France plans tax breaks for foreign staff

New tax breaks being planned in France would benefit thousands of expatriate staff, including bank employees.

Foreign staff in France would be able to offset from their tax bill pension and health contributions that are paid in their country of origin. They would also be exempted from paying income tax on bonuses, such as cost-of-living allowances, linked to their expat status.

Sébastien Huyghe, the legislator who drafted the plan, estimated that up to 3,000 staff would benefit, at a cost of €80m ($94m) to the French tax system. About 1,000 of them work in financial services, according to a lobbyist for the industry.

The report was commissioned by Jean-Pierre Raffarin, the prime minister, who requested "proposals to bring the situation of (foreign expats in France) in line with that of French expats abroad".

France has one of the highest tax burdens in the European Union and no incentives for foreign workers.

For an executive earning €50,000 a year to receive an extra €1, the total cost to the company is €3, compared with €1.8 in the UK, according to a study published in June by Paris Europlace, an association that promotes Paris as a financial centre, and Cercle des Economistes, an economics think-tank.

The plan also aims to attract French expatriates back home. However they would not be entitled to the tax breaks unless they had been away for more than 10 years.

The French top rate of income tax came down to just below 50% last year for the first time since 1981. An election pledge last year by President Jacques Chirac to cut income tax by a third by 2007 could be undermined by EU curbs on the size of its members' budget deficits.

Nine EU countries have special tax regimes for foreign workers, including the UK, Germany and Belgium, the only country with a total tax burden on companies and individuals higher than France's.

The French plan could be implemented in next year's budget.