Top 6 common mistakes when moving to Dubai

Top 6 common mistakes when moving to Dubai

1. Believing that the move automatically wipes out unrealized gains

Many candidates for expatriation believe that by leaving France they escape taxation of unrealized capital gains. The reverse is true: it is because they are leaving France that the exit tax becomes due. A deemed disposition is treated as occurring on the day before transfer, and the corresponding tax is immediately payable, save for deferral. This mistake leads to dire outcomes: departures completed without filing Form 2074-ETD, followed by reassessment years later with interest and increased penalties.

2. Underestimating the 90-day deadline for guarantees

For a move to Dubai, only the elective deferral under paragraph V of article 167 bis CGI is available. Its most rigid condition is filing a proposal of guarantees no later than 90 days before departure. Many founders concentrate their administrative steps in the weeks immediately preceding departure, which makes meeting the deadline physically impossible. The consequence: deferral denied, exit tax immediately payable.

3. Undervaluing privately held securities

Valuation of privately held securities is the favored battleground for post-departure tax audits. A patently low valuation, or one that is simply undocumented, prompts the tax authorities to propose a higher valuation, with a direct impact on the exit tax base. Defending against it is made difficult by the absence of contemporaneous evidence from the time of departure.

The countermeasure is to obtain an independent valuation report before departure, prepared by a qualified expert (statutory auditor, certified public accountant, investment bank). That report, capable of being relied on against the authorities, shifts the dispute to technical ground in the event of an audit.

4. Overlooking deferred gains (article 150-0 B ter)

Gains under tax deferral following prior contribution-disposal transactions (article 150-0 B ter of the CGI) fall within the scope of the exit tax just like unrealized gains. This component of the tax base is frequently overlooked by taxpayers, who reason only about unrealized gains. The oversight leads to reassessment with additional penalties.

5. Retaining household ties in France after departure

Keeping a regularly used home in France (a second residence occupied several months per year, a spouse remaining in France with children in school there) creates a major risk: reclassification of tax residence back to France. If the tax authorities establish that the taxpayer never truly transferred his center of vital interests, the exit tax falls away (the triggering event did not occur) but French income tax becomes applicable again on worldwide income for the years in question, with interest and penalties. That is generally a worse outcome.

6. Conflating UAE Corporate Tax with French exit tax

The UAE Corporate Tax (Federal Decree-Law No. 47 of 2022) is a tax on the profits of UAE companies, entirely separate from the French exit tax. Some advisors wrongly refer to an "offset" or "absorption" between the two regimes: there is none. The two taxes coexist and apply to different taxpayers (the individual for the exit tax, the company for the Corporate Tax). The confusion leads to misguided strategies (forming a UAE company supposedly to "neutralize" the exit tax, with no practical effect).

Errors specific to founders who have exercised stock options or BSPCE

Securities acquired through exercise of options or BSPCE are subject to specific rules for determining the acquisition price. The frequent mistake is to use the nominal exercise price rather than the value of the securities on the exercise date — the rule applicable to stock options (exercise price plus the benefit under Article 80 bis of the French Tax Code (CGI)), to free share awards (value at definitive vesting, Article 80 quaterdecies of the CGI) and to BSPCE alike (value of the security on the date the warrant is exercised, the exercise gain under Article 163 bis G of the CGI being taxed separately — BOI-RPPM-PVBMI-50-10-10-20). The corresponding correction by the tax authorities is virtually automatic upon audit.

Errors related to the timing of a sale

An actual sale of the securities before departure triggers immediate taxation under the French capital gains regime, without application of the exit tax. This route is sometimes preferable when a sale is imminent and holding-period allowances or favorable regimes (notably the SME allowances for securities acquired before 2018) are available. A sale after departure is governed by the regime of the taxpayer's country of residence on the sale date, subject to treaty rules. The choice between the two sequences must be made on the basis of a quantified comparison.

Summary: what to do

1. Begin preparation at least 6 months before the planned departure date.
2. Obtain an independent valuation report for privately held securities.
3. Inventory the entire portfolio, including deferred gains (article 150-0 B ter) and earn-out receivables.
4. Calibrate the guarantees and appoint the fiscal representative no later than T-90 days.
5. Document the genuine transfer of residence rigorously (closing of French accounts, termination of the lease, relocation, enrollment of the children in school in Dubai).
6. Maintain a complete file for the Form 2074-ETS follow-up over 2 or 5 years (annual filing waived since 2019 where the deferral covers only unrealised gains; filing mandatory upon any event).