Investing in France

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loklav
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Joined: Fri Nov 10, 2017 11:39 pm

Investing in France

Post by loklav » Fri Jul 27, 2018 11:17 am

Hi all,

I'm a french citizen currently leaving in the US (CA). I'm a permanent resident and should get the citizenship in 2 years.
We just sold our house in France and so we will get something like 150K Euros.

What should I do with this money? My daughter will go to college in 2 years. So I want to keep one part quickly accessible (said 30K Euros).
I don't know what to do with the remaining amount? Should I keep it in France (in Euros) or transfer/convert it in US/Dollars?

What are the pros/cons?

I plan to go back in France at some point... but it's not yet decided when...

Thanks

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Pajamas
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Re: Investing in France

Post by Pajamas » Fri Jul 27, 2018 11:26 am

loklav wrote:
Fri Jul 27, 2018 11:17 am

I plan to go back in France at some point... but it's not yet decided when...
My personal observation is that most people who move to another country and become citizens but plan to return to their home country to live permanently at some point never actually do. The longer they stay, the more likely it is that they don't return. This is even true with states within the U.S.

So I don't think you should ignore that possibility in your planning, but you shouldn't count on it happening.

I don't know how french taxes work for french citizens living in the U.S. as U.S. citizens but you should consider that.

Given only the information you provided as context, consider converting everything to dollars now unless you intend to speculate in currencies and think that EUR will become more valuable in relation to USD. Even then, there are more effective ways to speculate than holding another currency.

If your daughter will be going to school in France then of course you might want to keep Euros in France to pay for that.

jminv
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Re: Investing in France

Post by jminv » Fri Jul 27, 2018 12:18 pm

It depends on how long it would be until you might go back to France.

I would probably go with a global index fund or a bond fund in euros, not dollars if you were returning soon. Obviously not the Livret A at 0.75%. Soon though would have to be a couple years because after that it's hard to say if you'd really go back and the time factor given the capital gains/social tax differences.

If you weren't returning soon, I would bring the money to the usa and invest in the usa to escape future French capital gains and social taxes. You are non-resident in France for tax purposes after all. You no longer have a house there, you and your wife live in the states, and your job is in the states. Best to also bring the assets from France to the states as well since that's one of the residency tests. That way you would have more money when you retired.

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whodidntante
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Re: Investing in France

Post by whodidntante » Fri Jul 27, 2018 12:36 pm

Is this a tax question or an asset allocation question?

c1over8
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Re: Investing in France

Post by c1over8 » Fri Jul 27, 2018 1:44 pm

If you keep it in France you'll have to file FBAR. One downside to leaving it there.

loklav
Posts: 101
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Re: Investing in France

Post by loklav » Fri Jul 27, 2018 3:43 pm

jminv wrote:
Fri Jul 27, 2018 12:18 pm
It depends on how long it would be until you might go back to France.

I would probably go with a global index fund or a bond fund in euros, not dollars if you were returning soon. Obviously not the Livret A at 0.75%. Soon though would have to be a couple years because after that it's hard to say if you'd really go back and the time factor given the capital gains/social tax differences.

If you weren't returning soon, I would bring the money to the usa and invest in the usa to escape future French capital gains and social taxes. You are non-resident in France for tax purposes after all. You no longer have a house there, you and your wife live in the states, and your job is in the states. Best to also bring the assets from France to the states as well since that's one of the residency tests. That way you would have more money when you retired.
What do you mean by residency tests? We already have the green card, so it should not be an issue to get the citizenship.
BTW we also have some life insurances in France, that we plan to keep there.

Based on the other comments, the main advantage of bringing this money to the usa would be to escape taxes in France. Does not look like there is any advantage at the moment... even if we move back in 2-3 years... ?

jminv
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Re: Investing in France

Post by jminv » Fri Jul 27, 2018 4:56 pm

loklav wrote:
Fri Jul 27, 2018 3:43 pm
jminv wrote:
Fri Jul 27, 2018 12:18 pm
It depends on how long it would be until you might go back to France.

I would probably go with a global index fund or a bond fund in euros, not dollars if you were returning soon. Obviously not the Livret A at 0.75%. Soon though would have to be a couple years because after that it's hard to say if you'd really go back and the time factor given the capital gains/social tax differences.

If you weren't returning soon, I would bring the money to the usa and invest in the usa to escape future French capital gains and social taxes. You are non-resident in France for tax purposes after all. You no longer have a house there, you and your wife live in the states, and your job is in the states. Best to also bring the assets from France to the states as well since that's one of the residency tests. That way you would have more money when you retired.
What do you mean by residency tests? We already have the green card, so it should not be an issue to get the citizenship.
BTW we also have some life insurances in France, that we plan to keep there.

Based on the other comments, the main advantage of bringing this money to the usa would be to escape taxes in France. Does not look like there is any advantage at the moment... even if we move back in 2-3 years... ?
I’m talking about the residency test the french authorities use for tax purposes, not the USA authorities. You should be a non-resident for french tax purposes. That is good. Given the difference between french and American capital gains taxes (plus the social charges on capital gains in France), it would be preferable to hold your assets in the USA. When you draw on the taxable account (expenses, retirement, etc) or otherwise have a taxable event (like rebalancing) you will save because of the tax differential.

mavenleek
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Re: Investing in France

Post by mavenleek » Sat Jul 28, 2018 4:04 am

First, get familiar with PFIC. If you want to invest the money and stay correlated to the EURO zone, buy VGK or FEZ. Funds will be denominated in $ but correlated to the performance of the EURO Zone.

Another way to see it would be to know what you would do with the money if you would have stayed in Europe. It's very likely you would have invested it in Euro, International and US stocks with a specific asset allocation. So, you could also do the same with this money.

TedSwippet
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Re: Investing in France

Post by TedSwippet » Sat Jul 28, 2018 4:45 am

mavenleek wrote:
Sat Jul 28, 2018 4:04 am
First, get familiar with PFIC.
This, absolutely.

Also be aware that these US PFIC tax rules will be a major obstacle to your investing lives if you move back to France after taking out US citizenship. PFIC tax rules make non-US mutual funds more-or-less nonviable for US citizens, even if they are dual-citizens no longer living in the US.
loklav wrote:
Fri Jul 27, 2018 11:17 am
What are the pros/cons? ... I plan to go back in France at some point... but it's not yet decided when...
It may well be better for you to delay taking out US citizenship for as long as possible, perhaps even avoid it entirely. This will help keep your options open. It is much easier -- and also a lot cheaper -- to get rid of a US green card than to get rid of US citizenship.

While reading up on PFIC, you should also research the US 'exit tax', applied to both long-term green card holders who surrender a green card and citizens who renounce US citizenship. The bottom line is that unless you live in the US or outside but have no other citizenships, holding US citizenship is a massive restriction on your abilities to invest in the same way as your fellow countrymen.

More in these wiki pages:
Taxation as a US person living abroad - Bogleheads
Non-US investor's guide to navigating US tax traps - Bogleheads

loklav
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Re: Investing in France

Post by loklav » Wed Aug 08, 2018 11:28 pm

Thank you for your answers. I will look at the different references.

If I invest in France, with some regular brokerage account, I will have to pay taxes on the potential gains when I sell, both in the US and in France. Am I correct?

If instead I invest in the US, I will only have to pay taxes in the US.

Is it why you are saying that independently on where I live in the future, it's better now to invest in the US?

My concern is that currently the change Euro/Dollar is not really high: 1.16 compared to 1.25 a few months ago. This is almost a difference of 10%: so should I wait before transferring the money in the US?

mattfr
Posts: 33
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Location: France

Re: Investing in France

Post by mattfr » Thu Aug 09, 2018 1:20 am

Hi there,

US/France bi-national here with some experience in similar situations.

Based on the information you've provided, the impression I'm getting is that your current approach plays very fast and loose with both the IRS and the Fisc (French tax authority). This approach probably worked for several years, and may yet work for many years to come. However, if one of these entities does start digging into your situation, the consequences would be severe.

Before looking at what supports to invest in and how to mitigate currency risk, it'd be worthwhile to talk about your situation with a US/France tax professional. Do not bother with your French banker or even a branch manager; these types of issues fall far outside their competency. When you do find a professional you trust, here are some conversation starters:
  • Does the bank where I currently hold my "assurance vie" comply with FATCA reporting?
    Tip: 90%+ of French assurance vie providers intentionally do not put up with FATCA due to cost of compliance, categorically refuse US-person clients, and the fine print you agreed to in your contract requires them to immediately close the contract when you become a US person (citizen or LPR/green-card holder) regardless of the individual tax implications associated with that sale and closure (i.e. Prélèvement libératoire à 35%, 15% ou 7,5% selon la durée du contrat + prélèvements sociaux à 15,5%).
  • What funds are held in my assurance vie? How do I comply with PFIC, and what will that cost me?
  • What holdings do I have to report on my 2042NR + 3916 (annual French tax return)?
  • How will the gains on my home sale in France be taxed? Given my non-resident status, will it be taxed at the unfavorable rates of a secondary residence/investment property on my 2042NR?
  • What are the implications of the recent US tax reform standard deductions on foreign tax credits?
  • How will France treat my US IRA/401(k) gains at retirement?
  • etc.
The good people at the SIPNR (Service des impôts des particuliers non-résidents—France's Non-resident individual tax service centre) can be an immensely helpful resource as well. Just pick up the phone; they appreciate working with individuals who try to do the best they can to navigate the labyrinth of international tax law. I have yet to find a similar resource with the IRS…

Bon courage !

Matt

fujiters
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Re: Investing in France

Post by fujiters » Thu Aug 09, 2018 2:45 am

loklav wrote:
Wed Aug 08, 2018 11:28 pm
Thank you for your answers. I will look at the different references.

If I invest in France, with some regular brokerage account, I will have to pay taxes on the potential gains when I sell, both in the US and in France. Am I correct?

If instead I invest in the US, I will only have to pay taxes in the US.

Is it why you are saying that independently on where I live in the future, it's better now to invest in the US?

My concern is that currently the change Euro/Dollar is not really high: 1.16 compared to 1.25 a few months ago. This is almost a difference of 10%: so should I wait before transferring the money in the US?
As with predicting stock market movements, almost no one seems to be able to predict currency movements. It's entirely possible the current exchange rate will be the best you have for the next decade. I think it makes sense to euro-cost-average it into the US each month (mostly to avoid regret if the euro makes a big gain).

If you're not aware, it looks like you can deposit Euros into an Interactive Brokers account and use it to buy stock on US exchanges, going through their forex platform (which looks like the cheapest option I've seen for individual currency conversion). I don't have personal experience with it, but others on the board do.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

hafjell
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Re: Investing in France

Post by hafjell » Thu Aug 09, 2018 8:18 am

mattfr wrote:
Thu Aug 09, 2018 1:20 am
I have yet to find a similar resource with the IRS…
Ha!

loklav
Posts: 101
Joined: Fri Nov 10, 2017 11:39 pm

Re: Investing in France

Post by loklav » Thu Aug 09, 2018 11:56 am

mattfr wrote:
Thu Aug 09, 2018 1:20 am
Hi there,

US/France bi-national here with some experience in similar situations.

Based on the information you've provided, the impression I'm getting is that your current approach plays very fast and loose with both the IRS and the Fisc (French tax authority). This approach probably worked for several years, and may yet work for many years to come. However, if one of these entities does start digging into your situation, the consequences would be severe.
Not sure why you have this impression... I hope I'm doing the things correctly. I have two life insurances ("assurance vie") in France that I was not asked to close when I moved to the US. But I can only invest now in one of the funds because I'm leaving now in the US. So I don't know if they are FATCA compliant, but still they put some additional constraints on my investments when I decided to move to the US.

Anyway, I still have to declare the gains both to the IRS and the Fisc.
Concerning what I declare to the IRS I do it the same way that what was done by my CPA the first years when I moved to the US.

Thank you for the recommendation about the SIPNR: I will contact them to get some info, specifically about the retirement accounts.

Concerning my home sale, everything was done by a notary who is responsible of evaluating the potential gains. At the moment I have no gain, so I won't be taxed at all.

Now my question was about trying to guess the advantages of investing in the US. If I invest in France, I will have to declare the gains both in the US (IRS) and in France (Fisc). If I invest in the US, the gain will have to be declared only to the IRS. I don't think I'm wrong on this point.
So that would be the advantage of investing in the US.
But to invest I have to convert in $. And this is why I'm wondering if it's really worth it.. Because I will loose a lot due to the current exchange rate. I have to look at what is this " Interactive Brokers account" though...

loklav
Posts: 101
Joined: Fri Nov 10, 2017 11:39 pm

Re: Investing in France

Post by loklav » Thu Aug 09, 2018 12:02 pm

fujiters wrote:
Thu Aug 09, 2018 2:45 am
loklav wrote:
Wed Aug 08, 2018 11:28 pm
Thank you for your answers. I will look at the different references.

If I invest in France, with some regular brokerage account, I will have to pay taxes on the potential gains when I sell, both in the US and in France. Am I correct?

If instead I invest in the US, I will only have to pay taxes in the US.

Is it why you are saying that independently on where I live in the future, it's better now to invest in the US?

My concern is that currently the change Euro/Dollar is not really high: 1.16 compared to 1.25 a few months ago. This is almost a difference of 10%: so should I wait before transferring the money in the US?
As with predicting stock market movements, almost no one seems to be able to predict currency movements. It's entirely possible the current exchange rate will be the best you have for the next decade. I think it makes sense to euro-cost-average it into the US each month (mostly to avoid regret if the euro makes a big gain).

If you're not aware, it looks like you can deposit Euros into an Interactive Brokers account and use it to buy stock on US exchanges, going through their forex platform (which looks like the cheapest option I've seen for individual currency conversion). I don't have personal experience with it, but others on the board do.
Thank you for the info!
I will try to get more details...
I was going to use something like TransferWise to transfer/convert my money to the US and then invest through my regular Vanguard brokerage account...
So you think that using an Interactive Broker account would help me to save on the transfer fees?

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BeBH65
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Re: Investing in France

Post by BeBH65 » Thu Aug 09, 2018 12:08 pm

loklav wrote:
Thu Aug 09, 2018 11:56 am
If I invest in France, I will have to declare the gains both in the US (IRS) and in France (Fisc).
Please read this reference very careful. Taking the wrong option might lead to a nightmare, or you might already be in it without you knowing.
TedSwippet wrote:
Sat Jul 28, 2018 4:45 am
Non-US investor's guide to navigating US tax traps - Bogleheads
Which case is applicable to you?
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

loklav
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Re: Investing in France

Post by loklav » Thu Aug 09, 2018 12:52 pm

BeBH65 wrote:
Thu Aug 09, 2018 12:08 pm
loklav wrote:
Thu Aug 09, 2018 11:56 am
If I invest in France, I will have to declare the gains both in the US (IRS) and in France (Fisc).
Please read this reference very careful. Taking the wrong option might lead to a nightmare, or you might already be in it without you knowing.
TedSwippet wrote:
Sat Jul 28, 2018 4:45 am
Non-US investor's guide to navigating US tax traps - Bogleheads
Which case is applicable to you?
Very Interesting! thanks!
So I'm a French citizen with an US Green card, planning to move back to France at some point (hopefully before retirement)
Well I think I'm in the case "A2. Avoid non-US domiciled funds and ETFs". / A3. Create a relocation-resistant portfolio

There is a tax treaty between US and France. So I read that the retirement options are covered and I can invest in a 401k/IRA while in the US and also I will have both access to the SS and the french retirement equivalent.

The question is more to figure out how to achieve A2/A3 and with my existing investment in France ( I did not invest anymore in France since I move to the US, 5 years ago).


The other question is also about what will happen when I will eventually become an US citizen.... This chart does not cover this case...

TedSwippet
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Re: Investing in France

Post by TedSwippet » Thu Aug 09, 2018 12:57 pm

loklav wrote:
Fri Jul 27, 2018 3:43 pm
BTW we also have some life insurances in France, that we plan to keep there.
Your existing French investments sound like they are Assurance Vie accounts. Have you fully understood the US tax problems that these accounts can cause? From this article:
In the United States, the treatment of the Assurance Vie accounts is vastly inferior and may be highly disadvantageous and extremely troublesome for the owners of the Assurance Vie policies. First of all, Assurance Vie accounts are taxable in the United States. Second, none of the tax advantages from French law pass to the U.S. law, including the estate tax treatment (which may be a complex question in itself).

Finally and most importantly, Assurance Vie policies usually consist of mutual funds which are treated as Passive Foreign Investment Companies (PFICs) under U.S. tax law. As such, the Assurance Vie policies may be subject to the most draconian tax treatment under the 1291 fund (default PFIC) rules, especially because the QEF treatment is usually not available and MTM treatment may result in additional taxes (assuming that the French owner of the Assurance Vie policy timely made the election – usually, this is not the case).

loklav
Posts: 101
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Re: Investing in France

Post by loklav » Thu Aug 09, 2018 1:19 pm

TedSwippet wrote:
Thu Aug 09, 2018 12:57 pm
loklav wrote:
Fri Jul 27, 2018 3:43 pm
BTW we also have some life insurances in France, that we plan to keep there.
Your existing French investments sound like they are Assurance Vie accounts. Have you fully understood the US tax problems that these accounts can cause? From this article:
In the United States, the treatment of the Assurance Vie accounts is vastly inferior and may be highly disadvantageous and extremely troublesome for the owners of the Assurance Vie policies. First of all, Assurance Vie accounts are taxable in the United States. Second, none of the tax advantages from French law pass to the U.S. law, including the estate tax treatment (which may be a complex question in itself).

Finally and most importantly, Assurance Vie policies usually consist of mutual funds which are treated as Passive Foreign Investment Companies (PFICs) under U.S. tax law. As such, the Assurance Vie policies may be subject to the most draconian tax treatment under the 1291 fund (default PFIC) rules, especially because the QEF treatment is usually not available and MTM treatment may result in additional taxes (assuming that the French owner of the Assurance Vie policy timely made the election – usually, this is not the case).
Yes this is these type of accounts that we have. I'm not investing anymore in these accounts but looks like it will be very troublesome once I want to draw money from them.... Still at this point (retirement time) we could get rid of our green card or US citizenship...?


This is a related question I think: if at some point we decide to go back in France, we wanted to get the US citizenship in order to be able to come back later to live in the US easily for any reason...
I understood that if we stayed outside the US for more than 1 year, our green card was going to expire. But looks like this is not true https://help.cbp.gov/app/answers/detail ... and-return

We would need a reentrant permit, but once back, our green card would still be valid?

TedSwippet
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Re: Investing in France

Post by TedSwippet » Thu Aug 09, 2018 1:47 pm

loklav wrote:
Thu Aug 09, 2018 1:19 pm
Yes this is these type of accounts that we have. I'm not investing anymore in these accounts but looks like it will be very troublesome once I want to draw money from them....
Chances are that they are already troublesome, even where you just hold them but leave them alone.

Before 2013, form 8621 -- IRS estimates around 48 hours to complete -- was needed only on sale, receipt of distribution, or some 'activity'. But starting with the 2013 tax year there is now a possible annual form 8621 requirement for PFICs held by a US person. Also possibly FinCEN 114. Also possibly FATCA form 8938. The IRS never does a thing once when two or three times is enough.

TedSwippet
Posts: 1838
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Re: Investing in France

Post by TedSwippet » Thu Aug 09, 2018 2:03 pm

loklav wrote:
Thu Aug 09, 2018 1:19 pm
... Still at this point (retirement time) we could get rid of our green card or US citizenship?
Yes, but beware of the US exit tax. This has the potential to destroy your retirement finances. I used to have a green card and residency in the US. The exit tax is pretty much the entire reason that I no longer have either.

The cost of renouncing citizenship has risen over the years from $0 to currently $2,350, so the trajectory here is clear. At the moment, surrendering a green card has no fee.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
This is a related question I think: if at some point we decide to go back in France, we wanted to get the US citizenship in order to be able to come back later to live in the US easily for any reason... I understood that if we stayed outside the US for more than 1 year, our green card was going to expire. But looks like this is not true ... We would need a reentrant permit, but once back, our green card would still be valid?
A reentry permit buys you up to two years outside the US on a green card, but if you remain non-US resident beyond that you may well lose your right to live in the US. This is a slippery area. Until there is a 'judicial determination' either way, or until you surrender your green card, you are in a bit of a limbo state when it comes to the ability to move back to and live in the US.

At that point you probably cannot return to the US to live, but the US will keep on taxing you anyway (and yes, this potentially contravenes customary international law). You do not lose your US taxable person status while in this limbo state. Also be very aware that even if the card itself expires, your US resident status and the tax obligations that it entails does not. You have to affirmatively surrender the card with a form I-407 to disconnect fully from the tentacles of the IRS.

In practice, this means that if you plan to live outside the US for more than a few years but retain the full right to return to the US and live there again, the only way to achieve that is to become a US citizen. As we've seen though, taking out US citizenship brings with it a huge amount of unwanted tax baggage that will significantly limit your financial life in France.
Last edited by TedSwippet on Thu Aug 09, 2018 3:05 pm, edited 2 times in total.

fujiters
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Re: Investing in France

Post by fujiters » Thu Aug 09, 2018 2:35 pm

loklav wrote:
Thu Aug 09, 2018 12:02 pm

Thank you for the info!
I will try to get more details...
I was going to use something like TransferWise to transfer/convert my money to the US and then invest through my regular Vanguard brokerage account...
So you think that using an Interactive Broker account would help me to save on the transfer fees?
https://www.interactivebrokers.com/en/i ... =1590&p=fx

If I'm understanding their pricing structure, I think you'll pay $20 for every $100k transferred. Again, I don't have direct experience, but perhaps someone with experience will chime in.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

loklav
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Re: Investing in France

Post by loklav » Thu Aug 09, 2018 3:17 pm

TedSwippet wrote:
Thu Aug 09, 2018 2:03 pm
loklav wrote:
Thu Aug 09, 2018 1:19 pm
... Still at this point (retirement time) we could get rid of our green card or US citizenship?
Yes, but beware of the US exit tax. This has the potential to destroy your retirement finances. I used to have a green card and residency in the US. The exit tax is pretty much the entire reason that I no longer have either.
Seems very complex...
Not sure what is the best thing to do for the time being. If I continue investing in the US (401k, IRA,...) and later I move back to France, not sure what will happen to these accounts and how I will be taxed. How did it work for you? Are you a french citizen?
The cost of renouncing citizenship has risen over the years from $0 to currently $2,350, so the trajectory here is clear. At the moment, surrendering a green card has no fee.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
This is a related question I think: if at some point we decide to go back in France, we wanted to get the US citizenship in order to be able to come back later to live in the US easily for any reason... I understood that if we stayed outside the US for more than 1 year, our green card was going to expire. But looks like this is not true ... We would need a reentrant permit, but once back, our green card would still be valid?
A reentry permit buys you up to two years outside the US on a green card, but if you remain non-US resident beyond that you may well lose your right to live in the US. This is a slippery area. Until there is a 'judicial determination' either way, or until you surrender your green card, you are in a bit of a limbo state when it comes to the ability to move back to and live in the US.

However, you do not lose your US taxable person status while in that limbo state. Also be very aware that even if the card itself expires, your US resident status and the tax obligations that it entails does not. You have to affirmatively surrender the card with a form I-407 to disconnect fully from the tentacles of the IRS.

In practice, this means that if you plan to live outside the US for more than a few years but retain the full right to return to the US and live there again, the only way to achieve that is to become a US citizen. As we've seen though, taking out US citizenship brings with it a huge amount of unwanted tax baggage that will significantly limit your financial life in France.
If I understand correctly, this is the same thing if you have the green card.
Getting rid of the us citizenship is just a small additional cost ($2350) :(

Looks like this is already too late for us. We already have the green card, so one way or another we are going to pay taxes :(
This is just that I'm not able to figure out what are clearly the different impacts:
1. living/retiring outside the US with a green card or citizenship: impact on our US assets or foreign asset
2. leaving the US, surrendering green card/citizenship : impact on our US assets or foreign asset
3. what is the best way to continue investing in the meantime...? Looks like that for my current lump sump, it's still better to invest in a brokerage account in the US. What will happen to the gain depending on 1 or 2..


Looks like the link you gave me before contains some information https://en.wikipedia.org/wiki/Expatriat ... ted_States
In either case of losing citizenship, or in the case of losing permanent residency if one has been a lawful permanent resident of the US for at least 8 of he past 15 years, the tax implications are similar. One needs to fill out IRS Form 8854, Initial and Annual Expatriation Statement [30], and potentially pay exit taxes based on a deemed disposition of assets.
I still have 5 more years before reaching this 8 years limit... If I surrender my green card during these 8 years, I would not have to pay any taxes?

TedSwippet
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Re: Investing in France

Post by TedSwippet » Thu Aug 09, 2018 5:00 pm

loklav wrote:
Thu Aug 09, 2018 3:17 pm
How did it work for you? Are you a french citizen?
British. I surrendered my green card the next day after arriving back in the UK. As I had already held a green card for more than eight years at that point, my goal was to get rid of it before the horrible exit tax with its effectively retroactive eight-year scope was signed into law. I have to deal with the previous 'expatriation tax' regime, pre-2008 and which dogs you for ten years after leaving the US, but fortunately not the current 'exit tax' one.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
As we've seen though, taking out US citizenship brings with it a huge amount of unwanted tax baggage that will significantly limit your financial life in France.
If I understand correctly, this is the same thing if you have the green card.
Right. Although they do not have all the rights of US citizens, green card holders living outside the US get pretty much the same poor treatment as US citizens living outside the US when it comes to US tax responsibilities.

There are a couple of fiddly ways in which a non-US resident green card holder can claim a 'closer connection' to a foreign country and so escape US tax on some income for a bit, but they are hard to use and if used improperly can actually result in an 'involuntary expatriation'.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
This is just that I'm not able to figure out what are clearly the different impacts:
1. living/retiring outside the US with a green card or citizenship: impact on our US assets or foreign asset
Earned income can be excluded up to around $100k/year. For income above that, and for unearned income, capital gains, and so on, you would pay tax primarily to France, and then if your US rate on this income would be higher, the top-up difference to the US. The major problems here tend to be things like Assurance Vie, where your French tax would be zero and so you wind up with a large US tax bill, and sale of a private residence, something that is capital gains tax-free in many countries but not fully capital gains tax-free for US tax.

You also will spend a lot of time tangling with foreign exchange rates between the USD and EUR. It is entirely possible to get a real loss in EUR terms on an asset or investment that due to currency moves turns into a phantom US capital gain with a tax liability that then has to be paid with real money.

US assets may pose a problem with French taxes. Some countries dislike 'offshore' (to them) mutual funds, like the US PFIC regime. If France has something similar then any US assets you hold will become tax problems. And difficulties have recently increased. US citizens living outside the US cannot really use EU domiciled and UCITS ETFs because of US tax law, but as of the start of this year those living in the UK and the wider EU also cannot buy US domiciled ones in local brokers because of EU regulation, and US brokers generally will not open accounts for non-US residents. This effectively leaves some US citizens outside the US with no realistic options at all for using any mutual funds or ETFs.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
2. leaving the US, surrendering green card/citizenship : impact on our US assets or foreign asset
Easier. You can now use all the same local French investment vehicles as your fellow countrymen for your non-US holdings.

For the US ones, you will need to understand how France will treat them, and whether or not you get any protection from the US/France tax treaty. France has a separate estate tax treaty with the US, so you should not encounter any issues with the US estate tax, if worst comes to worst.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
3. what is the best way to continue investing in the meantime...? Looks like that for my current lump sump, it's still better to invest in a brokerage account in the US. What will happen to the gain depending on 1 or 2..
No easy answer. As a US green card holder, you have to invest as an American, which generally means avoiding anything 'foreign', so yes, bring the money to the US and invest there. The IRS has a fondness for equating 'foreign' with 'offshore', and 'offshore' with 'illegal', so anything you hold that is non-US will be at best an annual mountain of paperwork, and at worst taxed to the point where it would have been better if you had not held it in the first place. There are a few ways to thread that needle to make things slightly less punitive, but not many.

Your best bet is then to look at every investment with a view first and foremost as to how quickly and with how little tax and other penalty you can cash it in when you leave, if that becomes necessary. In that sense, a Roth can be better than a pre-tax IRA or 401k -- much lower penalty for cashing out if you need to do so in a hurry.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
I still have 5 more years before reaching this 8 years limit... If I surrender my green card during these 8 years, I would not have to pay any taxes?
You won't not pay any taxes. You will still, of course, face full US income and capital gains taxes for the years you hold the green card. If you hold it for less than eight years (but that could be as little as six years and two days -- read closely on how the US counts 'years' here) though, you escape the exit tax. You also escape it if you fall below the $2mm asset limit for being a 'covered expat' and below the income tax liability limits.
loklav wrote:
Thu Aug 09, 2018 1:19 pm
Seems very complex...
That is a huge understatement. At this point, you might want to consult a professional. Remember that I am just some random person on the internet.

loklav
Posts: 101
Joined: Fri Nov 10, 2017 11:39 pm

Re: Investing in France

Post by loklav » Fri Aug 10, 2018 1:05 pm

Thanks for all these information!

I will take time to read your answers and document myself then I will sure post some additional questions!

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