Securing your tax residence when moving abroad

The situation

Our support

1. 01

   Analysing tax residence under French law

   We examined the client’s situation against the three alternative criteria set out in article 4 B of the CGI:

   • the home or main place of stay in France;
   • the carrying on in France of a main professional activity;
   • the location in France of the centre of economic interests.

   Any one of these criteria may, in principle, be enough to characterise tax residence in France. The analysis therefore could not rest solely on the number of days spent in each country.

   We studied, in particular:

   • the date of the family relocation;
   • the location of the home actually occupied by the family;
   • where the children attended school;
   • the nature of the duties retained in the French companies;
   • the place from which professional decisions were taken;
   • the location of the main sources of income and of the investments;
   • the use of the homes retained in France.

   Point of attention. Spending fewer than 183 days in France is not, in itself, enough to establish non-residence for tax purposes. The family, professional and economic situation must be assessed as a whole.
2. 02

   Resolving the risk of dual residence

   The client was liable to be regarded as a tax resident by each of the two States under their domestic law.

   We therefore applied the criteria set out in the relevant tax treaty, in the successive order provided by the applicable treaty:

   • the permanent home;
   • the centre of vital interests;
   • the habitual abode;
   • nationality;
   • where applicable, agreement between the tax authorities.

   Where the taxpayer has a permanent home in both countries, treaty residence depends in particular on the State with which their personal and economic ties are closest.

   Point of attention. A tax treaty does not merely compare two lengths of stay. It looks for the country in which the centre of the taxpayer’s personal and economic life is actually located.
3. 03

   Building a coherent evidence file

   We drew up a list of the elements able to document the reality of the move abroad.

   The analysis covered, in particular:

   • the home available in each country;
   • water and electricity consumption;
   • everyday living expenses;
   • the children’s schooling;
   • travel between the two States;
   • local subscriptions and contracts;
   • banking relationships;
   • social and community activities;
   • the tax returns filed in the new State;
   • the elements showing where the wealth is administered.

   These elements are regularly taken into account in analysing the centre of vital interests.

   We then distinguished:

   • the elements favourable to recognition of foreign tax residence;
   • the ties with France that could be kept without calling that position into question;
   • the points that had to be changed or better documented;
   • the inconsistencies likely to be flagged on an audit.

   Point of attention. Tax residence results from a factual situation. The contracts, the returns and the taxpayer’s day-to-day conduct must tell the same story.
4. 04

   Adapting the governance of the French companies

   The client wished to keep his holding company and certain shareholdings in France.

   We therefore analysed separately:

   • his personal tax residence;
   • the place where his duties were performed;
   • the place of effective management of the companies;
   • the conditions under which management decisions would be taken after departure;
   • the remuneration for his duties;
   • the consequences of any sale or distribution.

   Keeping a company in France does not necessarily suffice to maintain the director’s personal tax residence. It may, however, be an important indicator where the bulk of his activity, income or wealth management continues to be located in France. The matters examined by the firm also show that the director’s residence and the location of the seat of his holding company must be analysed separately.

5. 05

   Anticipating the tax consequences of the departure

   Once tax residence had been analysed, we determined the consequences of the change of status on:

   • income received before and after departure;
   • French-source remuneration and dividends;
   • capital gains on securities;
   • real estate kept in France;
   • real estate wealth tax;
   • the reporting obligations for the year of departure;
   • the possible application of exit tax;
   • future gift or succession plans.

   After departure, foreign-source income is, in principle, no longer subject to French tax where non-residence is recognised, while certain French-source income, real estate assets and transactions remain liable to be taxed in France.

   We also coordinated our analysis with the advisers in the new State of residence in order to confirm:

   • the date of entry into local tax residence;
   • the local reporting obligations;
   • the application of the tax treaty;
   • the mechanisms for eliminating double taxation;
   • the consistency between the positions taken in the two countries.