Returning to France after living abroad: 6 things to do

Against a backdrop of global geopolitical tension and growing instability (ongoing conflicts, transatlantic trade turbulence or the fragility of some host economies), many expatriates are now wondering whether to return to France.

What they sometimes anticipate less is the tax impact of that return. Becoming a French tax resident again after living abroad is not just a change of address: it has immediate consequences for the taxation of your worldwide income, for your real estate assets and for your reporting obligations. All of these need preparing, ideally several months before the actual return.

1. Check whether you qualify for the inpatriate regime

This scheme is sometimes little known, yet it is very advantageous for expatriates who return to work in France. The inpatriate regime (article 155 B of the French General Tax Code) offers, subject to conditions, a partial income tax exemption for eight years.

To benefit from it, you must not have been a French tax resident during the five calendar years before taking up your position in France, and you must be recruited from abroad or transferred as part of an intra-group mobility. The scheme therefore does not apply to a purely personal return unrelated to salaried employment or a corporate office.

In practice, the advantages are significant: the inpatriation bonus paid by the employer is exempt from income tax (up to its actual amount or, as an option, 30% of total remuneration), and some foreign-source income, such as dividends, capital gains on securities or royalties, benefits from a 50% exemption.

This regime is not automatic. It must be activated when you take up your position and stated explicitly in your tax return.

2. Anticipate the impact on IFI when you return

When you become a French tax resident again, you are in principle liable to the real estate wealth tax (IFI) on all your worldwide real estate, including property held abroad, if its net value exceeds €1,300,000.

There is, however, a favourable regime that is often overlooked: anyone who has not been domiciled in France for tax purposes during the five calendar years before their return is liable to IFI, for the first five years after settling in France, only on their real estate located in France. Foreign real estate is temporarily excluded from the tax base.

This regime applies whatever the reason for the return; unlike the income tax scheme, it is not limited to salaried inpatriates. It is, however, limited in time: after 31 December of the fifth year following settlement, worldwide assets become fully taxable again.

This five-year window can be an important planning lever, in particular for families holding real estate abroad. It deserves to be anticipated.

3. List and declare all your foreign accounts and policies

As soon as you become a French tax resident, a reporting obligation applies: every year, you must declare all bank accounts opened, held or used abroad, as well as life insurance or capitalisation policies taken out with institutions established outside France.

This declaration covers all accounts, including those that generate no income, those that are simply dormant and those over which you merely hold a power of attorney.

The penalties for failing to declare are severe, in particular €1,500 per undeclared account, increased to €10,000 if the account is held in a State that has not signed an administrative assistance agreement with France. The tax authorities also have an extended ten-year period to reassess undeclared assets.

It is therefore useful, before returning, to draw up a precise inventory of all accounts and policies held abroad, and to consider whether to keep, close or repatriate them.

4. Plan transfers of assets before you return

Few expatriates think of this spontaneously, yet it can prove decisive: the period abroad itself can be an opportunity for gift and estate planning, provided you understand the territorial rules.

French tax law on gratuitous transfers does not stop at the border. Depending on domestic law or the international conventions in force, French gift or inheritance tax may apply even when the donor or the deceased lives abroad, as long as the beneficiary is a French tax resident or the assets transferred are located in France.

Conversely, a gift made while the donor and/or the beneficiary are not French tax residents may, under specific conditions and depending on the applicable tax conventions, take place within a lighter tax framework than after the return. This window is not systematic: it depends closely on the parties' situation, the nature of the assets transferred and the country of residence concerned. But it deserves careful examination, early enough.

It may therefore be relevant to anticipate certain transfers (gifts of money to children, for example) before returning to France, in line with the reporting obligations in force.

As every situation is unique, it is crucial to consult a notaire for an analysis tailored to your case.

5. Update your will and your estate planning

Returning from abroad is also a good time for careful civil planning. Ideally, this thinking should start at the very beginning of the period abroad.

European Regulation no. 650/2012, in force since 17 August 2015, sets a clear principle: the law applicable to succession is that of the country of last habitual residence at the time of death. When you return to France, you place your estate once again under French law, with its rules on forced heirship and devolution, theoretically over your worldwide assets; during your time abroad, on the other hand, you place your assets under the law of your habitual residence, a foreign law.

The regulation, however, offers a valuable tool: the possibility of choosing, by will, your national law to govern your entire estate, even before returning to France. This choice can be made before or during the period abroad and applies for the future. Such a clause can considerably simplify the settlement of the estate, by avoiding the concurrent application of several laws, in particular in Europe, and by allowing you to plan your succession over the long term.

If you made a will abroad during your time there, this is also the right moment to draft or review those foreign provisions and/or supplement or replace them with French testamentary provisions. Always check that a foreign will is compatible with French law and with the wishes you have expressed in France. Coordination is often needed to avoid any contradiction.

6. Formalise the transfer of tax residence rigorously

The year of return gives rise to a specific tax return that separates the period spent abroad from the period of residence in France. In practice, two forms must be completed: one for French-source income received from 1 January to the date of return, and the other for all income received from the date of return to 31 December.

From the date of return, you are taxable in France on your worldwide income. Income received abroad after that date (rents, dividends, pensions, etc.) must be included in the French tax return, subject to the tax conventions between France and the country concerned.

Conclusion

A well-prepared return to France is a return without unpleasant surprises, whether civil or tax-related. Favourable schemes (the inpatriate regime, the temporary IFI exemption) and international estate planning possibilities exist and can be significant levers and tools for securing the return. They need to be identified in time, eligibility conditions checked, and your situation adapted accordingly.

For David Notaires – Aix en Provence, Maître Elodie Letouche