Tax Reporting Obligations for Americans Living in France

The US imposes taxes on all its citizens, irrespective of their country of residence.  This means that US citizens living in France are subject to US taxes. 

In contrast, 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 mid-May and mid-June, depending on the French region in which the taxpayer resides.

US Citizens Residing in France

A person is considered a resident for tax purposes in France if they have their primary home or residence in France, 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 generally must 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 interest, rental income, pensions, dividends, etc. 

To avoid double taxation between France and the US, the French and US governments ratified a Double Tax Convention. One function of the Double Tax Convention is to provide relief from double taxation by allowing only one country to tax the income, or by allowing a tax credit for US tax paid when calculating French tax liability on US income (or vice versa). 

For example, the US/France Double Tax Convention provides that pensions and other payments made under US social security legislation to a French tax resident may be taxed only in the US. Discuss this with a tax professional.

French Capital Gains Tax (CGT)

CGT is a tax on the profit from the sale of taxable assets. 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, including, for example, the sale of US or any other overseas properties. 

Be Aware of EUR/USD Fluctuation

When selling foreign real estate, pay close attention to exchange rates. When calculating a capital gain, you must convert the cost of each transaction into euros on the date of each relevant transaction, such as a purchase, sale, professional fees, enhancement costs, etc.

Because the capital gain is calculated in euros, exchange-rate fluctuations can create 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 US losses can often turn into capital gains in France because of currency fluctuations.

If the US also levies CGT, consider the US-France Double Tax Convention to avoid double taxation.

Real Estate Wealth Tax (REWT)

REWT taxes 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 after becoming a French tax resident, REWT applies to 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 so, only the first €800,000 is exempt from tax, and the tax rate below applies.

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. Contact him for more information or to book a consultation.

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