France Specific

Topics covered:

French Businesses & Investments

Opening a local business in France as a US citizen

Before opening a business in France, you will need to have a residence permit. Also, you will need to set up your tax declaration with the French tax authorities. All businesses must be registered through the appropriate Centre de Formalités des Entreprises (CFE).

What types of local business structures are there in France, and what would be the US filing requirement?

Entreprise Individuelle (EI)/Sole Trader

As a Sole Trader, you are self-employed. You will need to report your self-employment to the IRS via form Schedule C.

SARL/EURL or  SASU or SA

The following business structures are reported to the IRS via Form 5471:

  • Société à responsabilité limitée (SARL)/Entreprise Unipersonnelle à Responsabilité Limitée (EURL)
  • Société par Actions Simplifiées Unipersonnelle (SASU),
  • Société Anonyme (SA)

SEP,  SNC, SCS,  SCA

The following partnership structures are reported to the IRS via Form 8865:

  • Société en Participation (SEP)
  • Société en Nom Collectif (SNC)
  • Société en Commandite Simple (SCS)
  • Société en Commandite par Actions (SCA)

Government Regulated Savings Accounts

The French banking system has a large variety of government regulated savings accounts in operation. Although there limits on the amount you can deposit, the accounts offer enhanced interest rates, which are free from French income tax and French social charges.

These government regulated saving schemes include the Livret A, Livret Bleu, LDD, LEP, and the Livret Jeune. The accounts would likely indicate a reporting requirement for FBAR/FATCA. Please complete the Non-US Financial Accounts Section of the tax questionnaire.

In addition, please report any interest income on these accounts in the  Income > Passive Income > Interest tab. 

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.

FATCA model type chosen by the 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 US 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 US 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.

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

Financial institutions 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 institutions 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:

  • US citizen (check for US passport or green card).
  • US residential address
  • Place of birth in the US
  • US telephone number
  • Standing instructions to send funds to a US bank account
  • Power of attorney (PoA) or third party authority in favor of a person with a US address
  • Use of a c/o or hold mail address

Which types of French financial assets must/are not required to be reported on FBAR / FATCA?

Account types that must be reported

  • 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 US person has a greater than 50 percent interest in the entity

Account types that are not required to be reported

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.

Do I need to report France Plan d'Epargne d'Entreprise and Livret A retirement accounts?

Yes, for FBAR and FATCA (form 8938) purposes these must be reported on your  Non-US Financial Accounts > Accounts List tab.

We ask you not to report mutual funds held in retirement funds, insurance policies or annuity products on your US tax return. Plan d'Epargne d'Entreprise and Livret A are examples of such accounts.

NOTE: They only need to be reported on FBAR. Please make sure they are entered on your Non-US Financial Accounts > Accounts List tab.

Do I need to report an investment to French SCPI?

An investment in one SCPI is equivalent to an investment in a US REIT. An investment in a US REIT is not an investment in a mutual fund. Therefore, an investment in an SCPI is not an investment in a mutual fund, and is not an investment in a PFIC. Examples of US REITs: Simon Property Group (NYSE: SPG) or Vornado (NYSE: VNO).  These are investments in a single stock or company. 

However, it is possible it be invested in a mutual fund that owns a collection of SCPI or REITS, in which case it might be a PFIC. The US example is VNQ, which is Vanguard’s ETF for REITs.  It does not hold just one REIT.  Rather, it holds several hundred REITs. 

If you have invested in a fund that holds a collection of SCPI, then this may be a PFIC.

French Pension Accounts

Social Security in France (Sécurité Sociale)

Update Jun 2019 ------ For US tax purposes,  “Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are creditable & deductible taxes under the Internal Revenue Code or the U.S.-French Income Tax Treaty.

AGIRC-ARRCO may also be treated as a Social Security-type pension because it consists of voluntary contribution points converted to a lift time annuity.

US - France - Social Security Totalization Agreement

Overview

An agreement between the United States and 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 US 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 US 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 US system.

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

Taxation of French Social Security Benefits

US Social Security Benefits

US 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 the tax on that income if the recipient is a 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 US.

Contributions to French Occupational Pension

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

Tie-Breaker Rule to Apply French-U.S. Treaty Benefits

US 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 (i.e. country) with which their personal and economic relations are closer (France).

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

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.

French Income Reporting

How do I report French earned income on the tax questionnaire?

For income earned while 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 Income > Wages > Income Outside the U.S tab 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 Income > Passive Income > Pension or Income >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. If your business structure is SCI then you must also report this as self-employment.

Then, your gross income from self-employment is a turnover of your unincorporated business. Report it on the Gross Income from Self-employment question of the Income > Self-employment tab. 

Income is reported as the gross amount, before any deductions - those are reported separately.

Did you receive share of Income or deductions from a pass-through company (S Corporation, Partnership, or Income Trust)? 

If you participate as a sole or partial owner of another type of a small business company of other types ( SARL, SA, SAS) - then please indicate that you own more than 10% of a foreign corporation as you start the Tax Questionnaire. You may also add information about your foreign corporation later. Simply click Change Income Types button at the left. You should complete Income > Corporation & Trust > Foreign Corporation Tab then.

How do I report French taxes paid on the tax questionnaire?

Similarly to income, the 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.

Update Jun 2019-- For US tax purposes,  “Contribution Sociale Généralisée” (CSG) and the “Contribution pour le Remboursement de la Dette Sociale” (CRDS) are 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 Questionnaire, even if it applies 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 on the Taxes & Deductions > Deductions tab of our Tax Questionnaire.

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 Tax Glossary

Salaire Brut

Gross Salary - Report the total amount of the annual Gross Salary in  Income > Wages > Income Outside the U.S tab of our Tax Questionnaire.

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.

Bulletin de Salaire

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

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  Income > Self-Employment tab of our Tax Questionnaire.


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 US Social Security card until you officially change your name with the US Social Security Administration.

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 US tax liability. Report tax imposed on the particular income type in the same section of our Tax Questionnaire where you reported that income.

La taxe foncier

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

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, including in housing expenses reported in  Personal Details > Where I Live > Housing Arrangements tab of our Tax Questionnaire.

Plus-values immobiliers

Tax on gains from the selling of property. In the US, tax on gains from the sale of the property may be treated as long-term or short-term gains and in certain cases may be tax-exempt. Report on the Income > Home Sale tab of our Tax Questionnaire, question Foreign tax paid on capital gains from property sale.

L'impôt de solidarité sur la fortune

The 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. The report in the Taxes & Deductions > Deductions tab of our Tax Questionnaire.

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.

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