Just back from vacation and thinking of moving abroad?
Would your company like to develop the activities of some of its employees abroad and conquer new markets?
In France, employees working abroad can fall into one of two main categories: expatriation or secondment.
It is essential to distinguish between these two concepts, as they have different consequences in terms of employment contracts, taxation and social protection.
Secondment or expatriation?
Secondment involves an employee temporarily sent abroad by a company headquartered in France. This is a fixed-term assignment, at the end of which the employee is expected to return to his or her home company. During the secondment period, the original employment contract is neither terminated nor suspended, and remuneration continues to be set by the French employer. The employee remains legally attached to his or her original company and continues to be part of its workforce.
The main features of the secondment are therefore :
- A temporary assignment abroad ;
- Maintaining the initial employment contract with the French employer ;
- Continued subordination and remuneration by the original employer ;
- A scheduled return of the employee to the company of origin at the end of the assignment.
- The seconded employee remains covered by the French social security system for a limited period.
Expatriation refers to the situation where an employee is sent abroad for a period of time, usually longer than the period covered by the secondment. In most cases, the expatriate loses his or her subordinate relationship with the French employer, and becomes an employee of a local company in the host country. His initial employment contract with the French employer is in principle suspended, and a new local contract is often concluded with the foreign company.
Expatriation is therefore characterized by :
- The long duration of the overseas assignment;
- Suspension (not termination) of the initial employment contract with the French employer;
- The conclusion of a local employment contract with the foreign company ;
- A very weak link of subordination with the original employer and remuneration paid by the host entity;
- In the event of expatriation, the employee is no longer affiliated to the French social security system. In principle, they are covered by the local scheme of the host country. In the event of expatriation, the employer must inform the employee of the termination of French social security coverage and of the possibility of joining the voluntary insurance scheme managed by the Caisse des Français de l’étranger (CFE).
The expatriate tax system
The expatriation bonus paid to an employee sent abroad by an employer based in France is exempt from income tax under certain conditions (article 81 A, II of the French General Tax Code).
To qualify for this exemption, the expatriation bonus must :
- Be paid in return for stays made in the direct and exclusive interest of the employer.
- The amount of the allowance must be determined prior to the stay abroad, in relation to the number, duration and location of the stay, and to the remuneration paid to the employee (excluding supplementary remuneration), without exceeding 40% of the main remuneration thus defined.
- Be justified by a trip requiring effective residence of at least 24 hours in another state.
- The total amount of the tax-exempt bonus may not exceed 40% of the main salary, excluding salary supplements (“the legislator clearly defines the limit of compatibility of salary supplements with the main salary by setting a ceiling of 40%”).
The exemption may also apply to bonuses set globally for all stays during the year, provided that it is possible to justify their relationship with the duration or conditions of the stays abroad.
If the conditions for exemption are not met at the time of payment, the expatriation bonus is subject to withholding tax. In addition, the exemption does not apply to social security contributions (CSG/CRDS). These conditions and clarifications call for caution when declaring and processing at source, to avoid any subsequent penalties.
Please note:
Cross-border commuters who return to their homes in France each evening are excluded from the exemption, as the condition of effective residence of at least 24 hours in another country is not met.
Worth knowing:
- Under certain conditions, expatriation bonuses can be combined with other exemptions, notably those applicable to impatriates, but there are rules against combining them, depending on the period of employment and the tax option chosen.
- A separate and potentially more favorable regime exists for foreign business development missions.
Don’t hesitate to contact our teams for assistance:
- as part of a personal expatriation, if you are sent abroad by your employer, to validate the best plan for your situation,
- or, if you’re an employer, to put in place a solid mobility policy that complies with the law. This scheme cannot be improvised.
