France’s left-wing NFP group wants to toughen the ‘exit tax’, a levy aimed at penalising business people who move abroad before selling their shares in a French firm while living in a country with a lighter tax regime.
The tax was brought it under Nicolas Sarkozy in 2011, but substantially watered down under Emmanuel Macron. Now the NFP wants to go back to the original version, which would mean people with less wealth would be affected, and it would also take much longer to qualify for an exemption from the tax.
It comes as France is still without a new prime minister, more than six weeks after the decisive legislative elections on July 7.
Several candidates have their name in the ring, including Lucie Castets, the choice of the left-wing Nouveau Front Populaire (NFP) alliance, which won the most seats but is far short of an absolute majority in the Assemblée nationale.
Ms Castets, a civil servant, said she would prioritise taxation and spending policies from the NFP manifesto if elected, saying it would spur on the French economy.
One of the NFP proposals is to toughen France’s ‘exit tax’, which would see far more businesspeople and others with large company shareholdings having to pay a French tax if they move out of France.
Ms Castets has also said she wants, generally, to take inspiration from the American tax model, which sees American citizens living abroad still having to make declarations to France and to pay US tax, if their income is high enough.
Read more: PM candidate wants to tax French abroad as America taxes its expats
What is France’s ‘exit tax?’
A current version of a French ‘exit tax’ exists. It is a watered down version of the initial tax which was introduced in 2011 (it was first voted on in 1998 by the French parliament before being shot down by the EU).
It affects people who have been resident in France for six of the last 10 years, regardless of nationality, and who have shares in a company exceeding a value of €800,000 or entitling them to more than 50% of the profits paid to partners/shareholders in the company (equivalent to 50% ownership of the company’s capital).
They are taxed at a flat 30% rate (12.8% income tax, 17.8% social charges) on the theoretical gains made from these shares whilst resident in France, even if the shares are not sold and remain in their possession when they leave.
However, depending on the country a person moves to (EU/EEA countries and countries that have signed agreements with France to combat tax avoidance and evasion and for mutual tax recovery), this is only levied when the shares are sold.
For other countries it is due on leaving France.
If the shares are not sold within two years (or five if the value is €2.57 million or more), then the tax is not levied (or can be refunded to those who have already paid it).
You can read more about the current version of the tax on page 27 of our guide to French Income Tax on sale here.
As well as this return to a tougher exit tax, the NFP also has plans related to France’s wealth tax (an annual tax on wealth owned, over certain levels - payable either by residents or by non-residents with real estate in France).
It wants to return to a broader ‘ISF’ wealth tax, on wealth in general (shares, money in the bank, jewellery, cars and boats…), not just President Macron’s simplified ‘IFI’ property wealth tax (on real estate).
Furthermore, it wants ISF to bring in more than it formerly did, by removing some exemptions, for example on property used for business purposes.
Read more: EXPLAINED: France’s property wealth tax 2024
What changes would the NFP make to the exit tax?
The NFP wants to return the tax to its original 2011 status.
This would see people taxed if they have assets worth €1.3 million (more than currently), or otherwise amounting to just 1% at least of a company’s capital as opposed to 50%.
In addition, exemption from the tax for those not selling their shares would come into force only after 15 years, as opposed to the current two or five year period.
Will this change much?
The changes may not bring in as much revenue as hoped for.
Calculations made in 2018 showed that, in the three years the tax was levied in the way the NFP wishes to return to (the tax was altered in 2014 by then-president François Hollande before Macron’s 2017 overhaul) it raised on average of only €67 million per year.
This is partially due to the intensive workload in collecting the tax, with civil servants required to sift through reams of data on company shares. This led to resources being used elsewhere in collecting other taxes.
The Conseil des prélèvements obligatoires claims that up to €800 million could be collected per year if all eligible duties were collected.
This is why the NFP wants to increase the resources available to tax authorities.
Having said this, the NFP is around 100 seats short of an absolute majority in parliament, and is unlikely to be able to propose any sweeping changes to tax collection, particularly as they would have to convince allies of Mr Macron – responsible for changing the tax – to vote for its reinstatement.
Read more: What could Nouveau Front Populaire bring in directly by French decree
