France’s Le régime des impatriés — commonly known as the ‘expatriate tax law’ — has been vital in luring highly paid traders to Paris in the aftermath of Brexit.  That in turn has helped the French capital become a major European hub for many of the biggest Wall Street banks.

The scheme offers various incentives to those relocating to work in France, including a more favourable rate of tax on income and bonuses. Expats can expect up to 30% of their earnings to remain tax-free under the scheme.

However, they lose this benefit when they switch to a new employer. This is causing headaches for banks looking to expand their Paris trading hubs, executives told Financial News.

“We are trying to change this. It’s one of our fights,” said Jean-Charles Simon, chief executive of Paris Europlace, which develops and promotes the French financial sector internationally. “We have asked the government to change the regime because it limits the attractiveness of France.”

Macron’s sweetener

The expatriate tax regime was one of many structural reforms put in place in 2017 by President Emmanuel Macron, as part of a charm offensive to lure international financial services firms to Paris.

The French capital has since become the location of choice for banks’ markets businesses, beating cities including Frankfurt and Dublin. It is now the go-to city for hundreds of traders from Wall Street banks that have chosen the French capital as their main EU hub after Brexit. These include Bank of America, Citi, Goldman Sachs, JPMorgan and Morgan Stanley.

Initial Brexit moves included relocating staff from the UK to Paris. But now banks have switched to hiring on the ground to bolster their teams. This frequently means poaching from Wall Street rivals, executives in the country told FN.

“A lot of these traders have moved through the expatriate regime, which offers them a more favourable rate of income tax. But they lose that if they switch employers,” said Fabio Lisanti, head of markets for Europe at Citigroup, which is building its Paris trading hub.

“It means that my ability as an employer to hire somebody who has recently moved from the UK is reduced because it costs too much. It is creating friction in the labour market, and a solution would be to drop the non-transferability of tax benefits,” he added.

Another head of France at a large US investment bank said that the tax regime was becoming “very problematic” as it continues to hire traders.

“We’re not too worried about losing people — we see ourselves as a net attractor of talent. But not being able to transfer the tax rate to new jobs is very problematic for us as we look to hire,” they said. “It’s been a big boost for the attractiveness of the country to banks, but it needs to evolve.”

An executive at another Wall Street bank that set up in Paris before many of its peers said they had lost staff to expansionary rivals in recent months. They also said that finding replacements was becoming more expensive, as new recruits demanded bigger salaries to make up for the loss of tax benefits.

“We’ve lost a lot of good people and while Paris has become much bigger as a financial centre, the hiring market is nowhere near liquid enough still,” they said.

Paris Europlace’s Simon said that foreign banks are in favour of adjusting the tax regime to allow for job changes, even if that increases the chance that rivals will poach their staff.

“We wanted to be sure that all of these new foreign banks in Paris would be OK with this change of law,” he said. “And they said yes, even if it will increase competition in Paris for people and reduce barriers to protect the staff they have because it will make it easier to hire people.”

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