries. France has signed a tax treaty with most countries in the world. However, if France does not have a tax treaty with the home or host location, the employee will be considered as a tax resident in the host country and France, if the employee’s family remained in France.
Therefore, while determining the tax status of an employee is important to an employer, it may be difficult for this employer to obtain answers to all its questions since some employee may not want to share with its employer, its personal situation. In this case, a tax specialist may be called upon to assist in determining the tax residency of an employee, allowing the employer to obtain a tax residency analysis without having to obtain personal information from its employee.
If the employee remains a tax resident of France when working abroad because his family remains in France, he will have tax filing obligations in France. Therefore, the employee will have to declare his work income both in France and abroad.
For your information, tax treaties signed between France and other countries have a section specific to the taxation of compensation income when working internationally.
Professional income will increase income taxes on personal income. Therefore, depending on your firm’s mobility policy and if your employee is tax equalized, you may be forced to pay income taxes abroad but also the additional income taxes in France generated by compensation income. This situation is due to the fact that, while the tax treaty allows for a tax credit or exemption with progression, it is still taken into account to calculate the tax rate applicable personal income.
The only obligation of the expatriate upon his departure from France is to inform the French tax authorities (his tax center and tax collector) of his departure, to provide the date of his departure, which often coincides with the beginning of the assignment abroad, and his foreign address.
The employee must also inform his bank of his departure from France because of the impact it may have on the tax rates applicable to financial income or the obligation to close some bank accounts.
You will also find additional obligations the employee must complete prior to leaving France (see section “relocation”).
If the employee becomes a French tax non-resident, he will have to declare personal and professional income in the host country. Depending on your firm’s mobility policy, the employer will be responsible on all income taxes in the host country or only income taxes due on compensation income.
As a reminder, most countries have withholding at source (i.e. United States, United Kingdom and many others), which may force the employer to prepare payslips for the employee each month, as well as generate monthly tax filing obligations.
Some personal income needs to be declared in France even while a French tax non-resident, such as rental income. In general, the employee is responsible for income taxes on personal income in the home location.
As mentioned above, taxes for an expatriate can be quite complex. Indeed, the expatriate goes from being a French tax resident to an international tax status generating obligations in more than one country.
For this reason, we advise that the employer provides tax assistance to its employee, not only to respect that tax rules applicable in both countries but also to guarantee some tranquility to the employee on this topic.
This assistance must be provided in both countries, in France and the location abroad. Most firms provide the employee with the following services :
- Departure meeting from France
- Preparation of the French income tax return the year of departure
- Arrival meeting in the location abroad
- Preparation of the foreign income tax returns throughout the assignment
Other tax problems may arise due to an assignment abroad. These may also require the assistance of tax specialists. Each time, the employer will have to determine if it is his responsibility to pay for these services.