It is one of the most costly components of an expatriate's assignment. If we consider a standard expatriate's package where the employee is tax equalized and is a tax resident in France, the employer will be responsible for 100% of the employee's French income tax.
For this reason, it is necessary to determine the French income tax to determine the cost of the expatriation. For this reason, you must be aware of the income tax rules applicable in France and optimize or make modifications in the package if necessary.
In most countries, when the employee is tax resident, income tax is calculated on the worldwide income. Therefore, it is not because the employee is paid by a foreign employer, for example, that he is not subject to French income tax on his foreign paid income. Indeed, it is often believed that by declaring a theoretical income in the host location, you are only subject on this fixed and pre-determined income but this is incorrect. To avoid a tax audit (corporate and individual), worldwide income must be declared (i.e. home and host paid).
Unless a special tax status is applicable, the employee will be taxable on base salary, premiums, benefit-in-kinds, etc. In order to reduce the tax cost of an assignment to France, it is important to know the optimization incentives available in France as they are numerous.
For example, it is possible to exempt benefits-in-kind paid to a French impatriate (ie housing, French income taxes, premiums, etc.). Of course, benefiting from this regime requires that certain conditions be met such as not having been a French tax resident in the last 5 years preceding the arrival in France. You will find on the Blog an article on the matter.
Other countries have similar scheme such as Belgium, Spain, UK, Australia, etc (more information on the section Fiches pays
of our Blog
Finally, it is important to note that the social security status can also have an important impact on the tax cost for the employer since French social security contributions (as well as most foreign mandatory social security contributions) are deductible for French income tax purposes.