Taxes for Expats – The US – France Tax Treaty
The US-France income tax treaty was signed in 1994, with protocols added in 2004 and 2009.
The treaty defines in which situations people will pay tax to which country, including people who are residents of both, as well as defining in which situations international structures such as investment vehicles, corporations, and trusts will be taxed by which country.
In article 24, the treaty also covers relief from double taxation for Americans living in France and French citizens living in the US, however rather than simply exempting American expats living in France from filing US taxes, the treaty allows them to claim US tax credits to the same value as French income taxes that they’ve paid, when they file their US federal tax return.
US taxes for expats in France
The US taxes based on Citizenship, meaning that all US citizens and Green Card holders, including US expats living in France, with worldwide income of over $12,000 a year, or just $400 of self-employment income, are required to file a US tax return each year.
France on the other hand only requires French residents to file French taxes. An American typically qualifies as a French tax resident if their main home is in France, or if France is where they carry out their professional activities, or is the center of their economic interest.
This leaves many US expats living in France having to file two tax returns, and also puts them at risk of double taxation.
Expats receive an automatic filing extension for their US taxes until June 15th, and they can request a further extension until October 15th if they need to, giving them plenty of time to file their French taxes first (due by March 15th) .
US expats in France may also have to file a Foreign Bank Account Report (FBAR), if they have over $10,000 in total in non-US based bank and investment accounts at any time during the year (including any that they have signatory authority or control over, even if not in their name).
“Individuals, whether French or foreign nationals, who have their tax domicile in France are generally subject to personal income tax (PIT) on worldwide income unless excluded by a tax treaty.” – PwC
The United States – France Tax Treaty
The United States – France Tax Treaty covers double taxation with regards to different types of income tax and capital gains tax, however, as already mentioned, the benefits are limited for American expats living in France. The treaty does ensure though that no one will pay more tax than the higher of the two countries’ tax rates, and it also defines where taxes should be paid, which normally depends on where the income arises.
There may still be benefits in the US-France Tax Treaty for American researchers, teachers, students, diplomats, and professional athletes competing. To claim a provision in the United States – France Tax Treaty (besides claiming US tax credits), expats can use IRS Form 8833.
The way for most US expats to avoid double taxation on their income arising in France is to claim US tax credits to the same value as French income taxes that they’ve already paid.
For income arising in the US, Americans in France can claim French tax credits against income US taxes paid to the IRS.
To claim US tax credits against French taxes paid, expats must file Form 1116 when they file their federal tax return. By doing this, the vast majority of US expats in France won’t end up owing any US income tax.
Alternatively, expats can claim another exemption called the Foreign Earned Income Exclusion by filing Form 2555, which simply allows them to exclude the first around $100,000 of their earned income from US taxation. Which exemption is most beneficial depends on each expat’s circumstances (e.g. their types of income, residency status, income levels, where their income originates, etc).
It is possible in some circumstances to claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit, although they can’t both be applied to the same income.
The US-France Tax Treaty also contains a clause that allows the French government to send US expats’ French tax information directly to the IRS, as well as their French bank and investment account balances.
The US-France Totalization Agreement
While the US-France tax treaty doesn’t cover social security taxation, a separate agreement called a Totalization Agreement helps US expats in France not to pay social security taxes to both the US and French governments. Expats’ contributions made while in France can be credited to either system. Which country they pay depends on how long they will be living in France for.
Expats in France who are behind with their US tax filing because they were unaware that they had to file from abroad can catch up without facing penalties under an IRS amnesty program called the Streamlined Procedure, so long as they do so before the IRS contacts them about it.