Exit tax in France: what you need to know before moving to Paraguay

Leaving France for Paraguay is one thing. Leaving France fiscally is another—and often the most underestimated part of expatriation. The exit tax, officially called "taxation of latent capital gains upon transfer of tax domicile outside France," is a mechanism that can surprise expatriates upon departure. Poorly anticipated, it can be very costly. Well-prepared, it is perfectly manageable.

This guide explains exactly what the exit tax is, who is concerned, how it is calculated, what options for deferral and relief are available, and how to organize your departure to Paraguay with complete fiscal peace of mind.

The exit tax: what exactly is it?

The principle

The exit tax is a French tax on latent capital gains on certain holdings held by a taxpayer when they transfer their tax domicile outside France. The word "latent" is important: these are not realized capital gains (you haven't sold anything), but theoretical capital gains calculated as if you had sold your holdings on the day of your departure.

The French legislator's objective is to prevent taxpayers from expatriating solely to then sell their holdings from a country with more favorable taxation—like Paraguay—and thus escape French capital gains tax.

Origin and evolution

The exit tax was introduced in 2011 and has undergone several modifications since. The current system results from the 2019 finance law, which softened certain conditions while maintaining the principle. This is a regularly evolving subject—hence the importance of relying on the texts in force at the time of your departure and consulting a professional.

Who is affected by the exit tax?

Cumulative conditions

You are potentially liable for the exit tax if you meet at least one of the following conditions at the time of your tax domicile transfer outside France:

• Condition 1: You hold participations representing at least 50% of the social benefits of a company (directly or indirectly, alone or with members of your tax household)
• Condition 2: The total value of your participations in companies exceeds €800,000 on the day of the transfer

Additionally, you must have been a French tax resident for at least 6 of the last 10 years preceding the transfer.

Who is NOT concerned

If you do not hold any company participations, or if your participations have a total value less than €800,000 and represent less than 50% of the capital, you are not subject to the exit tax. The vast majority of French-speaking expatriates—employees, freelancers, consultants, retirees—do not meet these conditions and have no exit tax to pay or declare.

Also outside the scope are:

• Directly held real estate (no interposed companies)
• Standard savings accounts and bank investments
• Life insurance (treated separately according to their own tax regime)
• PEA and PER (specific regimes)

Relevant participations

The exit tax targets the following social rights, securities, titles, or rights:

• Shares in French or foreign companies
• Shares in SARL, SAS, SCI, and other companies
• Investment securities (if the €800,000 threshold is met)
• Shares in UCITS and investment funds (if the threshold is met)

How is the exit tax calculated?



Latent capital gains

The latent capital gain is the difference between the value of the securities on the day of the tax domicile transfer and their acquisition price (or their value when they entered the patrimony). For example:

• You created an SAS in France in 2018 with a capital of €10,000
• On the day of your departure for Paraguay, the valuation of your shares is estimated at €500,000
• The latent capital gain is €490,000

Tax rate

The latent capital gain is subject to the same regime as classic capital gains on movable property:

• Flat tax (PFU) of 30%: i.e., 12.8% income tax + 17.2% social contributions
• Or progressive scale: optionally, with application of allowances for holding period if the securities were acquired before 2018

In our example, with the PFU, the exit tax would be €490,000 × 30% = €147,000. This is a significant amount that fully justifies advance planning.

Earn-out receivables

If you sold securities before your departure with an earn-out clause (future price complement), the amounts not yet received are also taken into account in the calculation of the exit tax. This is a technical point but may concern entrepreneurs who partially sold their company before expatriating.

Deferral of payment: you don't pay immediately

The deferral mechanism

Here's the good news: in the vast majority of cases, the exit tax is not immediately payable. You benefit from an automatic deferral of payment when you transfer your domicile to a country outside the European Union and outside the European Economic Area—which is the case for Paraguay.

Be careful, however: for transfers to countries outside the EU/EEA, deferral is not automatic in all cases. According to the texts in force, you might need to:

• Appoint a tax representative in France
• Provide payment guarantees (pledging of securities, bank guarantee)

These requirements depend on the regulations applicable at the time of your departure. This is a technical point that imperatively requires the advice of a tax advisor specialized in expatriation.

What deferral means in practice

With payment deferral, you do not pay the exit tax at the time of your departure. The tax is calculated and declared, but its payment is suspended. It will only become due if you actually sell the securities concerned. And even in this case, relief mechanisms may apply.

Relief: when the exit tax disappears

Automatic relief after 2 years

Since the 2019 reform, the exit tax is automatically relieved (cancelled) if you still hold your securities 2 years after your departure from France. In other words, if you leave France for Paraguay and do not sell your holdings for 2 years, the exit tax is purely and simply erased.

This is a major evolution compared to the previous regime, which imposed a 15-year period. The 2-year period makes the exit tax much more manageable for most expatriate entrepreneurs.

Conditions for relief

To benefit from the relief, you must:

• Not have sold the securities concerned during the 2 years following your departure
• Have correctly declared the exit tax at the time of domicile transfer
• Have complied with monitoring obligations (annual declarations of the status of securities)

What if you sell within 2 years?

If you sell all or part of the securities within 2 years following your departure, the exit tax becomes due on the capital gain actually realized. The amount to be paid will be calculated based on the actual capital gain from the sale, not on the latent capital gain declared at the start (an adjustment mechanism applies if the actual capital gain is lower than the latent capital gain).

Reporting obligations

At the time of departure

You must file a specific exit tax declaration (form 2074-ETD) at the same time as your income tax return for the year of departure. This declaration lists all concerned securities, their acquisition value, their value on the day of transfer, and the calculated latent capital gain.

Annual follow-up declarations

During the deferral period, you must file an annual follow-up declaration confirming that you still hold the securities and that you have not realized the capital gains. This follow-up is necessary to maintain the deferral of payment and, eventually, to obtain automatic relief.

In case of disposal

If you sell securities during the deferral period, you must declare it within 2 months following the sale and pay the corresponding exit tax. Your tax representative in France (if you have one) can manage this process.

Strategies for optimizing exit tax before departure



Strategy 1: Wait for 2-year relief

The simplest and most common strategy. You declare the exit tax, you obtain payment deferral, you keep your securities for 2 years after your departure, and the exit tax is relieved. Final cost: zero. This strategy suits all entrepreneurs who do not plan to sell within 2 years.

Strategy 2: Reduce the value of securities before departure

If you anticipate your departure sufficiently in advance, certain operations can reduce the valuation of your securities at the time of transfer: exceptional dividend distribution, reimbursement of shareholder current accounts, capital reduction. These operations must be carried out with the help of an accountant and a tax lawyer to remain within the legal framework.

Strategy 3: Sell securities before departure

If you plan to sell your company anyway, it may be simpler to do so before your departure. You then pay the classic capital gains tax on movable property in France (30% flat tax or progressive scale), but you avoid the complexity of the exit tax, deferral, and annual monitoring. The cash from the sale then leaves with you for Paraguay, where it will not be taxed (foreign source income).

Strategy 4: Donation of securities

Donating securities to your children or other beneficiaries before your departure can, in certain cases, purge the latent capital gain and reduce or cancel the exit tax. Donation duties apply, but direct line allowances (€100,000 per parent per child) can make the operation advantageous. This is a strategy to be evaluated on a case-by-case basis with a notary and a tax specialist.

Strategy 5: Contribution-sale (Article 150-0 B ter)

If you plan to sell your company, contributing your securities to a holding company before the sale can allow you to benefit from a tax deferral on the capital gain, subject to reinvestment conditions. This arrangement, very common among French entrepreneurs, must be implemented before the transfer of tax domicile to be fully effective. It requires expert legal and tax support.

Exit tax and Paraguay: a winning combination

Why Paraguay is a smart choice despite the exit tax

The exit tax might seem like a barrier to expatriation, but in reality, it's perfectly manageable—especially when the destination is Paraguay. Here's why:

• Payment deferral means you don't have to pay anything at the time of departure
• Automatic relief after 2 years purely and simply cancels the exit tax if you keep your securities
• Once in Paraguay, the eventual sale of your securities (after relief) generates no Paraguayan tax—the proceeds of the sale are French source income that does not fall within the Paraguayan tax base thanks to territoriality
• The tax savings made in Paraguay on your current income (0% on foreign income, 10% max on local income) largely compensate for the administrative constraints of the exit tax for 2 years

In summary: the exit tax requires patience (2 years) and administrative rigor (follow-up declarations), but it should in no way deter you from expatriating to Paraguay. The long-term fiscal benefit is incomparable to this temporary constraint.

Optimal timeline

Step	Action	When
1	Assess your exit tax exposure with a tax specialist	6-12 months before departure
2	Implement optimization strategies if necessary	3-6 months before departure
3	Transfer your tax domicile to Paraguay	Day of departure
4	Obtain your Paraguayan tax residency (from €1,400, 3 months)	Upon arrival
5	File the exit tax declaration (form 2074-ETD)	With the income tax return for the year of departure
6	File annual follow-up declarations	Each year for 2 years
7	Automatic relief from exit tax	2 years after departure
8	Complete freedom to sell your securities without Paraguayan tax	After relief

Mistakes that cost a lot

Not declaring exit tax

Omitting the exit tax declaration does not make the obligation disappear. In the event of a tax audit—and departures abroad are monitored—penalties can be severe: an increase of 10 to 40% of the amount due, plus late payment interest. Declare correctly, even if you benefit from the deferral.

Selling securities within 2 years without anticipation

If you sell your participations before the relief, the exit tax becomes due. If you have not provisioned this amount, you may find yourself with a considerable tax debt. If you plan to sell, do so either before departure or after the 2-year relief.

Forgetting annual follow-up declarations

Failure to file a follow-up declaration can lead to the forfeiture of payment deferral—the exit tax then becomes immediately due. Put reminders in your agenda and entrust this follow-up to a professional if necessary.

Underestimating the valuation of securities

The valuation of securities on the day of transfer must be truthful and documented. A clear undervaluation will be reclassified by the administration with penalties. Have a professional valuation carried out by an accountant or an independent evaluator, and keep the valuation report in your file.

Conclusion: the exit tax, a surmountable obstacle



The exit tax is often presented as a bogeyman that discourages expatriation. In reality, it is a perfectly manageable technical mechanism, especially when considering payment deferral and automatic relief after 2 years. For the vast majority of French-speaking expatriates—those who do not hold participations exceeding €800,000—it simply does not apply.

And for those who are concerned, the combination of exit tax + expatriation to Paraguay remains massively advantageous. Two years of patience and declarative rigor, then complete fiscal freedom on your international income thanks to Paraguayan territorial taxation. The calculation is quickly made.

The essential thing is to anticipate, to be accompanied by a competent tax specialist, and never to improvise on such a technical subject. With the right preparation, the exit tax will be just a formality on the path to your new life in Paraguay.

Are you affected by the exit tax and considering expatriation to Paraguay? Contact our team for coordinated support between French tax specialists and our team on site in Asunción.