TLDR: In France, certain allowances are exempt from income tax or corporate tax depending on their nature. The main ones include daily allowances for serious illnesses, internship grants up to the annual SMIC limit, and compensation for nationalization or expropriation abroad.
Daily allowances for serious illnesses
Daily allowances paid by social security organizations to individuals suffering from an illness requiring prolonged treatment and particularly costly therapy are exempt from income tax. This exemption is expressly provided for in Article 154 bis A of the French General Tax Code (CGI) and applies only to these specific medical situations.
Internship grants
Grants paid to interns as part of an internship or professional training period are exempt from income tax, up to the annual SMIC amount. This exemption is governed by Article 81 bis of the CGI and applies only to internship grants.
Compensation for nationalization or expropriation abroad
Compensation granted to French individuals or legal entities in cases of nationalization, expropriation, or similar restrictive measures taken by a foreign government is exempt from income tax and corporate tax. This regime is provided for in Article 238 bis C of the CGI.
Compensation for commercial damage
Allowances whose sole purpose is to compensate for commercial damage, without constituting consideration for a service or delivery of goods, are not subject to VAT. This exclusion is confirmed by case law and administrative commentary.
Limits and conditions of application
The exemptions mentioned are strictly regulated by law and apply only in the specific cases defined by the CGI. No general exemption is provided for other types of allowances, such as those related to geographic mobility or employment contract terminations, except for specific provisions not covered here.
Explicit exclusions
Severance pay, mutual termination agreements, voluntary departure allowances, and geographic mobility bonuses remain taxable under the general rules, unless expressly exempted by law.