What is the Exit Tax and who does it affect?
Many Olim Hadashim make aliyah from France. But many of them don't know how to regularize their tax situation with France.
How long does it take to notify France?
Can I benefit from a tax deferral from the French government?
If you've made Aliyah in recent years, or are about to, this article is for you!
I'M LEAVING FRANCE, AM I CONCERNED BY THE EXIT TAX?
Conditions for applying the Exit Tax when moving to Israel : Olim Hadashim
If you transfer your tax residence outside France, you are liable, under certain conditions, to income tax and social security contributions on your unrealized capital gains, your receivables arising from an earn-out clause and your capital gains on disposals or exchanges subject to a tax deferral regime.
This applies to you if you have been a French tax resident for at least six of the ten years preceding the transfer of your domicile abroad, and if you own shares, securities or rights with a total value of at least €800,000 or representing at least 50 % of a company's corporate profits.
However, you can benefit from a deferment of payment and a tax rebate in certain situations.
For transfers of tax domicile outside France on or after January 1, 2019, certain adjustments have been made to this system, without retroactive effect for taxpayers who transferred their tax domicile prior to this date (article 112 of the 2019 Finance Act).
Taxpayers transferring their domicile outside France may benefit from a deferment of payment of the taxes assessed in this respect. This deferment is either automatic, or granted on application using form 2074 ETD, accompanied by a guarantee proposal.
The deferral on request that concerned taxpayers transferring their domicile to a State outside the European Economic Area now applies, from 2019, only to those transferring their domicile to an ETNC (State considered as non-cooperative) or to a State or territory outside the EU that has not concluded with France assistance agreements to combat tax fraud and evasion and assistance with collection (Law 2018-1317 of 28-12-2018 art. 112).
Please note: for transfers carried out on or after November 22, 2019, the application must be filed no later than 90 days before the transfer (CGI ann. III art. 41 tervicies A), and no longer within the 30 days preceding the transfer.
In the event of successive transfers to a state eligible for deferment by right, and then to a state eligible for deferment by option, a request may be made following the second transfer. It must be made at least 90 days before the second transfer.
You want to make aliyah in early 2023. You only have a few weeks left to notify the French government of your new tax domicile.
If you are concerned by this issue, please do not hesitate to contact us.
ALSO READ: Who is considered an Israeli resident?
Exit tax rebate subject to conditions
The new system provides for a reduction in the period at the end of which the taxpayer may obtain relief from the exit tax on deferred payment (except in the event of a sale, repurchase-cancellation of shares or liquidation of the company in the meantime). This period has been reduced from 15 years to 5 or 2 years, depending on the case:
- 2 years for taxpayers whose shares are worth less than 2,570,000 euros;
- 5 years for those worth more than €2,570,000.
This system now applies to shares in companies with a preponderance of real estate assets that are subject to corporate income tax on the day the taxpayer transfers his tax domicile.
As a reminder, for transfers of tax domicile between March 3, 2011 and December 31, 2013: the holding period for shares entitling the holder to a rebate on the income tax portion of the exit tax is 8 years. At the end of this period, the portion of the exit tax relating to social security contributions remains due.
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The Exit tax system is based on two declarations:
- declaration no.2074-ETD to subscribe in respect of the transfer of the tax domicile outside France which allows you to declare unrealized capital gains, receivables arising from an earn-out clause and tax-deferred capital gains that you hold on the date you transfer your tax residence outside France;
- declaration no.2074-ETSto subscribe in respect of the years following that in which the tax domicile is transferred outside Francewhich allows you to keep track of your taxes.
There are several versions of this declaration, depending on the date on which you transferred your tax domicile outside France:
- Declaration no. 2074-ETS1 if you transferred your tax domicile outside France in 2011 or 2012;
- Declaration no. 2074-ETS2 if you transferred your tax domicile outside France in 2013;
- declaration no. 2074-ETS3 if you have transferred your tax domicile outside France since 2014. If you transferred your tax domicile outside France in 2018, you must file a 2074-ETS3 return (on the first page of the return, on the "Your address" line, you must indicate your address at the time of filing. You must also indicate your previous address).
When must the declaration be made?
You must file these returns within the same timeframe as your income tax return.
If you are entitled to a total deferment of payment, either by right or by option, and no event has occurred in 2018 that would put an end to the deferment of payment or result in a tax reduction, you must file a tax return. 2074-ETSL.
In addition, you must report box 8TN declaration 2042C the total amount of deferred duties (carried forward from the 2074 ETS declaration when completed).
If, once established abroad, you transfer your tax domicile back to a different countryThis new transfer may have consequences for your tax situation. Therefore, within 2 months of this change of tax domicile, you must inform the Non-Residents SIP of the Non-Residents Tax Department (DINR), whose address is as follows:
DINR, Service des Impôts des Particuliers Non-résidents, 10 rue du Centre - TSA 10010, 93465 Noisy Le Grand Cedex, France
If the forms (declaration and notice) are not yet available in the year of departure, use the most recent vintage.
Example: "transfer at the beginning of the year N" printout not yet available, take 2074ETD N-1cross out the year indicated 2074ETD N-1 and replace it with the year of departure N.
Do you have a question?
What about the Israeli tax authorities?
For 10 years after your aliyah, sales of property located outside Israel are not subject to Israeli law and taxes.
The procedures and taxation apply only to France for the 10 years following your aliyah.READ ALSO: OLE HADACH TAX BENEFITS FOR 10 YEARS
But be careful:
- When transferring funds from your French bank to your bank account in Israel, the Israeli bank will probably ask you questions about the source of the money, whether taxes have been paid, etc... Our firm can assist you with these procedures if necessary..
- Every sale made after the end of your 10-year Aliyah is subject to Israeli tax. There are often additional taxes to pay in Israel.
Don't hesitate to contact us, as our firm specializes in this sector.
In a nutshell
- An Ole hadash having in FRANCE securities or rights reaching a total value of at least €800,000 or representing at least 50 % of a company's profits is subject to EXIT TAX.
- The application to declare the change must be submitted within 90 days before you change your tax residence.