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Optional vs. Automatic Payment Deferral: Why Dubai Falls Under Paragraph V

Article 167 bis of the French Tax Code (CGI) establishes a targeted regime for the taxation of unrealized capital gains on certain securities and corporate rights upon the transfer of one's tax domicile out of France. It provides for two distinct payment deferral regimes: an automatic deferral, operating by force of law, under its paragraph IV, where the conditions set out in that paragraph are met (by reference in particular to the bilateral treaties in force and to the list of non-cooperative states and territories within the meaning of article 238-0 A CGI), and an optional deferral under its paragraph V, governed in particular by Decree No. 2019-868 of 21 August 2019, which as a general rule requires the proposed security to be filed no later than 90 days before the transfer. Determining which regime applies to a move to a given country — notably the United Arab Emirates — calls for a case-by-case analysis.

In brief — Article 167 bis CGI

Article 167 bis CGI applies, under the conditions it sets out, to the transfer of one's tax domicile out of France where the taxpayer holds shareholdings reaching the thresholds set by that statute (in particular a holding of at least 50% of a company's profits, or a portfolio of securities worth more than EUR 800,000), and where the prior-residence conditions in France are met. The tax assessed on unrealized capital gains, on claims arising from an earn-out clause, and, where applicable, on deferred capital gains, is computed under the rules in force on the date of the transfer. The payment deferral is structured under paragraphs IV (automatic) and V (optional) of article 167 bis CGI, the applicability of which to a given destination calls for a case-by-case analysis. Filing obligations — in particular the submission of the 2074-ETD return — apply throughout the entire deferral period.

A structuring distinction within article 167 bis CGI

The payment deferral is what makes the exit tax workable in practice. Without it, the taxpayer would be forced to sell their securities in order to pay the tax immediately — which would defeat the very purpose of the deemed-disposal fiction. The legislature provided for two distinct regimes, and the dividing line runs precisely through the United Arab Emirates.

Automatic deferral under paragraph IV: the European exception

Paragraph IV of article 167 bis CGI provides for a deferral granted as of right, operating by force of law, where two cumulative conditions are met. First, the transfer must be made either to an EU member state or to an EEA state that has entered into both a mutual administrative assistance agreement with France for combating tax fraud and evasion and a mutual assistance agreement for the recovery of tax claims. Second, the destination state must not appear on the list of non-cooperative states and territories referred to in article 238-0 A CGI.

Under the automatic deferral, no security is required and no fiscal representative is needed. The annual filing obligations were streamlined by the 2019 reform. It is the simplest and least costly regime for the taxpayer.

Optional deferral under paragraph V: the path for Dubai

Where the transfer does not fall within the scope of paragraph IV, the taxpayer may apply for a deferral under the conditions set out in paragraph V. This election is made with the French tax authorities and requires three cumulative conditions to be met: the filing of a proposed security no later than 90 days before the transfer (Decree No. 2019-868 of 21 August 2019), the designation of a fiscal representative established in France, and compliance with the annual filing obligations on the 2074-ETS forms throughout the entire deferral period.

For a move to Dubai, paragraph V applies. Why? Because the United Arab Emirates does not meet the two-part condition required by paragraph IV: it is not a member of the EU/EEA, and France and the UAE have not entered into a mutual assistance agreement for the recovery of tax claims within the meaning required by the statute. The automatic deferral is therefore unavailable. On the other hand, the UAE does not appear on the list of non-cooperative states and territories, which makes paragraph V perfectly workable.

Why this difference is far from trivial

Paragraph V imposes three constraints that shape the entire relocation project. The 90-day deadline for the proposed security is strict: failing to meet it renders the deferral void and the tax immediately due. The designation of a fiscal representative carries a recurring cost (between EUR 1,500 and EUR 15,000 per year depending on the complexity of the case). The annual 2074-ETS filing obligations call for rigorous monitoring over 2 or 5 years. None of these constraints exist under paragraph IV.

In practice, this means that a business owner hesitating between Lisbon and Dubai discovers, at the planning stage, that the operating cost of the deferral is not the same depending on the destination. This dimension must be factored into the decision early on.

Worked numerical example

Assumption: a business owner holding 100% of an SAS valued at EUR 4,000,000 on the eve of departure, with an unrealized capital gain of EUR 3,800,000. Gross exit tax computed at 31.4% (flat tax plus social levies, 2026) = EUR 1,193,200.

If the destination is Lisbon (EU), the automatic deferral under paragraph IV applies: no security, no fiscal representative, streamlined annual returns. Direct operating cost: zero. The taxpayer waits 5 years (portfolio > EUR 2.57M) and then applies for the tax to be discharged.

If the destination is Dubai, the optional deferral under paragraph V applies. Direct operating cost over 5 years: bank guarantee (1% per year of EUR 1.3M = EUR 13,000/year, i.e. EUR 65,000 in total) + fiscal representative (EUR 5,000/year = EUR 25,000). That is roughly EUR 90,000 in total operating cost to obtain the deferral. This cost remains far lower than immediate payment of the exit tax (EUR 1,193,200), but it must be factored into the decision.

Operational summary

The choice between paragraphs IV and V is not really a choice: it follows automatically from the destination. For a move to Dubai, only paragraph V applies. The minimum operational sequence comprises an audit at T-12 months (deferral feasibility, valuation of the securities), preparation at T-6 months (selection of the security, prequalification of the fiscal representative), formalization at T-3 months (filing of the proposed security), execution at T-0 (the actual transfer), and then annual monitoring over 2 or 5 years depending on the portfolio value.

Frequently asked questions

Can the automatic deferral under article 167 bis IV CGI apply to a move to the UAE?

No. The United Arab Emirates does not meet the two-part condition required by paragraph IV: it is not a member of the EU/EEA, and France and the UAE have not entered into a mutual assistance agreement for the recovery of tax claims within the meaning required by the statute. The deferral applicable to a move to Dubai is the one provided under paragraph V, granted upon election.

What is the annual cost of an optional deferral under paragraph V for a move to Dubai?

The cost combines two items: the security (a bank guarantee at 0.5%-2% of the guaranteed amount per year, or a pledge with a one-time cost) and the fiscal representative (EUR 1,500 to EUR 15,000 per year depending on complexity). For an intermediate case, expect EUR 15,000 to EUR 25,000 per year over 2 or 5 years depending on the portfolio value.

Can the paragraph V deferral be denied by the tax authorities?

Yes, if the proposed security is deemed insufficient or if the designated fiscal representative does not have the required financial standing. An administrative appeal and then litigation before the administrative court is available, but in practice it does not allow the project to be usefully delayed.

Frequently asked questions

Article 167 bis of the French Tax Code (CGI) establishes a targeted regime for the taxation of unrealized capital gains that applies, upon the transfer of one's tax domicile out of France, to certain categories of assets — essentially corporate rights, securities or rights of a similar nature, earn-out claims and, where applicable, deferred capital gains. The regime requires the members of the tax household to hold, directly or indirectly, a holding of at least 50% of the profits of a company subject to corporate income tax, or for the aggregate value of the corporate rights, securities or rights to exceed EUR 800,000. Form 2074-ET, together with form 2042-C, is filed with the income tax return for the year of the transfer. The interaction with a move to the United Arab Emirates of the deferral regimes provided under paragraphs IV and V of article 167 bis calls for a specific analysis of the provisions in force on the date of the transfer, paragraph V opening an optional deferral, conditional on an express application and on the provision of security within the procedural framework set out in particular by Decree No. 2019-868 of 21 August 2019.
Yes. Shares or units of a SARL, EIRL, SCI, or any opaque French structure trigger the exit tax upon a change of domicile. Even if the SARL has no realized unrealized capital gain, the difference between your acquisition price and the net asset value is taxable. Holding structures or chains of shareholdings must be reported in full.
Yes. Article 167 bis CGI provides for an automatic payment deferral (paragraph IV) for moves to an EU or EEA state that has entered into a recovery assistance agreement with France, and for an optional deferral upon application (paragraph V) for other destinations, including the United Arab Emirates. This optional deferral requires security (bank guarantee, mortgage, pledge) and the designation of a fiscal representative accredited in France. The tax remains assessed; actual payment is deferred until the sale, buyback, redemption or cancellation of the securities.
Failure to report exposes you to a reassessment of the tax on unrealized capital gains, together with the standard penalties: late-payment interest at a rate of 0.20% per month (article 1727 III CGI), a 10% surcharge for failure to file (article 1728 1. a) CGI), raised to 40% in the event of a deliberate omission (article 1729 a) CGI) or to 80% in the event of fraudulent practices (article 1729 c) CGI). The statute of limitations for reassessment is three years (article L. 169 LPF), extended to ten years where undeclared foreign accounts are involved.

Manage your exit tax with GEOTAX

The exit tax calls for a careful analysis of the taxable base, the holding thresholds, the payment deferral and the security. GEOTAX reviews your assets, assesses your unrealized capital gains and manages the 2074-ET return as well as the setup of the deferral for moves to the UAE.

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