Everything that Americans in France need to know about tax

Americans living in France are in a special situation due to their obligations to two different tax regimes – here’s a look at the requirements and some common tax traps to avoid.

Accès restreint – Le Monde

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Congratulations Americans in France – when it comes to taxes, you are officially complicated.

Due to the US policy of citizenship-based taxation, all Americans – even if they have lived overseas for decades – are still required to complete the annual US tax return. There are some campaigners hoping to change this, but for the moment, that’s where we are.

However, the French tax system requires that anyone living in France complete the annual French tax declaration – even if all their income comes from outside France.

Americans in France therefore, have the double fun of completing two tax declarations every year.

But there’s more to it than just completing two sets of forms – being under the auspices of two tax systems also affects how Americans manage their money so that, for example, savings schemes that are perfectly normal in France create all sorts of problems with the IRS, while standard American-style estate planning creates extra tax obligations in France.

All in all, it’s a bit of a minefield.

Let’s start with the good news – the tax treaty. Anyone with financial interests in more than one country is governed by the tax treaty between those two countries, and the France-American tax treaty has some generous provisions for Americans living in France.

US tax expert Jonathan Hadida, who is clearly a poet in his spare time, describes it as “the bee’s knees for American retirees”.

Further good news is that anyone who is resident in France for more than three months is entitled to register in the French health system and then benefit from high-quality healthcare that is partially or wholly funded by the French state.

This has been the case for decades, but this year, there are plans to introduce a new ‘healthcare fee for Americans’ – it’s aimed at people who have never worked in France (mainly those who have retired to France), but there are in fact many exemptions and exceptions to the proposed annual fee – here’s what we know so far.

So you’re living in France, paying American-level taxes on your US income and benefiting from some lovely French healthcare – now for the bad news.

When it comes to any kind of investment or estate planning, you are almost certainly going to need to take some professional advice, because there are several tax traps for the unwary.

For example, the ‘assurance vie‘ – a savings vehicle that many French people use – is viewed as a Passive Foreign Investment Company by the IRS. Under this umbrella comes the Plan d’épargne retraite, the French government-backed retirement savings plan, which is widely used by people working in France.

On the other side of the coin, the French tax man views with suspicion any kind of trust – while these are a common feature of estate planning in the US, they’re seen as being associated with tax avoidance in France, so they can create extra complications with the French tax system.

These are just a couple of examples, but basically, if you’re planning any kind of investment or tax planning, get professional advice from someone who is qualified and licensed in both France and the US.

If you own property in France, you are naturally expected to pay French property taxes, and if you have income in France, you will have to pay both income tax and prélèvements sociaux (social charges) – in most cases, the social charges are higher than the income tax, so don’t forget to factor them in.

One thing for Americans to watch out for is the wealth tax – this is not just for the super-rich, it’s a real estate tax that covers anyone with real estate assets worth more than €1.3 million, so if you own a home in New York, Los Angeles or another of the more expensive American cities, this could cover you after five years of residence in France.

If you have assets in France, you also need to bear in mind French inheritance laws, which are considerably more restrictive than American ones, and inheritance tax. The highest rate of inheritance tax is 60 percent although in reality very few people pay that. But it’s important to know that inheritance tax is structured according to the relationship between the deceased and the inheritor, which can create problems for step-children, blended families and unmarried couples.

Overall, France is, and has been for decades, a high tax country and the French tax man enthusiastically pursues people for what they owe – even sometimes going so far as to track takeout orders. If the very idea of paying tax brings you out in hives, France may not be the country for you (and all those taxes do pay for great things like high-speed rail links and the aforementioned lovely healthcare).

One final thing to note – it’s important to make sure that your tax status matches your immigration status. For example – if you are telling the French tax authorities that you have no income in France but your visa is based on working in France, this is likely to create problems. The reverse is true too, which can particularly impact people who are living in France but working remotely for a company back in the US.

A tax adviser will (hopefully) give you good tax advice but won’t flag up any potential immigration problems – because that is not their area of expertise. Likewise, an immigration lawyer will not consider the tax implications of their advice. It’s important to get advice from both the relevant professionals and cross-check it to ensure that everything aligns.

For more information on taxes in France, find out tax guides HERE.

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