The French Exit Tax is an anti-avoidance measure that applies to individuals who transfer their tax residence outside France. It targets unrealized capital gains on company shares exceeding €800,000 or 50% ownership, as well as certain earn-out receivables and deferred gains. Taxation is triggered upon departure at a flat rate of 30%, but may be deferred depending on the destination country and compliance with reporting requirements. If the taxpayer still holds the assets after 2 or 5 years (depending on their value), or returns to France, the Exit Tax is waived.
When staying too long costs more than you expected.
The French Exit Tax is an anti-abuse mechanism designed to prevent individuals from temporarily relocating abroad to benefit from more favorable tax regimes when selling their companies, thereby depriving France of its (precious) tax base. In theory, the Exit Tax applies to unrealized capital gains at the time of departure. However, several deferral mechanisms exist, provided certain conditions are met.
If the securities are held for a monitoring period of at least 2 or 5 years, depending on the case, the Exit Tax is waived and no tax is ultimately payable. Conversely, if the securities are sold during the monitoring period, the deferral is revoked and the capital gains become immediately taxable in France, even if the taxpayer has become a non-resident.
I. Origin: Where does the Exit Tax come from?
While the EU’s ‘Four Fundamental Freedoms’ guarantee the free movement of goods, services, people, and capital, each Member State retains the right to protect its domestic tax revenue. According to established case law from the Court of Justice of the European Union (CJEU)[1], maintaining the integrity of the tax base, combating tax avoidance, and ensuring the effectiveness of tax audits are considered the main “overriding reasons in the public interest”. These may justify certain restrictive or discriminatory tax measures.
The modern version of the French Exit Tax was introduced by the Finance Bill of 29 July 2011. As described at the time by then-Minister François Baroin, the Exit Tax “is a deterrent measure designed to strip the expatriate of any tax advantage from leaving France, by taxing them as though they had never left the country.”[2]
The measure was introduced to foster the fight against tax avoidance, a constitutionally recognized objective.
II. Taxpayers: Who does it apply to?
The Exit Tax applies to individuals who, cumulatively:
- transfer their tax residence outside France, and
- have been tax resident in France for at least 6 of the 10 years preceding that transfer.
The 6-year condition is intended to exclude taxpayers – particularly inbound individuals benefiting from the favorable “impatriate” regime – whose residence in France is temporary. This 6-year period does not need to be continuous.
However, capital gains under a deferred taxation regime (pursuant to Article 150-0 B ter of the French Tax Code) are also always subject to the Exit Tax, irrespective of the taxpayer’s period of residence in France.
III. Scope: What assets are subject to the Exit Tax?
The Exit Tax covers 3 categories of unrealized capital gains.
1. Unrealized gains on shares or rights in companies
Capital gains on shares or rights held directly or indirectly in French or foreign companies, are subject to the Exit Tax if either of the following conditions is met:
- the holdings represent at least 50% of the company’s rights to profits, or
- the aggregate value of the shares exceeds €800,000.
The thresholds are assessed at the level of the tax household: all direct and indirect holdings by members of the household must be added together to determine whether the participation exceeds the 50% threshold. However, only direct holdings are considered when assessing whether the €800,000 value threshold is met.
2. Earn-out receivables
Receivables arising from earn-out clauses (i.e. deferred consideration in M&A deals) are taxable upon departure, regardless of the percentage held or the value of the participation.
3. Deferred capital gains
Capital gains from prior sales or exchanges of corporate securities that have been deferred under Article 150-0 B ter of the French Tax Code are taxable under the Exit Tax rules, even in the absence of any minimum residence period or value threshold.
IV. Departure: How does it work?
In principle, the taxable event is the transfer of the taxpayer’s tax residence outside France. This is deemed to occur on the day before the individual ceases to be subject to French taxation on their worldwide income.
The Exit Tax is charged at a fixed rate of 30%, which includes 12.8% income tax and 17.2% social contributions.
In many cases, taxation can be deferred, depending on the destination country, and subject to proper planning and timely compliance with reporting obligations.
Case 1: Moving to another EU Member State
If the taxpayer moves to another EU Member State, the Exit Tax is automatically deferred, with no guarantee required. An Exit Tax return still needs to be filed, otherwise the deferral of payment is revoked, and the Exit Tax becomes due.
Case 2: Moving to a non-EU country with a suitable tax treaty
The same automatic deferral applies when moving to a non-EU country that satisfies all the following conditions:
- the destination country has concluded with France an “agreement on administrative assistance to combat tax fraud and tax evasion”;
- the destination country has concluded with France an “agreement on mutual assistance for tax collection, equivalent to that provided by EU Directive 2010/24/EU of 16 March 2010”; and
- the destination country is not considered as “uncooperative within the meaning of Article 238-0 A of the French Tax Code”.
If all conditions are met, the deferral is granted automatically, without any guarantee, just like in the EU case.
The same reporting obligation applies. Failure to file the Exit Tax return leads to immediate taxation.
Case 3: Moving to any other country
For other destinations (outside the EU and without qualifying tax treaties), deferral is not automatic. However, the taxpayer may still request a deferral, subject to the following conditions:
- the taxpayer files the Exit Tax return at least 90 days before departure;
- a tax representative is appointed in France (authorized to receive tax-related communications);
- sufficient guarantees are provided before departure (e.g., a bank guarantee, mortgage, or pledge over shares) to ensure payment of the Exit Tax if it becomes due.
V. Outcomes: What happens next?
To better target clear cases of tax-driven expatriation, the monitoring period (after which the Exit Tax may be waived) was shortened in 2019, from 15 years to either 2 or 5 years.
The key variable is the value of the taxpayer’s assets on the date of departure.
| Value of assets on departure date | Monitoring period |
| ≤ €2.57 million | 2 years |
| > €2.57 million | 5 years |
If the assets are sold during the monitoring period, the deferral is revoked and the Exit Tax becomes definitively due.
If however, the assets are still held at the end of the monitoring period, the Exit Tax is permanently waived.
Case 1: Sale within 2 or 5 years → the Exit Tax is due
If the taxpayer sells the assets within the applicable monitoring period, the Exit Tax becomes immediately payable.
Consequences:
- If the taxpayer had benefited from a deferral, it is revoked and the Exit Tax becomes due.
- If guarantees were provided, they may be seized if the Exit Tax is not paid.
- If the Exit Tax was already paid, there is no refund.
Case 2: Return to France within 2 or 5 years → the Exit Tax is waived
If the taxpayer returns to France with all relevant assets still in their possession, they are deemed never to have left for Exit Tax purposes.
Consequences:
- The Exit Tax is fully waived.
- Any guarantees provided may be released upon request.
- If the Exit Tax was already paid upon departure, the taxpayer may request a refund.
Case 3: No sale after 2 or 5 years → the Exit Tax is waived
If the assets are not sold during the monitoring period, the Exit Tax is waived.
Consequences:
- Any deferral becomes permanent.
- Guarantees (if any) are released upon request.
- If the Exit Tax was paid up front, a refund may be requested.
