Simple Tax Guide for Americans in France
At TFX we’ve been preparing U.S. taxes for Americans living in France for over 20 years. Our clients hail from all parts of France - bankers and artists in Paris, mountain guides in Chamonix, professors from Provence and Bordeaux and wine-makers from Champagne.
We have a dedicated French phone line for our clients in France: +33 9 87 67 17 13
France has a romantic atmosphere, a beautiful countryside, plus delicious food - which makes it a very popular spot for tourists and retirees, as well as expatriates. Americans who choose to live within France are subject to French taxation in addition to their US expat tax filing obligations.
It is clearly important for US expats to understand French taxes so they can effectively plan.
US Expat Taxes - France
US citizens, along with permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 101,300 (this amount is for 2016 taxes) in earned income derived from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a French Resident?
There are three qualifications that determine if an expat is considered to be a French resident. Meeting any of these requirements is sufficient to qualify as a tax resident.
- The primary home of the family is within a territory of France, or if there is no family home the primary residence location is within French territory. The further definition is spending over 183 days within France, or having spent more of their time within France than another foreign country.
- The primary professional activity or employment is derived in France. If there are professional activities taking place in several countries, a person is a French resident when most of their activities occur in France.
- A person’s center of activity for economic purposes is in France.
In France, “family units” are taxed. Married couples are required to submit a joint return.
Tax Rates for France
Under French law, all income will be subject to tax unless it is specifically excluded by the tax authorities. The tax rates in France are progressive.
Tax rates are:
|0%||On||Less than EUR 6,011|
|5.5%||EUR 6,012 - EUR 11,991|
|14%||EUR 11,992 - EUR - 26,631|
|30%||EUR 26,632 - EUR 71,397|
|41%||EUR 71,398 - EUR 151,200|
|45%||EUR 151,200 and up|
Non-residents are not able to claim the standard exclusion. Their tax rate is also a minimum of 20%. There is, however, a special provision for foreign persons who are on a temporary assignment within France.
For eligibility, a person can’t have been considered a French resident during the 5 years before their arrival, plus can’t be on an assignment within France for over 6 years. This provision also can’t be applied for more than 5 years. Any additional benefits or compensation is exempt from taxes in France, including relocation costs and housing allowances. However, these things must be itemized specifically in the person’s employment contract prior to starting employment in France. Additionally, people who have been recruited by French employers can choose a tax exemption of 30% instead of the itemizations mentioned above.
France and the United States have a treaty that helps a taxpayer understand which country they must pay specific taxes to, and when those taxes must be paid. This treaty is pretty straightforward, but it is always best to get expert tax advice.
When are French Taxes Due?
Just like in the United States, French taxes are based on a calendar year. But, when taxes must be paid depends on residency status, the location of the taxpayer, and how the taxpayer files their taxes.
Residents who file paper returns must submit them by the 30th of May. For residents who e-file, their returns are due in June on one of three dates - the 9th, the 16th, or the 23rd, dependent on the taxpayer’s address.
Non-residents are required to submit their taxes by the 30th of June.
French Social Security
There is a totalization agreement in place between France and the United States. This agreement explains which country a taxpayer must pay social security taxes to depending on their employment circumstances and their residency.
If an employee is sent to France by their employer for under 5 years, they pay taxes to the United States Social Security system. If their assignment is for more than 5 years, they pay taxes to the French system. If they are hired by a US or French employer in France, they pay their taxes to the French system as well. If they are on assignment for the US government, they pay taxes to the United States Social Security system no matter their residency.
Does France Tax Foreign Income?
If a taxpayer is a resident of France for tax purposes, their worldwide income is taxed. The tax treaty excludes some income types, but even excluded income must still be taken into account when determining the French tax rate that is applied. For non-residents, taxes are only levied on income from French sources.
Of course, there are several other taxes imposed in France besides income tax.
France’s version of a value added tax is known as TVA, and is 20%. There are reduced rates in two circumstances - books and meals at restaurants are 10%, and most groceries are 5.5%.
French residents are taxed on their capital gains worldwide. Progressive rates apply to capital gains, although exemptions apply for things like motor vehicles, furniture, and asset transfers because of gifts or death. Capital gains derived from sales of shares get taxed at a rate of 34.5%. Real estate gains are also taxed at a rate of 34.5%, although principal places of residence are exempt. Non-residents pay capital gains tax only on French sourced gains, which are taxed at the progressive rates.
There is a French law that allows taxpayers that have not been resident in the country for the 5 prior years to have their assets outside of France excluded from the wealth tax during the initial 5 years of residency in France. Following that, tax must be paid if a person has total net assets worldwide exceeding EUR 1,300,000. This amount is linked to inflation. There are not many people who must pay this tax (only around 500,000), although the tax has caused a stir among the French.
Specific rules apply to gift and inheritance taxes, and these rules vary significantly depending on the person who receives the money.