A non-compete payment made by a French employer to a former employee who has moved abroad is not always taxable in France.
A senior executive leaves their French company and transfers their tax residence abroad. A few months later, under a non-compete clause subscribed during their employment contract, their former employer pays them a sum intended to remunerate their undertaking not to join a competitor. Is this payment, sometimes substantial, taxable in France, where the person carried on their activity, or in their new State of residence, where they now observe their abstention obligation? The answer, long uncertain, was given on 19 December 2025 by a judgment of the Paris administrative court of appeal, favourable to the expatriate employee, but which remains a court of appeal judgment open to appeal on points of law.
The question is of great practical importance for executives and managers in international mobility, whose severance and non-compete payments are frequently made after the transfer of residence. It brings into play two opposing logics: one attaches the payment to the activity previously exercised, and therefore to the place of that activity; the other attaches it to the obligation not to act, subsequent to the termination, and therefore to the beneficiary's place of residence during the engagement period. It is this second analysis that has recently prevailed, with direct consequences for the allocation of the right to tax.
We first present the nature of the non-compete payment (I), then the determination of its place of taxation under domestic law and treaties (II), before drawing the practical consequences for employees and executives in international mobility (III).
I. The nature of the non-compete payment
A. A salary nature
The non-compete payment is the financial consideration for the undertaking given by an employee, on the conclusion or during the performance of their employment contract, not to carry on an activity competing with that of their employer for a determined period after the termination of the contract. It has a salary nature, in that it originates in the employment relationship, and it is in principle taxed in the category of employment income and subject to social contributions under the applicable rules. This salary characterisation, which is not disputed, is the starting point of the analysis, but it does not, on its own, suffice to determine the place of taxation where the beneficiary has left France.
The difficulty is that the salary nature of an income does not exhaust the question of its geographical attachment. A salary income may attach either to the past activity that is its source, or to a present obligation that constitutes its consideration. Yet the non-compete payment has this particularity of remunerating a future abstention, subsequent to the termination, and not work performed. It is this singularity that led the case law to develop its analysis of the place of taxation, by distinguishing the nature of the income from its attachment.
B. Remuneration of the former employment or consideration for a post-termination obligation?
Two analyses have successively confronted each other. According to the first, traditionally retained, the non-compete payment is made by reason and on the occasion of the former employment, and must be treated for tax purposes as remuneration received in respect of that former employment. In this logic, the place of taxation follows that of the previous activity said to be the source of the payment. This approach attaches the payment to the past, to the employment exercised before the termination, and leads to taxing it where that employment was located.
The renewed analysis of the obligation not to act. According to the second analysis, adopted by the Paris administrative court of appeal in a judgment of 19 December 2025 (CAA Paris, 9th ch., no. 24PA01120), the non-compete payment, while having a salary nature, does not, in principle, constitute remuneration received in respect of the activities exercised before the cessation of the employment, but income whose consideration is the obligation not to work for a competitor of the former employer, for a determined period, after the termination of the employment contract. The payment does not remunerate past work but a present abstention. This analysis is logical: the non-compete obligation is an obligation not to act, which is triggered only as from the termination of the employment contract and which is performed during the engagement period, at the place where the beneficiary then resides.
II. The place of taxation under domestic law and treaties
A. The source of the income and the taxation of non-residents
Under domestic law, the taxation in France of income received by a non-resident presupposes that it is income of French source within the meaning of article 164 B of the French General Tax Code (CGI). For salary income, the source is in principle at the place where the activity that remunerates it is exercised. The Paris administrative court of appeal drew a decisive consequence on 19 December 2025 (no. 24PA01120, concerning a payment made by Goodyear Dunlop Tires France to an employee settled in Morocco): the non-compete payment made to a former employee after the transfer of their tax residence abroad cannot be regarded as income derived from an activity exercised in France, since it remunerates an abstention subsequent to the termination and observed abroad. It is therefore not income of French source within the meaning of article 164 B and, on that basis, escapes taxation in France. The court adds that the fact that the payment would have been taxable in France as employment income, given the nature of the income previously received, has no bearing whatsoever on determining the place where the activity remunerated by that payment was exercised. The solution is nevertheless stated only in principle: the court expressly notes that the minister did not argue that the payment had in reality been granted in remuneration of activities exercised before the cessation of the employment. The authorities therefore retain the ability to establish such an attachment.
This solution breaks with the idea that any sum originating in a French employment relationship would be taxable in France. The decisive criterion is not the contractual origin of the payment, but the place and time at which the service it remunerates is performed, namely the abstention from competition. Where this abstention is observed by a foreign resident, the corresponding income attaches to their State of residence, not to France where the previous activity had been exercised.
B. Taxation at the place of residence during the engagement
This analysis is consistent with the commentaries on the OECD Model Tax Convention, according to which payments received after the cessation of an employment, in consideration of a non-compete undertaking, are as a rule taxable in the beneficiary's State of residence at the time of payment. The place of taxation of the payment is thus the place of residence of the former employee during the non-compete engagement period. For an executive who has transferred their residence abroad before receiving the payment, it will therefore be taxable in their new State of residence, and not in France.
An overall coherence. The solution is coherent both legally and economically. Legally, it draws the consequences of the nature of the non-compete obligation, an obligation not to act that is performed after the termination and at the place of residence of the debtor of the undertaking. Economically, it attaches the income to the State in which the beneficiary actually bears the constraint that the payment remunerates. It is nonetheless necessary to verify, case by case, the wording of the treaty applicable between France and the State of residence, some treaties possibly containing specific provisions, and to ascertain the treatment of the payment in that State, so as to avoid both double taxation and double exemption.
III. Consequences for executives in international mobility
A. An opportunity, but a necessary vigilance
For the executive or manager in international mobility, this analysis opens a real opportunity. Where the non-compete payment is received after the effective transfer of the tax residence abroad, it may escape French taxation and fall to the sole State of residence, whose taxation may be more favourable. The timing of the payment and that of the transfer of residence thus become decisive parameters: a payment made while the beneficiary is still a French resident will not obey the same treatment as a payment made after their settlement abroad.
The risk of double taxation or recharacterisation. This opportunity must not obscure the risks. On the one hand, the State of residence may tax the payment under its own rules, and it is necessary to verify this treatment to anticipate the real tax charge and avoid an unpleasant surprise. On the other hand, the French authorities could, in certain configurations, challenge the reality of the transfer of residence or the characterisation of the payment, in particular if it is made in conditions suggesting an attachment to France. The security of the operation therefore requires a rigorous analysis, and not the mere mechanical application of the principle.
B. Practical recommendations: anticipate the timing and document
Coordinate the timing of payment and of the transfer of residence. Because the place of taxation depends on the beneficiary's residence during the engagement period, it is essential to anticipate the articulation between the date of payment of the indemnity and that of the effective transfer of the tax residence. This coordination, where possible and based on reality, can secure the treatment of the payment and optimise its taxation, in compliance with the rules of each State concerned.
Document the reality of the transfer of residence. Because the authorities may challenge the reality of a departure, the beneficiary must build a file establishing the effective character of their settlement abroad: proof of the home, the stay, the activity and the centre of economic interests in the new State. A purely formal transfer of residence, belied by the facts, would offer no protection and would, on the contrary, expose the person to a reassessment.
Verify the applicable treaty and the foreign treatment. Before concluding on the place of taxation of the payment, one must examine the tax treaty binding France and the State of residence, as well as the treatment of the payment in that State, in order to avoid double taxation and double exemption and to ensure the coherence of the analysis. We assist executives and managers in mobility in analysing and securing the tax treatment of their severance and non-compete payments.
Conclusion
The non-compete payment made to a former employee who has transferred their residence abroad is not, in principle, taxable in France where it remunerates an abstention observed after the termination and at the place of the new residence. The judgment of 19 December 2025 clarified this point by distinguishing the salary nature of the payment from its geographical attachment, and by attaching it to the obligation not to act, which is performed at the beneficiary's place of residence during the engagement period. This analysis, which the taxpayer also supported by the commentaries on the OECD Model Convention, is favourable to the expatriate executive. It nevertheless stems from an isolated court of appeal judgment, open to appeal on points of law: prudence dictates that it not be treated as definitively settled.
Our conviction is that this solution, logical and coherent, opens a real planning opportunity for executives and managers in mobility, on condition of mastering its parameters. The timing of the payment, the reality of the transfer of residence and the treatment of the payment in the host State are the three keys to effective securing, which no mechanical application of the principle can replace.
Our recommendation is clear: if you receive or pay a non-compete indemnity in a context of international mobility, have the place of taxation analysed in the light of the applicable treaty, coordinate the timing of payment with the transfer of residence, and document the reality of that transfer. This is the price at which the opportunity is realised without risk.
Frequently asked questions
Is a non-compete payment taxable in France if I have left the country?
Not necessarily. The Paris administrative court of appeal held, on 19 December 2025 (no. 24PA01120), that a non-compete payment made to a former employee after the transfer of their tax residence abroad does not constitute income derived from an activity exercised in France, because it remunerates an abstention subsequent to the termination, observed abroad. It is therefore not income of French source within the meaning of article 164 B of the CGI and escapes taxation in France, being taxable in the beneficiary's State of residence during the engagement period.
Why is the payment not attached to the activity exercised in France?
Because the non-compete payment does not remunerate past work, but an obligation not to act that is performed after the termination of the contract. While it has a salary nature, it does not constitute remuneration received in respect of the activities exercised before the cessation of the employment, but the consideration for the undertaking not to work for a competitor for a determined period. As this obligation is triggered only at the termination and is performed at the beneficiary's place of residence, the payment attaches there.
Does the timing of the payment matter?
Yes, it is decisive. The place of taxation depends on the beneficiary's residence during the non-compete engagement period. A payment made while the beneficiary is still a French resident does not obey the same treatment as a payment received after their effective settlement abroad. The coordination between the date of payment and that of the transfer of the tax residence, where based on reality, can therefore secure and optimise the tax treatment of the payment.
What risks should I anticipate as an expatriate?
Two mainly. First, the State of residence will tax the payment under its own rules: one must verify this treatment to anticipate the real charge and avoid both double taxation and double exemption. Second, the French authorities may challenge the reality of the transfer of residence or the characterisation of the payment, in particular if it is made in conditions suggesting an attachment to France. Documenting the effective character of the settlement abroad and analysing the applicable treaty are therefore indispensable.