US tax advisors for US expats in France and French expats in the US

The US-French Treaty on Double Taxation

The US-French tax treaty provides some relief from double taxation. However, it does not help eliminate a very common issue we encounter with Assurance vie. Literally, “Assurance vie” translates as life insurance. However, the US tax code does not treat it as life insurance, so it is taxed on income it earns each year. Worse, it is treated as a passive foreign investment company, which involves onerous accounting work and a less favorable tax treatment.

Other issues we see:

• French pensions may involve additional reporting and may be taxable, even if tax-deferred in France.
• Inheritance of bank accounts; some of the bank accounts established by people who may or may not have been engaging in tax evasion in France, the US, or both.
• Taxation of rental property in France. It is very common to see incorrect reporting and many taxpayers are missing an opportunity to accelerate depreciation.
• Self-employment: Even small corporations may require extensive reporting.

Are you a US person living in France?

In France, resident taxpayers are taxed on their worldwide income. However, non-resident taxpayers are taxed only on income received in France or on income arising in France.

The US taxes its persons on a worldwide basis. So what you earn in France, even if it is taxed by the French taxing authority, is subject to additional taxes by the IRS. This is true even if you have a “tax-free” account in France. However, you are entitled to a credit for taxes paid. In the alternative, there is a foreign income exclusion which will exempt a portion of your income from income taxes.

Are you a French person living in the United States? (Visa/Substantial Presence Test)

If you are a Green Card holder you are subject to universal taxing jurisdiction on all your income, anywhere in the world. If you are a visa holder the rules are a bit more complicated about when universal taxing jurisdiction is triggered.

The Foreign Earned Income Exclusion

Citizens and residents living and working outside the U.S. may be entitled to a foreign earned income exclusion that reduces taxable income. In addition, you may exclude housing expenses, but with limits. There are limits and special rules about who qualifies for the exclusion, and we can help you understand if you qualify.

Foreign Tax Credits

This is a non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. The foreign tax credit is available to anyone who either worked in a foreign country or has investment income from a foreign source. There are qualifying factors, and we can help you understand if you are eligible to tax advantage of this credit. There is currently a dispute over whether or not social security taxes paid in France count towards the foreign tax credit. See Eshel v. Commissioner.