A tax guide for American expats moving to France
Moving to French Riviera can be an exciting adventure, but for American expatriates relocating to France, navigating the tax landscape can seem daunting. France is renowned for its picturesque landscapes, rich culture, and delicious cuisine, but it’s also known for its complex tax system.
A few insights to help expats navigate the complex French tax system
Residency Status
The first step for American expats moving to France is determining their residency status for tax purposes. In France, individuals are considered tax residents if their primary residence or center of economic interest is in the country. Those who spend more than 183 days in France within a calendar year are typically classified as tax residents.
Global Income Taxation
The United States taxes its citizens on their worldwide income regardless of where they reside. France also follows a similar approach. American expats living in France are generally subject to French taxes on their global income, including income earned abroad.
Tax Treaties
To prevent double taxation, the United States and France have a tax treaty in place. This treaty helps clarify the tax obligations of individuals who are residents of both countries. It outlines rules for various types of income, such as wages, pensions, and capital gains, and provides mechanisms for resolving disputes.
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Income Tax Rates
France has a progressive income tax system, with tax rates ranging from 0% to 45% for individuals. The tax rates and brackets may vary depending on marital status, family composition, and other factors. American expats should familiarize themselves with these rates to understand their potential tax liabilities.
|
Earnings (in euro) |
Rate applicable to income level (%) |
|
Up to 10 777 € |
0% |
|
10 777 € – 27 478 € |
11% |
|
27 478 € – 78 570 € |
30% |
|
78 570 € – 168 994€ |
41% |
|
Above 168 994€ |
45% |
Social Security Contributions
In addition to income tax, American expats living and working in France may be required to pay social security contributions. These contributions fund the French social security system and provide access to healthcare, unemployment benefits, and other social services. The rates and coverage may differ depending on the individual’s employment status and income.
Tax Reporting Requirements
American expats living in France must fulfil various tax reporting requirements, including filing annual income tax returns, declaring foreign bank accounts, and reporting foreign assets. Failure to comply with these obligations can result in penalties and legal consequences.
Tax Planning and Advice
Given the complexity of French tax laws, American expats should seek professional tax advice to ensure compliance and optimize their tax situation. Tax planning strategies, such as utilizing tax-efficient investment vehicles and taking advantage of available deductions and credits, can help minimize tax liabilities.The professionals of our Expat Expert Group may support American expats in their tax matters.
483 taxes in France
France is not necessarily the country with the highest taxes. On the other hand, American expats may be surprised at the number of taxes the French administration has concocted: no less than 483 taxes are to be counted in France.
Here are a few deliciously French taxes.
Capital gains
In France, the profit realized on the sale of an asset, such as shares, bonds or real estate is subject to tax. The method of calculation may vary according to the type of asset.
Capital gains on securities
Securities such as stocks and bonds, when sold at a profit, give rise to capital gains. In France, capital gains on securities are taxed at a flat rate of 30%.
This rate includes both income tax and social security contributions. However, there are provisions for reduced rates if the securities have been held for a long period. For example, if you have held your shares for more than two years, you may benefit from certain allowances or reductions.
Capital gains on real estate
The sale of real estate can also give rise to capital gains. In France, these capital gains are subject to a progressive tax rate, ranging from 19% to 45%, depending on the amount of profit. In addition, social security contributions of 17.2% are applied to the capital gain. Good news: if you own the property for more than 22 years, you are exempt from capital gains tax, but social security contributions remain applicable. To avoid paying either tax or social security contributions, you need to hold the property for 30 years.
Council tax
The taxe d’habitation is a local tax levied by local councils, which must be paid by the occupant of a property, whether owner, tenant or free occupant.
The basis for calculating this tax is the rental value of the property, which can vary significantly depending on the municipality. In addition, the surface area of the property, its location and condition, and the occupant’s income are all taken into account. All this has an impact on the amount of the tax.
Reforms are underway to eventually eliminate this tax for most households. On the other hand, second homes and luxury residences remain submitted to this tax.
Exit tax
The exit tax is intended for people who decide to transfer their tax residence outside France (special dedication to Gérard Depardieu). Its main aim is to prevent people with substantial assets from moving to avoid taxation on any capital gains.
Of course, if you’ve just decided to become an expat in France, there’s no reason why you should want to leave. However, it’s good to know that if you leave France after having made it your tax residence for at least six years during the ten years preceding the transfer of your domicile abroad, the tax authorities won’t forget about you.
If you own shares, securities or rights with a total value of at least €800,000 or representing at least 50% of a company’s profits, you are subject to the Exit tax.
However, you can benefit from a deferment of payment and a tax rebate in certain situations.
Value-added tax (VAT)
Value-added tax, commonly known as VAT, is a consumption tax levied on the value added to goods and services at the various stages of their production and distribution.
It is similar to the sales tax with which you are familiar. By contrast, the VAT rate is set at national level and it is always applied. The standard rate is 20%. However, reduced rates of 10%, 5.5% and 2.1% apply to certain goods and services, such as food, public transport, books and certain medical products.
VAT is the French government’s favorite tax, and for good reason: it’s its main source of revenue.
Inheritance tax
As an American expat, you’re well aware: the federal government doesn’t apply inheritance taxes. Only certain States began imposing an inheritance tax in 2023.
In France, on the other hand, inheritance taxes are systematically levied on assets passed on to beneficiaries on the death of a person. The rate of these duties varies according to the relationship between the deceased and the beneficiary.
For example
Direct descendants (children, grandchildren) and ascendants (parents, grandparents) benefit from substantial allowances before the tax is applied. When these allowances are deducted, the tax rate can vary from 5% to 45%, depending on the amount inherited.
Siblings benefit from a different set of allowances and tax rates, ranging from 35% to 45%.
A little light to brighten up the tax picture: Spouses and PACS partners are exempt from inheritance tax in France.
In our Expat Experts group, we have professionals who can help you optimize your the transfer of your assets to your heirs.
For example, did you know that setting up an SCI (Société Civile Immobilière) can be a fantastic way of transferring your real estate assets?
Wealth Tax
France has a wealth tax, known as the solidarity tax on wealth (ISF), which applies to individuals with net assets above a certain threshold. However, in recent years, the ISF has been replaced by the real estate wealth tax (IFI), which primarily targets real estate assets. American expats with significant assets in France should be aware of their potential obligations under these wealth taxes.
In conclusion, American expats moving to France should be prepared to navigate the intricacies of the French tax system. Understanding residency rules, income tax rates, social security contributions, and other tax obligations is essential for managing finances effectively and avoiding potential pitfalls. By staying informed and seeking expert guidance, expats can enjoy their new life in France while maintaining compliance with tax laws.
