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Simple Tax Guide for Americans in France

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.

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:

Rate   Income
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.

Tax Treaty

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.

French Taxes

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.

How to Report French Income on our Tax Questionnaire

1. How do I report earned income on the tax questionnaire?

For income you earned while being employed:

 

Report your gross salary (SALAIRE BRUT) as reported on your Bulletin de Salaire. If your pay per period did not change through the year then multiply this amount by the number of pay periods (usually 24) .

 

If  amounts pay period varied then add up all Salaire Brut amounts to come up with the annual gross salary. report in the Earned Income section of our Tax Questionnaire.

 

Redundancy Pay

 

If you received severance or redundancy pay (indemnité de licenciement), add gross amount as additional wages. Report other types of income (i.e. workplace pension, State pension, dividends, alimony, royalties, unemployment) on the respective lines of Pension or Other Income tabs of the tax questionnaire..


For income earned from self-employment

 

You are considered self-employed in the U.S. if your tax status in France is  Entreprise individuelle (EI) or Auto-Entrepreneur.  Then your gross income from self-employment  is a turnover of your unincorporated business. Report it on the Gross Income from Self-employment tab of the Self-employment questionnaire (Supplemental income tab). Income is reported as gross amount, before any deductions - those are reported separately in Business Expenses section of the Self-Employment questionnaire..

 

If you participate in the business structure SCI - this is similar to participation on the U.S. LLC - answer YES to this question in Other Income section of our Tax Questionnaire


Did you receive Share of Income or Deductions from pass-through company (S Corporation, Partnership, or Income Trust)? 

 

If you participate as a sole or partial owner of  other type of a small business company of other types  (SARL, SA, SAS)  - then answer YES to this question in Other Income section of our Tax Questionnaire.


Do you own at least 10% of a foreign corporation (ie are you a part or whole owner of a private non-US company)? 

 


 

2. How do I report taxes paid on the tax questionnaire

Similarly to income, tax also has to be reported separately for each type of income on which tax was paid.  Income tax withheld from wages is shown as TAX SALAIRE BRUT of the Bulletin de Salaire.

 

For US tax purposes, “Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are not creditable or deductible taxes under the Internal Revenue Code or the U.S.-French Income Tax Treaty.

 

Taxes on unearned income may be withheld by the payor (i.e.,bank withheld income tax from dividends) or you may owe tax upon completion of tax assessment form. Report each type of tax paid during the filing  year in the respective section of our Supplemental Questionnaire, even if it applied to income received in prior years. 

 

Wealth tax (Impôt sur la fortune)  is not an income tax. It can be deducted on your US tax return as a part of itemized deductions. Report this tax in section Deductions of our Tax Questionnaire.

3. How do I break down taxes assessed jointly on myself and my non-US spouse on the jointly filed French Tax Declaration if I file separately in the U.S.?

Example: A US Citizen files a joint tax return in France with their nonresident spouse. In the US, the US Citizen files claims married filing separately status and files Form 1116.

 

On the French Income tax return, the US Citizen’s net salary is €100,000 and the non-resident spouse’s net salary is €50,000. They report foreign income taxes paid of €33,000.  It is necessary to allocate the French income taxes paid to arrive at the proper amount relative to the US Citizen’s income:  (US Citizens’ Income / Total Income) x French Income Tax = Income tax allocated to US Citizen.  (€100,000 / €150,000) x €33,000 = €22,000  The US Citizen would convert the Euros to US Dollars using the average exchange rate for the year. This amount can be claimed as foreign taxes used for credit.

French Pension and Social Security Systems

1. Social Security in France (Sécurité Sociale) - CSG-CRDS

For US tax purposes, “Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are not creditable or deductible taxes under the Internal Revenue Code or the U.S.-French Income Tax Treaty. They do not reduce taxable income and cannot be applied as a deduction.

 

 

2. US - France - Social Security Totalization Agreement

Overview

An agreement between the United States and the France improves Social Security protection for people who work or have worked in both countries.  It helps people who, without the agreement, would not be eligible for retirement, disability or survivors benefits under the Social Security system of one or both countries.  It also helps many people who would otherwise have to pay Social Security taxes to both countries on the same earnings. 

 

The provisions of the agreement eliminate double Social Security taxation and permit dual residents to use their work in both countries to qualify for benefits. 

 

If you are self-employed

Contributions to Sécurité Sociale system make you exempt from contributions to the U.S. Social Security system that otherwise would be required in the U.S. on self-employment income.

 

How it impacts those who want to earn US Social Security credits

If you have Social Security credits in both the United States and France, you may be eligible for benefits from one or both countries.  If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.  If you do not have enough work credits under the U.S. system to qualify for regular benefits, you may be able to qualify for a partial benefit from the United States based on both U.S. and French credits.  To be eligible to have your French credits counted, you must have earned at least six credits under the U.S. system. 

 

Although the agreement allows the Social Security Administration to qualify for U.S. retirement, disability or survivor benefits, the agreement doesn’t cover Medicare benefits.
 

3. Taxation of Social Security Benefits

U.S. Social Security Benefits

U.S. Social Security benefits received by US citizens and green card holders residing in France are taxable in the United States. France also has the right to impose tax on that income if the recipient is French permanent resident.

 
French Social Security Benefits

French Social Security and other payments made under the social security legislation of France to a resident of France who is a citizen of the United States shall be taxable only in France and exempt from taxation in the U.S.. 

4. Contributions to Occupational Pension

 Contributions to French employer occupational Scheme are in the Salaire Brut amount and taxable in the U.S..

5. Tie-Breaker Rule to Apply Treaty Benefits

U.S. green card holders residing in France may elect to apply what is known as the tie-breaker rule of the US/France Tax Treaty and be deemed a resident only of the State (ie country) with which their personal and economic relations are closer (France). 

 

Under such election, the individual would file form 1040NR and report only income derived from U.S. sourced. The requirement to provide full disclosure of foreign bank accounts remains and tax on income from U.S. sources will be higher than tax on the same income when applied to U.S. residents filing form 1040.

6. Assurance Vie - how is this treated on my US tax return?

Assurance vie is an investment product and the dividends and interest are taxable in the US.  This investment product does not qualify for tax deferral treatment in the United States.

 

 

7. Taxation of UK Pension Benefits

Pensions and other similar remunerations paid to US citizen/green card holder residing in France are taxable in both countries.

 

However - you can eliminate the burden of double taxation. Taxes paid in France on pension income are applied as a foreign tax credit against tax owed on the same income in the U.S.

 

Since contributions to occupational pensions are included in U.S. taxable income, only the small portion reflecting growth in pension plan constitutes taxable portion of pension benefit. Report the entire amount of benefit received in section Pension of our Tax Questionnaire , and we will determine the taxable portion.

 

Pensions based solely on your income that do not have the prior contributions base (Old Age and Widowhood pension) are considered the Social Security type pensions and get the same beneficial tax treatment in the U.S. as French Social Security benefits.

French Financial Accounts and FBAR/FATCA

1. France - US FATCA Treaty overview

The Foreign Account Tax Compliance Act (FATCA) is a piece of legislation introduced by the United States government in 2010, to help counter US tax evasion.

2. FATCA model type chosen by French Government


There are two FATCA model types.

 

Model 1, chosen by most European countries, is based on the principle of automatic exchange of information. Financial institutions provide details of all capital subject to US tax to their local authorities, who pass these details on to the IRS.

 

Model 2, according to which Washington is supplied with information directly by the financial institutions – but this only concerns capital held by American customers who consent to their details being released.

 

France signed the Model 1A reciprocal version of the IGA, which means that French financial institutions, generally including funds and their managers, will report information about their U.S. customers' accounts to the French government, which, in turn, will exchange that information with the IRS.  The reciprocity means that the IRS will be required to send France similar information about French customer’s accounts in U.S. financial institutions.

 

On November 14, 2013 France signed an intergovernmental agreement regarding FATCA with the United States (the “France IGA”), becoming the 10th country to join the global FATCA network scheduled to take effect on July 1, 2014.

3. What searches does a French bank have to do to comply with US FATCA?

Financial institution must search their data to identify financial accounts held by US Specified Persons, or by foreign entities in which US taxpayers hold a substantial ownership interest.

 

In order to achieve this, financial institution need to search their data looking for any one of seven indications (indicia) that an account holder may be a US person. These indicia are:
1. US citizen (check for US passport or Green Card). 
2. US residential address
3. Place of birth in the US
4. US telephone number
5. Standing instructions to send funds to a US bank account
6. Power of attorney (PoA) or third party authority in favour of a person with a US address
7. Use of a c/o or hold mail address
 

4. Which types of French financial accounts the U.S. individual must report on FBAR / FATCA ?
  • Individual bank accounts such as savings accounts, checking accounts, and time deposits.
  • Brokerage accounts, commodity futures or options accounts,
  • Insurance policies and annuity contracts with a cash value 
  • Business accounts where U.S person has a greater than 50 percent interest in the entity 
     
5. Which types of French financial assets are not required to be reported on FBAR / FATCA ?

Retirement funds (Caisses de retraites) and certain similar  financial entities (Caisses de congés payés)s are exempt or deemed FATCA compliant, because they are considered to present a low risk of being used by US persons to evade US taxes..

 

Even though certain retirement plans are exempt from direct FATCA reporting, the FATCA rules applying to individuals were not relaxed. Form 8938 specifically requires reporting by U.S. taxpayers who participate in foreign pension plans.

 

French financial assets exempt from FBAR/FATCA reporting are limited to Social Security,  Real Estate Holding, precious metals held directly, and collectibles.

French Tax Glossary for US Expats

1. Salaire Brut

Gross Salary - Report the total amount of the annual Gross Salary in Earned Income section of our Tax Questionnaire.

2. Sécurité Sociale

French social security is made up of diverse organismes collectively referred to as La Sécu, an abbreviation of Sécurité Sociale. Contributions to the Social Security fund are not creditable or deductible taxes. 

3. Bulletin de Salaire

The salary statement used throughout France to provide information about income and expenses received. Main document required for preparation of U.S. tax return for expats employed in France. 

4. Entreprise individuelle (EI)

A sole proprietorship  -  business run by a single person that has no legal personality, although it is recorded in the trade directory or register of commerce and companies. Report details of the sole proprietorship on Self-Employment tab of the Earned Income section of our Tax Questionnaire.

5. Choix du nom de famille

Choosing your name after marriage - Regardless of the family name used on French documents you must provide your family name in the Main section of our Tax Questionnaire as shown on your U.S. Social Security card until you officially change your name with the U.S. Social Security administration.

6. L'impôt sur le revenu

Income Tax - Amount of foreign income tax paid or withheld. Can be utilized as a foreign tax credit to offset U.S. tax liability. Report tax imposed on the particular income type in the same section of our Tax Questionnaire where you reported that income.

7. La taxe foncier

Property tax, sometimes known as land or real estate tax, is a government tax on land and buildings. Report in Deductions section of our Tax Questionnaire or in Rental section of the Supplemental Tax Questionnaire if property was rented out.

8. Taxe d’Habitation

Annual residence tax imposed on the occupier of a property in which they were resident on 1st January of each year. When paid by tenants of rental property , include in housing expenses reported in Housing Arrangements section of the Physical Presence tab of our Tax Questionnaire. 

9. Plus-values immobiliers

Tax on gains from selling of property. In the U.S., tax on gains from sale of property may be treated as long-term or short-term gains and in certain cases may be tax-exempt. Report on the Capital Gains/Losses tab of the Passive Income section of our Tax Questionnaire.

10. L'impôt de solidarité sur la fortune

Wealth tax on the net worth of French residents having assets in excess of €1,300,000 - not allowed as a foreign tax credit but can be deducted as a part of itemized deductions on U.S. tax returns. Report in the Deductions section of our Tax Questionnaire.

11. Assurance Vie

Assurance vie is an investment product and the dividends and interest are taxable in the US.  This investment product does not qualify for tax deferral in the United States.