step by step - impatriation

making choices

Estimating the cost of an expatriation is a very important part of the expatriation process for human resources. The first reason for this is to be able to validate the budget with the people who have requested the expatriation and the second reason is for the human resource department to be able to make the appropriate choices prior to the beginning of the assignment.

It is important to note that the cost of an expatriation is much more difficult to determine than the cost of a regular French local employee since for a French local employee the cost is usually the base salary, plus the employer social security contributions.

If we take an expatriate's standard package, equalized for tax and social security purposes, a cost of living allowance and an expatriation premium, the cost of the assignment will be determined approximately as such :

Gross compensation
< theoretical social charges >
< theoretical income tax >
Expatriation premium
Cost of living premium
------------------------------
Net compensation guaranteed
+ employee and employer social security contributions (France and / or foreign)
+ income tax abroad
-----------------------------
Employee cost without benefit-in-kinds
+ housing cost
+ school for the children
+ car

Some elements of this package can be optimized for social security or income tax purposes based on French internal rules.

Social status

As previously mentioned, the employee seconded to France remains subject to the mandatory social security scheme of the home country. Therefore, similar employee and employer contributions are paid on the gross package of the employee (i.e. contributions on base salary, housing, car allowance, income taxes abroad, expatriation premium, employee social security contributions paid on behalf of the employee, etc). However, you must check whether it is possible to reduce the benefits subject to social security contributions in the home location.

A foreign employee expatriated to France has to pay French mandatory social security contributions and foreign voluntary social security contributions in the home country (ie depending on the social security rules applicable in the home location).

All elements of compensation need to be subject to French mandatory social security contributions. However, numerous French internal rules allow to optimize French social security contributions. You will find an article on this on our Blog.

Once all this has been taken into consideration, the human resources will be able to determine the least costly option. 

Tax rules in France

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.

Benefits-in-kind

It is necessary to know social and tax rules applicable in host and home country in order to optimize benefit-in-kinds.

Indeed, rules applicable in one country can not be applicable in another country. Therefore, make sure to have understood the rules applicable in France prior to optimize from a home country point of view your expatriate's package.

For example, in France, it is possible to optimize for social and tax purposes the housing benefit (see our note in the blog on “social security optimization for an expatriate”). Depending on whether you pay the employee a housing allowance, which would be considered 100% subject to French social security and income tax, or you lease the house for your employee (i.e. lease under the employer ' s name), the social and tax cost can be reduced by more than 60% of the total housing cost.

Therefore, prior to having an employee sign an expatriation addendum to his work contract or prior to sending him on assignment to France, make sure that you have properly determined the cost of the assignment since the total cost can be 2 to 3 times that of a local employee.