France is a famous country for U.S. ex-pats. Whether they are attracted by the vibrant art and culture of Paris, the glamour and the beautiful beaches of the Mediterranean, or the idyllic calm of the countryside, many Americans choose to live in la République française. However, living abroad comes with certain tax obligations that U.S. citizens, and permanent residents, must continue to follow. Here, our expat tax lawyers at Evolution Tax and Legal are breaking down some taxes for ex-pats in France below.
French Taxes for American Expats
U.S. citizens and permanent residents living in France are still obligated to file a U.S. tax return in addition to being subject to the French taxation system. Along with the required regular federal tax return, those who held $10,000.00 or more at any time in the year in their accounts also need to file an informational return on their assets held in foreign bank accounts with FinCEN Form 114 – also known as the Foreign Bank Account Report (FBAR).
Taxable foreign income for American ex-pats includes wages, interest, dividends, rental income, and qualified retirement account distributions. Nonetheless, some provisions can be put in place to help you avoid double taxation. The most important are:
- The Foreign Earned Income Exclusion (FEIE) and Housing Exclusion allowing U.S. citizens in France to exclude up to a certain amount of foreign earned income and household expenses resulting from living abroad.
- The Foreign Tax Credit allowing a dollar for dollar offset of taxes paid in the host country from U.S. tax liability.
- And Tax Treaties to prevent double taxation.
U.S. Taxes When Retiring in France
For American citizens that decide to retire in France, a few considerations should be added. First and foremost, even when retiring abroad, you still may have to file a U.S. tax return. Moreover, if you meet the requirements, you must report money in any French financial accounts on your FBAR. Finally, if you have a French pension or retirement account (like the compulsory supplementary pension scheme ARRCO-AGIRC), it may be treated differently than in the U.S.
French Income Tax Rates for U.S. Expats
French income tax rates are different for residents and non-residents. While French residents’ worldwide income is taxable, U.S. ex-pats who are not considered French residents for tax purposes are only taxed on income from French sources. For Americans who qualify as residents, 2021 (2020 Tax Year) French tax rates are as follow:
- Income up to EUR 10,084: 0%
- Income between EUR 10,085 and EUR 25,710: 11%
- Income between EUR 25,711 and EUR 73,516: 30%
- Income between EUR 73,517 and EUR 158,122: 41%
- Income above EUR 158,122: 45%
For non-residents, the 2021 rates are:
- Income up to EUR 14,988: 0%
- Income between EUR 14,988 and EUR 43,477: 12%
- Income above EUR 43,477: 20%
Non-residents also are not eligible to claim the standard exclusion. However, some U.S. ex-pats may fall within a special tax regime for foreign nationals on a temporary assignment. For eligibility, in this case, the individual must not have been a resident of France in the five years preceding their arrival and must not be assigned to live in France for more than eight years (five years if the position started before July 6, 2016).
Who Is a Resident of France?
To be considered a French resident for tax purposes, a U.S. ex-pat must meet any of the following requirements:
- The family’s primary home (or, if there is no family home, the primary residence location) is within French territory. This is defined by spending over 183 days within France or spending 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.
- France is the center of the person’s economic activity.
When Are French Taxes Due?
Like in the U.S., the French tax year matches the calendar year, but deadlines to file French taxes are dependent on residence status, location, and the means used to file.
U.S.-France Tax Treaty
The U.S. and France have a treaty that defines in which situations people will pay tax to which country, including people who are residents of both, and defines in which situations international structures such as investment vehicles, corporations, and trusts will be taxed by which country. The treaty also covers relief from double taxation for Americans living in France and French citizens living in the U.S.
Social Security in France
While the U.S.-France tax treaty doesn’t cover social security taxation, a separate agreement called a Totalization Agreement generally helps U.S. ex-pats in France not pay social security taxes to both the U.S. and French governments. However, there are some nuances here.
Does France Tax Foreign Income?
Anyone that is considered a French resident for tax purposes will have their worldwide income subject to taxation. While the U.S.-France tax treaty excludes certain types of income, any excluded income is still considered when determining what tax rate will be applied to your personal income in France.
Other Taxes in France
Evidently, income tax is not the only tax imposed in France. For instance, there is a standard TVA (France’s value-added tax) rate of 20%, except for a 10% rate for books and restaurant meals and 5.5% for most groceries. Moreover, worldwide capital gains are taxed as part of French residents’ income. And besides that, there are particular rules surrounding inheritance and gift taxes, and they vary greatly based on who is receiving them.
File U.S. Taxes With Evolution Tax and Legal’s U.S. Expat Tax Services
The many aspects of ex-pat taxes for Americans in France may overwhelm you, but the Evolution Tax and Legal team provides U.S. Expat Tax Services to help you streamline your tax return process. For help with your ex-pat taxes, contact our team of experts today.