The “inpatriates” tax regime: a corporate practice also attractive for sport clubs
Jacques Perotto and Julien Lebel
Whereas the tax regime of “inpatriates” is known and implemented in multiple companies, it is less so in sport clubs, which does not mean that it is ignored, far from it.
A tax exemption that everyone can benefit from…
The “inpatriates” tax regime is a mechanism providing for a tax exemption of additional remuneration paid to employees / players recruited abroad. In certain cases, this additional remuneration may be fixed at 30% of the remuneration before taxes.
Thus, everyone can benefit from such a mechanism insofar as it allows French companies and sports clubs to reduce their payroll costs. This is implemented during the negotiation of the employee or player’s remuneration (on a net basis after taxes) while maintaining said employee or player’s salary level.
This mechanism also allows the beneficiary to exceed the 30% tax exemption, particularly when working abroad (for example when the club qualifies for European competitions) up to a 50% exemption of the total net remuneration.
In addition, it is combined with a partial exemption of certain foreign patrimonial income, such as dividends or capital gains on the sale of company rights.
Lastly, a real estate wealth tax (“impôt sur la fortune immobilière” – IFI) exemption is also applicable for 5 years on real estate assets held outside France.
… Provided that the conditions are met
In order for the conditions to be met and the exemption to apply, the employee/player must have spent more than 5 full calendar years (and not 5 seasons) abroad before moving or returning to France.
It is recommended to include the “inpatriates” bonus in the employment contract prior to the move to France, and to ensure that it corresponds to an additional remuneration compared to the one received by players recruited in France with the same profile.
The exemption can be applied until the end of the 8th year following the move to France, which however supposes that the player does not change club.
A mechanism designed to attract foreign talent to France
What is understandable for employees of French companies is also understandable for sportsmen and women; the international competition in which clubs from all over the world take part has prompted the legislator to create incentive mechanisms aimed at competing and attracting the best talent.
This is the very essence of the legal text, which gives French clubs some weapons to try and make themselves heard on the transfer market, even if equivalent mechanisms exist in other European countries; Paul Pogba will thus be a potential beneficiary of the Italian “inpatriate” tax regime when he signs his contract with Juventus after six seasons spent at Manchester United.
An attractive tax mechanism to compensate for the high level of French social security contributions
The level of social security contributions in France being known as one of the highest in the world, this small advantage can sometimes make the difference in arduous discussions between clubs and agents during the Mercato (transfer period), by acting as a counterbalance to these high social contributions with a tax system more in line with the standards of neighbouring countries.
Thus, while the marginal tax rate in France can be as high as 49% (adding to the tax itself the exceptional contribution on high incomes, which can reach 4%), this rate can drop to around 35% when the “inpatriate” exemption is applied.
Thus, everyone can benefit from such a mechanism insofar as it allows French companies and sports clubs to reduce their payroll costs. This is implemented during the negotiation of the employee or player’s remuneration (on a net basis after taxes) while maintaining said employee or player’s salary level.
Jacques Perotto, Partner, and Julien Lebel, Counsel.