Tax Reporting Obligations for Americans Living in France
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The US imposes taxes on all its US citizens, irrespective of their country of residence. Therefore, US citizens living in France are subject to US taxes.
In contrast to the US, France bases its taxation on tax residency. French residents must declare their worldwide income and capital gains to the French Tax Authorities (“FTA”) each year. The deadline for filing income returns in France is between the middle of May and the middle of June, depending on the French region in which the taxpayer resides.
US Citizens Residing in France
A person will be considered a resident for tax purposes in France if they have their primary home or residence in France, or their principal activity is in France, or the centre of their economic interests is in France.
US citizens who are residents for French tax purposes must therefore report their worldwide income and capital gains in both countries.
Income Tax & Double Tax Convention
French residents are generally required to declare their worldwide taxable income to the FTA. This may include US income, even when it has been taxed in the US. Taxable income includes earnings, bank interests, rental income, pensions, dividends, etc.
In order to avoid double taxation with tax payable in France and in the US, the French and US governments ratified a Double Tax Convention. One of the functions of the Double Tax Convention is to provide relief for double taxation by allowing only one country to tax the income or by allowing a tax credit for the US tax paid when calculating the French tax liability on the US income (or vice versa).
For example, the US/France Double Tax Convention provides that pensions and other payments made under the US social security legislation to a French tax resident may only be taxed in the US. This should be discussed with a tax professional.
French Capital Gains Tax (CGT)
CGT is a tax on taxable assets sold at a profit. Any capital gain realised upon the sale of a taxable asset must be reported to the FTA. French residents must report their French and non-French capital gains, and this includes, for example, the sale of US, Spanish or any overseas properties.
Be Aware of EUR/USD Fluctuation
When selling foreign real estate, due care should be given to the exchange rates. When calculating a capital gain, the cost of each transaction needs to be converted into Euros at the date of each relevant transaction, such as purchase, sale, professional fees, enhancement costs, etc.
Because the capital gain must be calculated in euros, depending on the fluctuation of the exchange rates, it is possible to generate a loss in local currency, but a capital gain in Euros. So, even if you have generated a capital loss in the US, you should still consider the French tax implications as it is not uncommon for US losses to be turned into capital gains in France because of currency exchange fluctuations.
If CGT is also levied in the US, then the rules provided by the US / France Double Tax Convention should be considered in order to avoid double taxation.
Real Estate Wealth Tax (REWT)
REWT is a tax on immovable property and real estate rights. French residents are taxable on their worldwide properties. However, when an individual moves to France, only their French real estate is subject to REWT during the first five years of residence. In the sixth year following French tax residence, REWT would then be payable on worldwide properties.
Taxpayers are liable to pay REWT if the net market value of their household’s taxable real estate assets exceeds €1.3m as of 1 January. However, if this is the case, then only the first €800,000 is exempt from tax, and the tax rate below will apply.
Tax Rates Based on Net Property Value
- from €800,001 to €1,300,000, the tax rate is 0.50% - (€2,500 tax on band)
- €1,300,001 to €2,570,000, the tax rate is 0.70% - (€8,890 tax on band)
- €2,570,001 to €5,000,000, the tax rate is 1.00% - (€24,300 tax on band)
- €5,000,001 to €10,000,000, the tax rate is 1.25% - (€62,500 tax on band)
- €10,000,000 upwards, the rate is 1.50%
Foreign Bank Accounts
French residents must declare their non-French bank accounts when filing their annual tax return. This may include PayPal accounts, investment accounts, cryptocurrency accounts and retirement accounts such as 401(k)s.
This reporting obligation applies to all existing accounts, even if these have not been used or have not been the subject of any credit or debit transactions.
Expert Tax Advice for France
Our legal expert, François Mouniélou, specialises in taxation, wealth tax, succession, etc.… for Americans who own real estate in France. François has extensive knowledge of the French tax system. Do not hesitate to contact him for more information or to book a consultation.
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