Are capital gains tax exempt in France for a US Citizen?

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assyadh
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Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

I was having a read at the French/US tax treaty and it's technical explanation: https://www.irs.gov/pub/irs-trty/francetech.pdf

There is a provision in the tax treaty about US sourced income and how France grants double taxation relief. More specifically:
In general, under the Convention, France exempts from tax (i.e., gives a credit equal to
the French tax on) U.S. source dividends, interest, royalties, capital gains on real property,
directors' fees, compensation of entertainers and sportsmen, and income from independent
personal services
As you can see, this does not include capital gains on shares. However, later on the protocol, one can read the following:

However, as noted above, France shares the responsibility of avoiding double taxation of
U.S. citizens who are residents of France. It does so by exempting certain additional items of U
S. source income of such individuals. Those additional items, listed in subparagraph 2(b),
include certain U.S. source dividends, interest, and royalties; capital gains from the alienation of
the assets generating such dividends, interest
So it looks like if you sell a US listed ETF as a US citizen residing in France, since the dividend income from that ETFs is tax free in France then the gains alienating from this ETFs are also tax free.

What am I missing here?

Thoughts?
Last edited by assyadh on Wed Mar 23, 2022 3:39 pm, edited 1 time in total.
Marseille07
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Re: Are capital gains tax free in France for a US Citizen?

Post by Marseille07 »

Not sure what you mean by tax-free. France might not tax you, but you still have to file with the IRS.
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assyadh
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Re: Are capital gains tax free in France for a US Citizen?

Post by assyadh »

Marseille07 wrote: Wed Mar 23, 2022 3:28 pm Not sure what you mean by tax-free. France might not tax you, but you still have to file with the IRS.
I meant that it looks like they don't trigger a tax liability. They trigger a specific filing requirement https://www.impots.gouv.fr/sites/defaul ... 7_3405.pdf
Marseille07
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Re: Are capital gains tax free in France for a US Citizen?

Post by Marseille07 »

assyadh wrote: Wed Mar 23, 2022 3:36 pm
Marseille07 wrote: Wed Mar 23, 2022 3:28 pm Not sure what you mean by tax-free. France might not tax you, but you still have to file with the IRS.
I meant that it looks like they don't trigger a tax liability. They trigger a specific filing requirement https://www.impots.gouv.fr/sites/defaul ... 7_3405.pdf
I'm not a French speaker but it makes sense. There are usually ways to get your credits back to avoid double taxation.

https://brighttax.com/blog/us-expat-tax ... 0the%20IRS.
Last edited by Marseille07 on Wed Mar 23, 2022 3:42 pm, edited 1 time in total.
drk
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Re: Are capital gains tax free in France for a US Citizen?

Post by drk »

What you posted implies that France will grant a credit to zero out the French taxes you would otherwise owe on this income. Why wouldn't you still owe taxes in the US, though? This isn't foreign earned income, and you're not paying foreign taxes on it.
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assyadh
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Re: Are capital gains tax free in France for a US Citizen?

Post by assyadh »

drk wrote: Wed Mar 23, 2022 3:42 pm What you posted implies that France will grant a credit to zero out the French taxes you would otherwise owe on this income. Why wouldn't you still owe taxes in the US, though? This isn't foreign earned income, and you're not paying foreign taxes on it.
I am only interested by the French impact. Please focus solely on that. as the title mentions "in France".

Whatever US tax liability is another point.

Thanks
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assyadh
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Re: Are capital gains tax free in France for a US Citizen?

Post by assyadh »

Marseille07 wrote: Wed Mar 23, 2022 3:42 pm
assyadh wrote: Wed Mar 23, 2022 3:36 pm
Marseille07 wrote: Wed Mar 23, 2022 3:28 pm Not sure what you mean by tax-free. France might not tax you, but you still have to file with the IRS.
I meant that it looks like they don't trigger a tax liability. They trigger a specific filing requirement https://www.impots.gouv.fr/sites/defaul ... 7_3405.pdf
I'm not a French speaker but it makes sense. There are usually ways to get your credits back to avoid double taxation.

https://brighttax.com/blog/us-expat-tax ... 0the%20IRS.
The massive twist here is that it's not a tax credit up to what is due in the other jursdiction. It's a tax credit on all French dues. It zeroes out the French liability.

This is the first time I read this in a tax treaty. It zeroes out a liability for someone who is a resident
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Re: Are capital gains tax free in France for a US Citizen?

Post by drk »

assyadh wrote: Wed Mar 23, 2022 3:44 pm I am only interested by the French impact. Please focus solely on that. as the title mentions "in France".

Whatever US tax liability is another point.

Thanks
Fair enough. Based on the resource you posted, it seems like the imposition of foreign tax is important:
Dans le cas général, le crédit d’impôt est accordé à la condition qu’un impôt ait été effectivement acquitté à l’étranger.
But it does appear to support your conclusion:
Sauf exception, ce crédit d’impôt permet d’éliminer les doubles impositions s’agissant notamment [...] de certaines plus-values.
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assyadh
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

This is really surprising. It's clear in the French version of the treaty. Here is the US one: https://www.irs.gov/pub/irs-trty/france.pdf
Article 24:

2. In the case of France, double taxation shall be avoided in the following manner.
[...]
  • (b) In the case where the beneficial owner of the income arising in the United
    States is an individual who is both a resident of France and a citizen of the United States,
    the credit provided in paragraph 2 (a) (i) shall also be granted in the case of:
    (i) income consisting of dividends paid by a company that is a resident of
    the United States, interest arising in the United States, as described in paragraph 5
    of Article 11 (Interest),
    (ii) capital gains derived from the alienation of capital assets generating
    income described in subparagraph (i); however, such alienation shall be taken into
    account for the determination of the threshold of taxation applicable in France to
    capital gains on movable property;
[...]
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assyadh
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

I'm invoking @TedSwippet here :D This is I'm sure something that will surprise or at least make you wonder.
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assyadh
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

Update here: https://www.diplomatie.gouv.fr/fr/servi ... ale-113153
If the beneficiary resident in France is of American nationality, article 24, paragraph 1-b), extends, under certain conditions, the total elimination of taxation in France by the allocation of a tax credit equal to French tax, to the following income from American sources: dividends, interest, royalties, capital gains, alimony, income of teachers, researchers and students who would be exempt from American tax if they do not were not of American nationality.

To benefit from the exemption or the refund of French tax, the American national resident for tax purposes in France must provide proof of his taxation in the United States.
So it looks like you would need to trigger some form of tax in the US and prove that.
Big Mig
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by Big Mig »

Your (US) links all seem to be to the 1994 treaty and its technical explanation—but the treaty has been amended twice since then. You really should review the amending protocols and related technical explanations to be sure you’re looking at up-to-date language. They can be found here (https://www.irs.gov/businesses/internat ... -documents). Unfortunately the IRS does not post an “as amended” version; maybe France does?

Given your interest in dividends you’ll want to look at Article II of the 2009 Protocol, which provides for residence country taxation of dividends (“Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.”).

(edited for clarity—I hope)
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assyadh
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

Big Mig wrote: Thu Mar 24, 2022 8:01 pm Your (US) links all seem to be to the 1994 treaty and its technical explanation—but the treaty has been amended twice since then. You really should review the amending protocols and related technical explanations to be sure you’re looking at up-to-date language. They can be found here (https://www.irs.gov/businesses/internat ... -documents). Unfortunately the IRS does not post an “as amended” version; maybe France does?

Given your interest in dividends you’ll want to look at Article II of the 2009 Protocol, which provides for residence country taxation of dividends (“Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.”).

(edited for clarity—I hope)
Thanks for your reply.

Yes the article mentions taxation of dividends in France for people resident in France.

However the article 24 makes a distinction for US citizens where France applies a credit to the full French tax.

This is part of the consolidated version and the French instructions for filing here:
United States div. 17.7% Dividends: dividends from American sources per- received by a resident of France give right to a credit tax equal to US tax, up to the limit of 15% of the gross amount of the dividends. However, some tain dividends from American sources received by people residing in France with citizenship American net give right, under the conditions provided for in Article 24 § 1-b-i) of the fis- Franco-American wedge of August 31, 1994, to one credit tax equal to the amount of French tax corresponding to corresponding to this income, and not to the tax credit equal to US tax capped at 15%.
Check the ÉTATS UNIS section here https://www.impots.gouv.fr/sites/defaul ... 7_3405.pdf

Here is the link from the French foreign ministry about this:
https://www-diplomatie-gouv-fr.translat ... r_pto=wapp
If the beneficiary resident in France is of American nationality, article 24, paragraph 1-b), extends, under certain conditions, the total elimination of taxation in France by the allocation of a tax credit equal to French tax, to the following income from American sources: dividends, interest, royalties, capital gains, alimony, income of teachers, researchers and students who would be exempt from American tax if they do not were not of American nationality.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by Big Mig »

assyadh wrote: Thu Mar 24, 2022 10:48 pm
Thanks for your reply.

Yes the article mentions taxation of dividends in France for people resident in France.

However the article 24 makes a distinction for US citizens where France applies a credit to the full French tax.
Thanks for pointing that out. Honestly I can’t read French well enough to trust that I’m getting all the nuance of tax, legal, and diplomatic language (and I don’t trust google translate to do this either) so I’ll defer to you on this. I agree that this is how I read the English version (as amended) of Article 24 paragraph 1. I wonder how the negotiators got to this, but it seems like another example of how friendly this treaty is to US citizens with certain types of US-sourced income who live in France.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

Just got off the phone with a lawyer/tax expert on French/US tax returns. He confirms that all dividends/capital gains tied to these dividends from US sources are tax exempt in France for a US Citizen who resides in France. They will count toward you French income tax bracket for other types of income (salary, wages..).

He did mention that this often triggers audits but he always wins them. When filing the french returns he attached a statement mentioning the 24)b) article of the tax treaty.
Filing is due in April in the US, but only later in France, so he sometimes has to translate US tax returns in France to prove the income has been subject to taxation (not necessarily that taxes were paid).

This is amazing.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by Marseille07 »

assyadh wrote: Fri Mar 25, 2022 4:52 pm Just got off the phone with a lawyer/tax expert on French/US tax returns. He confirms that all dividends/capital gains tied to these dividends from US sources are tax exempt in France for a US Citizen who resides in France. They will count toward you French income tax bracket for other types of income (salary, wages..).

He did mention that this often triggers audits but he always wins them. When filing the french returns he attached a statement mentioning the 24)b) article of the tax treaty.
Filing is due in April in the US, but only later in France, so he sometimes has to translate US tax returns in France to prove the income has been subject to taxation (not necessarily that taxes were paid).

This is amazing.
Sorry but I don't know what's amazing about this? It's fairly normal to be able to avoid double taxation. Since you're paying the IRS, you shouldn't have to pay the French tax authority.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by drk »

Marseille07 wrote: Fri Mar 25, 2022 4:59 pm Sorry but I don't know what's amazing about this? It's fairly normal to be able to avoid double taxation. Since you're paying the IRS, you shouldn't have to pay the French tax authority.
Americans living abroad are subject to double taxation above the FEIE.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by Marseille07 »

drk wrote: Fri Mar 25, 2022 5:03 pm Americans living abroad are subject to double taxation above the FEIE.
Are we talking about an amount above the FEIE? It wasn't clear to me from the OP.
Last edited by Marseille07 on Fri Mar 25, 2022 5:24 pm, edited 2 times in total.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

Marseille07 wrote: Fri Mar 25, 2022 4:59 pm
assyadh wrote: Fri Mar 25, 2022 4:52 pm Just got off the phone with a lawyer/tax expert on French/US tax returns. He confirms that all dividends/capital gains tied to these dividends from US sources are tax exempt in France for a US Citizen who resides in France. They will count toward you French income tax bracket for other types of income (salary, wages..).

He did mention that this often triggers audits but he always wins them. When filing the french returns he attached a statement mentioning the 24)b) article of the tax treaty.
Filing is due in April in the US, but only later in France, so he sometimes has to translate US tax returns in France to prove the income has been subject to taxation (not necessarily that taxes were paid).

This is amazing.
Sorry but I don't know what's amazing about this? It's fairly normal to be able to avoid double taxation. Since you're paying the IRS, you shouldn't have to pay the French tax authority.
AFAIK this is the only tax treaty which provides a full offset of tax dues by its residents. None work like that. I don't know how the negociations went between the two governments but its insanity.

In short you can avoid the French 30% flat tax, pay lower rates in the US, potentially 0% if you are mfj with low capital gains and never pay a dime in France.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by Marseille07 »

assyadh wrote: Fri Mar 25, 2022 5:06 pm AFAIK this is the only tax treaty which provides a full offset of tax dues by its residents. None work like that. I don't know how the negociations went between the two governments but its insanity.

In short you can avoid the French 30% flat tax, pay lower rates in the US, potentially 0% if you are mfj with low capital gains and never pay a dime in France.
That's interesting to know. I know in some places, you report to the local tax authority then get a refund from the IRS to avoid double taxation that way. The reason is that they tax you based on your residency not your nationality.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by langelgjm »

I've also read that France is an ideal place to do Roth conversions for early retirees, due to France neither taxing the distribution from a traditional IRA (considered to be a non-taxable pension distribution), nor subsequent Roth IRA withdrawals.

If what I'm reading in this thread is accurate, the combination of these two features could make France one of the most tax-favorable early retiree destinations for US citizens, outside of actual tax havens. This is certainly not in line with the tax reputation of France!
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

langelgjm wrote: Sat Mar 26, 2022 7:41 am I've also read that France is an ideal place to do Roth conversions for early retirees, due to France neither taxing the distribution from a traditional IRA (considered to be a non-taxable pension distribution), nor subsequent Roth IRA withdrawals.

If what I'm reading in this thread is accurate, the combination of these two features could make France one of the most tax-favorable early retiree destinations for US citizens, outside of actual tax havens. This is certainly not in line with the tax reputation of France!
Yes the content of this article is correct. It's not that Roth is tax free in France for its residents, it's rather that it's taxable in the US. If the rules change in the US it may become taxable.

On a side note, it looks like although capital gains may be free, this would not apply to the Healthcare surcharge if applicable (Puma also known as CSM) of 6% as its not an income tax.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by zmit »

What does it mean to say "capital gains tied to these dividends"? What if the capital gains is from a security that doesn't pay any dividend?
assyadh wrote: Fri Mar 25, 2022 4:52 pm Just got off the phone with a lawyer/tax expert on French/US tax returns. He confirms that all dividends/capital gains tied to these dividends from US sources are tax exempt in France for a US Citizen who resides in France. They will count toward you French income tax bracket for other types of income (salary, wages..).

He did mention that this often triggers audits but he always wins them. When filing the french returns he attached a statement mentioning the 24)b) article of the tax treaty.
Filing is due in April in the US, but only later in France, so he sometimes has to translate US tax returns in France to prove the income has been subject to taxation (not necessarily that taxes were paid).

This is amazing.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

That's the wording of the article 24 of the treaty. Gains alienating from the sale of securities producing dividends or interest sourced from the US are tax free.

I don't know what the implications would be if you sold a security that did not pay a dividend. It's probably fine. I recall from my chat that he also mentioned capital gains irrespective of dividends, but that's not the wording of the treaty. This shouldn't matter for ETFs like VTI or VXUs
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by gmbndg »

He confirms that all dividends/capital gains tied to these dividends from US sources are tax exempt in France for a US Citizen who resides in France. They will count toward you French income tax bracket for other types of income (salary, wages..).
I feel this is too good to be true and it is the first time I hear about it. Have you seen similar info anywhere else online or from a different source?

My overall understanding of the US-French tax treaty is that double taxation is avoided by giving a tax credit to your tax return in the other country. For instance, if you pay 15% tax in the US on your US dividend and you reside in France, you get a credit of 15% for your French tax return where you need to pay 30% (flat tax). So you would still pay 15% tax in France on top of the 15% paid in the US.

I am not a lawyer and I am interested in hearing more comments and getting more info on this topic.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by EddyB »

Marseille07 wrote: Fri Mar 25, 2022 5:04 pm
drk wrote: Fri Mar 25, 2022 5:03 pm Americans living abroad are subject to double taxation above the FEIE.
Are we talking about an amount above the FEIE? It wasn't clear to me from the OP.
We’re not talking about foreign income, or earned income, so we’re certainly not talking about the FEIE.

However, although not every treaty is perfect as regards double taxation, the great majority of income realized by Americans residing in a treaty country is meant to avoid double taxation, whether through assigning exclusive rights, providing for credit, or otherwise. It shouldn’t be surprising when that’s the result.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

gmbndg wrote: Sat Apr 02, 2022 2:23 pm
He confirms that all dividends/capital gains tied to these dividends from US sources are tax exempt in France for a US Citizen who resides in France. They will count toward you French income tax bracket for other types of income (salary, wages..).
I feel this is too good to be true and it is the first time I hear about it. Have you seen similar info anywhere else online or from a different source?

My overall understanding of the US-French tax treaty is that double taxation is avoided by giving a tax credit to your tax return in the other country. For instance, if you pay 15% tax in the US on your US dividend and you reside in France, you get a credit of 15% for your French tax return where you need to pay 30% (flat tax). So you would still pay 15% tax in France on top of the 15% paid in the US.

I am not a lawyer and I am interested in hearing more comments and getting more info on this topic.
Check this out: https://youtu.be/2Z9HZvf_aYI

Most specifically at exactly 29:10. He mentions that regular residents would have to pay 15% to the US and another 15% in France (PFU) but this doesn't apply to US citizens.

If you check the slide, you will see that it says "for US citizens, tax credit equivalent to the theoritical French tax due".

He later goes on to explain this particularity of the tax treaty, confirming what I said above.

I also felt it was "too good to be true" hence the reason why I created a post here and reached out to a French fiscaliste :D

Keep in mind that regardless of that, France has a small social contributions for Healthcare if you only draw from capital gains or dividends. They also have an exit tax if you have more than 800k euros of stocks. What does that mean in the context of this tax treaty article? Do I have to pay an exit tax or not? Etc..
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by gmbndg »

Thank you assyadh for the additional reference. I researched a lot online and did not find much to confirm “for US citizens, tax credit equivalent to the theoretical French tax due”, but the more I read it the more it makes sense.

Please could you confirm that in this case, US dividends/capital gains are also exempt from the French Generalised Social Contributions (CSG) and Contributions for the Repayment of Social Debt (CRDS) (17.2%)?

As an example, this means that a married couple of US citizens filing jointly in the US and who resided in France could pay 0% tax rate on the first $83,350 capital gain from US source (if not other income).
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

gmbndg wrote: Sun Apr 03, 2022 8:31 pm Thank you assyadh for the additional reference. I researched a lot online and did not find much to confirm “for US citizens, tax credit equivalent to the theoretical French tax due”, but the more I read it the more it makes sense.

Please could you confirm that in this case, US dividends/capital gains are also exempt from the French Generalised Social Contributions (CSG) and Contributions for the Repayment of Social Debt (CRDS) (17.2%)?

As an example, this means that a married couple of US citizens filing jointly in the US and who resided in France could pay 0% tax rate on the first $83,350 capital gain from US source (if not other income).
I specifically asked this question to the lawyer. As in France, the CSG is on top of the "Impôt sur le revenu". He did confirm it's also not due for US citizens.

The sweet spot would then be convert from traditional to Roth up until your standard deduction, then whatever dividends you have plus some capital gains to stay at 0%. That should keep you at 0% until about 110k. Maybe more with kids.

This is plenty to live in France.

There is also an IRS guidance from 2019 about the CSG, and it's recognized by a tax following pressure from France.

As someone who plans to retire in France. This may push me to take upon citizenship, even with FATCA and the other complications. France has a good estate tax treaty, and probably the best tax treaty. Hard to neglect that.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by langelgjm »

OP, you may not know this or have asked, and it's obviously something worth consulting a tax professional about, but if a US citizen living in France becomes a French (dual) citizen, would any of this change?
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

langelgjm wrote: Mon Apr 04, 2022 3:53 am OP, you may not know this or have asked, and it's obviously something worth consulting a tax professional about, but if a US citizen living in France becomes a French (dual) citizen, would any of this change?
Also another question I asked. As I am a French citizen. The lawyer said the exemption would still apply as the tax treaty doesn't mention anything about French citizenship. The trigger for the exemption being the American one.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

Another datapoint:

Here is a document about the French taxation for trusts (it's bad). They do mention the full French tax credit for US Citizens:
Applicability to U.S. Citizens
A U.S. citizen who becomes a resident of France is
exempt from the IFI, except on French assets, for the
first five years of residence.
Special rules also apply for U.S.-source passive
income (deductible tax credit in France equal to the
French income tax). These rules are applicable to trust
distributions
https://www.daypitney.com/~/media/files ... .pdf?la=en
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

gmbndg wrote: Sun Apr 03, 2022 8:31 pm Thank you assyadh for the additional reference. I researched a lot online and did not find much to confirm “for US citizens, tax credit equivalent to the theoretical French tax due”, but the more I read it the more it makes sense.

Please could you confirm that in this case, US dividends/capital gains are also exempt from the French Generalised Social Contributions (CSG) and Contributions for the Repayment of Social Debt (CRDS) (17.2%)?

As an example, this means that a married couple of US citizens filing jointly in the US and who resided in France could pay 0% tax rate on the first $83,350 capital gain from US source (if not other income).

https://www.impots.gouv.fr/sites/defaul ... 7_3405.pdf

"b: crédit d’impôt égal au montant de l’impôt
français (8tk)
L’impôt français s’entend de l’impôt sur le revenu
augmenté des prélèvements sociaux"

https://www.banquetransatlantique.com/f ... -unis.html

"L'impôt français s'entend de l'impôt sur le revenu et de la CSG/CRDS."

This means that in this context, French taxes are inclusive of CSG/CRDS
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by goos_news »

Big Mig wrote: Thu Mar 24, 2022 8:01 pm snip
They can be found here (https://www.irs.gov/businesses/internat ... -documents). Unfortunately the IRS does not post an “as amended” version; maybe France does?
snip
For those wishing for an integrated form of the tax treaty and subsequent protocols, you can reference this consolidated English language version on the French diplomatie site: https://franceintheus.org/IMG/pdf/Conso ... treaty.pdf
The key provisions are in Article 24, paragraph a and b (and sub paragraphs thereafter). This version is easier to follow than bouncing between the various treaty versions and subsequent protocols.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by ShadowCat »

This is absolutely amazing, wow.

To clarify, the trigger is merely having US citizenship correct? So if I (a US citizen) and my wife (a US/Irish citizen with no domicile in Ireland) moved to France, the fact that my wife's immigration status would be through her Irish citizenship should have no bearing on her tax treatment under this treaty correct?

This could be a huge boon for dual US/EU citizens with lots of assets in US retirement and brokerage accounts. Get the benefit of US tax treatment under the US-France tax treaty but simultaneously have freedom of movement in France through your EU citizenship.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

ShadowCat wrote: Fri Apr 08, 2022 7:31 am This is absolutely amazing, wow.

To clarify, the trigger is merely having US citizenship correct? So if I (a US citizen) and my wife (a US/Irish citizen with no domicile in Ireland) moved to France, the fact that my wife's immigration status would be through her Irish citizenship should have no bearing on her tax treatment under this treaty correct?

This could be a huge boon for dual US/EU citizens with lots of assets in US retirement and brokerage accounts. Get the benefit of US tax treatment under the US-France tax treaty but simultaneously have freedom of movement in France through your EU citizenship.
How you get residency in France has no bearing on the tax treatment. What triggers this tax credit offset is the US citizenship.

It is indeed amazing as there is a huge discrepancy between taxation of capital in France and the US.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by drk »

The /r/ExpatFIRE maintainer has an explainer on this topic: The Case for France as a Low-Tax FIRE destination. This is a really compelling option.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by langelgjm »

drk wrote: Fri Apr 08, 2022 11:13 am The /r/ExpatFIRE maintainer has an explainer on this topic: The Case for France as a Low-Tax FIRE destination. This is a really compelling option.
That explanation is more in line with what I have read elsewhere. But note that the author assumes "Since we'll be creating a Roth ladder and living off our taxable accounts for the first five years, we'll pay French capital gains taxes on distributions from the taxable accounts", which is the understanding challenged in this thread.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by drk »

langelgjm wrote: Fri Apr 08, 2022 11:20 am That explanation is more in line with what I have read elsewhere. But note that the author assumes "Since we'll be creating a Roth ladder and living off our taxable accounts for the first five years, we'll pay French capital gains taxes on distributions from the taxable accounts", which is the understanding challenged in this thread.
I missed the claim that 0% LTCG taxes would count as "taxed" by France. That seems suspect.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

langelgjm wrote: Fri Apr 08, 2022 11:20 am
drk wrote: Fri Apr 08, 2022 11:13 am The /r/ExpatFIRE maintainer has an explainer on this topic: The Case for France as a Low-Tax FIRE destination. This is a really compelling option.
That explanation is more in line with what I have read elsewhere. But note that the author assumes "Since we'll be creating a Roth ladder and living off our taxable accounts for the first five years, we'll pay French capital gains taxes on distributions from the taxable accounts", which is the understanding challenged in this thread.
This article predates this thread and the maintainer of r/expatfire wasn't aware of the non taxation of US sourced capital gains for US citizens in France.

https://www.reddit.com/r/ExpatFIRE/comm ... /-/i3r1x9o

Hence the blog article shared above is wrong for the taxable gains portion. It's right for the Roth but only applies for US Persons. Roth taxation for non resident aliens is different but we digress.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by ShadowCat »

assyadh wrote: Fri Apr 08, 2022 12:11 pm
langelgjm wrote: Fri Apr 08, 2022 11:20 am
drk wrote: Fri Apr 08, 2022 11:13 am The /r/ExpatFIRE maintainer has an explainer on this topic: The Case for France as a Low-Tax FIRE destination. This is a really compelling option.
That explanation is more in line with what I have read elsewhere. But note that the author assumes "Since we'll be creating a Roth ladder and living off our taxable accounts for the first five years, we'll pay French capital gains taxes on distributions from the taxable accounts", which is the understanding challenged in this thread.
This article predates this thread and the maintainer of r/expatfire wasn't aware of the non taxation of US sourced capital gains for US citizens in France.

https://www.reddit.com/r/ExpatFIRE/comm ... /-/i3r1x9o

Hence the blog article shared above is wrong for the taxable gains portion. It's right for the Roth but only applies for US Persons. Roth taxation for non resident aliens is different but we digress.
So this is the strange situation where it is extremely beneficial to gain US citizenship if you wish to live in France. As in, you can drop your top marginal capital gains tax bracket down to no more than 23.8% compared to the 30% bracket for France. And even the 23.8% is unlikely to be someones actual rate since that would require an astronomical amount of gains and dividends; a more realistic comparison would be an effective rate of 15% or less compared to 30% for a non-US citizen French resident.

The difficulty of course is purchasing US situs financial products once one became a resident of France due to PRIIPS regulations. But ignoring that, FATCA, FBAR, and all the other hassles of being a US citizen in France, it seems the raw savings from avoiding French capital gains tax makes this a no brainer. I almost want to say "if you want to live in France long term and have taxable investments, it is near always objectively better to acquire US citizenship." Would you say that's a fair characterization?

Good find and thanks for sharing again.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

It's always hard to advocate for getting US citizenship just for the sake of taxes.. If anything changes, you may end up in a limbo.
What if you actually end up leaving somewhere else but you're above the exit tax threshold and are now a covered D expatriate. You wish you didn't have the US passport..

On the other hand, if it's crystal clear you want to live/retire in France, yes it's a no brainer.

Regarding your analysis of current capital gains tax rates in the US, yes they are wayyy lower than in France. In France you may have to pay the CSM for Healthcare though, but it's 6.5% iirc.

What I'm now planning is to keep putting money in US retirement accounts but still favor a brokerage account since both taxations are great in France. I don't think there is that much of a "missing out on free money"
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by goos_news »

assyadh wrote: Fri Apr 08, 2022 2:45 pm It's always hard to advocate for getting US citizenship just for the sake of taxes.. If anything changes, you may end up in a limbo.
What if you actually end up leaving somewhere else but you're above the exit tax threshold and are now a covered D expatriate. You wish you didn't have the US passport..

On the other hand, if it's crystal clear you want to live/retire in France, yes it's a no brainer.

Regarding your analysis of current capital gains tax rates in the US, yes they are wayyy lower than in France. In France you may have to pay the CSM for Healthcare though, but it's 6.5% iirc.

What I'm now planning is to keep putting money in US retirement accounts but still favor a brokerage account since both taxations are great in France. I don't think there is that much of a "missing out on free money"
Yeah, I'm not convinced it would be a primary driving reason, either. But it does show that you don't need to renounce to craft a low tax strategy, or buy into a visa program. It also shows you why there is at least one US citizen who has chosen to live in France, near the border with neighboring countries, to optimize their retirement income while still having easy access to both cultures (even factoring cost of living differences). You can quickly do a 100K Euro scenario on passive/investment sources and see how much you come out ahead.

You may want to reconsider your allocation between tax-advantaged and regular broker accounts, if you choose France. The CSM won't apply to pensions or equivalents, including SS, 401K, IRAs, Roths. Just the other passive income, with a 20KE per person deduction (unless eligible for a waiver). Then again, this health care program could change in the future (although the treaty has been stable). And you can execute Roth conversions as well.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

More data confirming:

https://www.expatforum.com/threads/u-s- ... 962/page-2
https://www.aaro.org/vote/140-editing/7 ... s-for-2018

The capital gains and dividends are to be reported on box 8TK of the 2047 form.
https://www.impots.gouv.fr/sites/defaul ... 7_3403.pdf
TAXABLE INCOME GIVING RIGHT TO A TAX CREDIT EQUAL TO FRENCH TAX
If the applicable tax treaty provides for the elimination of double taxation of your taxable income in France by a tax credit equal
to the French tax corresponding to this income, indicate the amount of income, after charging expenses (salaries and pensions without deduction
10% or actual costs), without deducting the tax paid abroad. Report the total of these incomes line 8TK of the declaration no2042C.
https://www.impots.gouv.fr/internationa ... ved-abroad
To avoid double taxation, when this income has been taxed under the terms of a treaty in the country or territory from which it originates, the tax paid outside France is not deductible from income but provides entitlement to a tax credit that may be deducted from French tax.

Two scenarios are possible:

The amount of the tax credit reflects the foreign tax. The amount of income before deduction of the tax paid abroad must be declared on return no. 2047 and reported in the relevant section of return no. 2042. In addition, the tax credit must be mentioned on line 8TA of return no. 2042.

The tax credit is equal to the amount of French tax corresponding to the foreign-source income. The amount of income before deduction of the tax paid abroad must be declared on return no. 2047 and reported in the relevant sections of the income tax return depending on the type of income. The total amount of income must also be mentioned on line 8TK of return no. 2042.
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by ShadowCat »

I want to circle back to this thread to clarify if anyone figured out how the French exit tax on unrealized capital gains would work for a US citizen resident and domiciled in France who later left France to return to the US.

I found this webpage from the French Government: https://www.impots.gouv.fr/internationa ... y-exit-tax

It sounds like since the US and France have a tax treaty that the exit tax would be suspended for two or five years (depending on if the value of shares exceeds €2,570,000 or not). So worst case scenario you just don't sell the shares for five years after leaving France and then you're free of any French exit tax.

However, it's not even clear to me that *any* US situs share or ETF held by a US citizen domiciled in France would be subject to this exit tax since the US-France tax treaty specifically should supersede French domestic legislation and the tax treaty says that these shares are exempt from French tax. I think that webpage from the French government is generic for tax treaties and is not specific to the situation we're talking about.

Does anyone have an authoritative answer to this?
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

ShadowCat wrote: Sat Aug 13, 2022 5:38 pm I want to circle back to this thread to clarify if anyone figured out how the French exit tax on unrealized capital gains would work for a US citizen resident and domiciled in France who later left France to return to the US.

I found this webpage from the French Government: https://www.impots.gouv.fr/internationa ... y-exit-tax

It sounds like since the US and France have a tax treaty that the exit tax would be suspended for two or five years (depending on if the value of shares exceeds €2,570,000 or not). So worst case scenario you just don't sell the shares for five years after leaving France and then you're free of any French exit tax.

However, it's not even clear to me that *any* US situs share or ETF held by a US citizen domiciled in France would be subject to this exit tax since the US-France tax treaty specifically should supersede French domestic legislation and the tax treaty says that these shares are exempt from French tax. I think that webpage from the French government is generic for tax treaties and is not specific to the situation we're talking about.

Does anyone have an authoritative answer to this?
This is the big ? I think. The exit tax rules were softened a while ago, but you may still be subject, given capital gains are deemed to still count towards the MAGI equivalent (if you have any other income for example). But at the same time if you don't sell in the US you do not trigger the treaty protection. MUDDY waters. This is when you need to reach out to Jade Fiducial in Miami imo
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by ShadowCat »

assyadh wrote: Tue Aug 16, 2022 11:16 am This is the big ? I think. The exit tax rules were softened a while ago, but you may still be subject, given capital gains are deemed to still count towards the MAGI equivalent (if you have any other income for example). But at the same time if you don't sell in the US you do not trigger the treaty protection. MUDDY waters. This is when you need to reach out to Jade Fiducial in Miami imo
Fair enough. I guess we need for someone to contact a firm that has experience in this area, or even better to actually undergo the process themselves and report back.

On a related but different topic: as you yourself mentioned in a previous post, French estate taxes apply to French domiciled individuals and France has an estate tax treaty with the US, meaning that France can use US courts to enforce its estate tax on US situs assets. France has annoying forced heirship laws requiring a certain portion of one's estate be given to one's children.

France, however, is adherent to the Brussels IV protocol meaning that one can, using an appropriately designed will, overrule French forced heirship rules and pass one's assets according to the rules of one's country of nationality instead of French rules. For US citizens, even dual US/EU citizens, they could opt for US rules. And since the US allows one to pass on assets to anyone, one can choose to instead transfer all assets to one's spouse. Since France does not impose any estate taxes on assets left to a spouse, this is a clever way for a US citizen domiciled in France to entirely avoid French estate taxes (by passing on all assets to their spouse).

Of course, if both spouses die then one would still fall afoul of French estate taxes. But in the event of the death of only one spouse, the surviving spouse would be protected. That surviving spouse should then move out of France and back to the US, and then be fine from a French estate tax perspective.

(In any case a US citizen would still be subject to US estate taxes, but since that exemption is so high I don't think it'll matter for most people; additionally the US also gives an unlimited exemption for spouses similar to France)
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by assyadh »

ShadowCat wrote: Sat Aug 27, 2022 5:03 pm
assyadh wrote: Tue Aug 16, 2022 11:16 am This is the big ? I think. The exit tax rules were softened a while ago, but you may still be subject, given capital gains are deemed to still count towards the MAGI equivalent (if you have any other income for example). But at the same time if you don't sell in the US you do not trigger the treaty protection. MUDDY waters. This is when you need to reach out to Jade Fiducial in Miami imo
Fair enough. I guess we need for someone to contact a firm that has experience in this area, or even better to actually undergo the process themselves and report back.

On a related but different topic: as you yourself mentioned in a previous post, French estate taxes apply to French domiciled individuals and France has an estate tax treaty with the US, meaning that France can use US courts to enforce its estate tax on US situs assets. France has annoying forced heirship laws requiring a certain portion of one's estate be given to one's children.

France, however, is adherent to the Brussels IV protocol meaning that one can, using an appropriately designed will, overrule French forced heirship rules and pass one's assets according to the rules of one's country of nationality instead of French rules. For US citizens, even dual US/EU citizens, they could opt for US rules. And since the US allows one to pass on assets to anyone, one can choose to instead transfer all assets to one's spouse. Since France does not impose any estate taxes on assets left to a spouse, this is a clever way for a US citizen domiciled in France to entirely avoid French estate taxes (by passing on all assets to their spouse).

Of course, if both spouses die then one would still fall afoul of French estate taxes. But in the event of the death of only one spouse, the surviving spouse would be protected. That surviving spouse should then move out of France and back to the US, and then be fine from a French estate tax perspective.

(In any case a US citizen would still be subject to US estate taxes, but since that exemption is so high I don't think it'll matter for most people; additionally the US also gives an unlimited exemption for spouses similar to France)
Another more straightforward way is to just change your marital contract with a notaire. There is a way to leave it all to the surviving spouse albeit the heirs will end up with lower inheritance allowance (one event instead of two).
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by 3333 »

goos_news wrote: Thu Apr 07, 2022 7:04 pm
Big Mig wrote: Thu Mar 24, 2022 8:01 pm snip
They can be found here (https://www.irs.gov/businesses/internat ... -documents). Unfortunately the IRS does not post an “as amended” version; maybe France does?
snip
For those wishing for an integrated form of the tax treaty and subsequent protocols, you can reference this consolidated English language version on the French diplomatie site: https://franceintheus.org/IMG/pdf/Conso ... treaty.pdf
The key provisions are in Article 24, paragraph a and b (and sub paragraphs thereafter). This version is easier to follow than bouncing between the various treaty versions and subsequent protocols.
Upon reviewing the consolidated version in the link above, the English version appears to have dropped out several key paragraphs related to relief of double taxation for capital gains, so I would caution people against using that version (perhaps it was lost in translation?). I compared it to the French version found on the French government impots website related to tax treaties, which confirms that for a US citizen who is a resident in France, capital gains do in fact receive a French tax credit up to the amount of the French tax corresponding to this income. The sections missing from the consolidated English version in the link above (compared to the French version) are under Article 24, subsection b); subsections ii), iii), iv), and v). In section subsection b) ii), the wording (absent in the English version) is: 'les gains en capital preveant de l'alienation de biens générant les revenus visés au i.....' capital gains from the alienation of property generating the income referred to in i'

https://www.impots.gouv.fr/sites/defaul ... d_1835.pdf
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Re: Are capital gains tax exempt in France for a US Citizen?

Post by 3333 »

You may want to reconsider your allocation between tax-advantaged and regular broker accounts, if you choose France. The CSM won't apply to pensions or equivalents, including SS, 401K, IRAs, Roths. Just the other passive income, with a 20KE per person deduction (unless eligible for a waiver). Then again, this health care program could change in the future (although the treaty has been stable). And you can execute Roth conversions as well.
Hi, I am seeking information about whether the above (i.e., US pensions and equivalents not being subject to CSM) has been the experience of US citizens living in France.

As per the link I am inserting below, French social security code indicates that individuals are liable to pay CSM tax only if: 'They did not receive any retirement pension, annuity or any amount of unemployment benefit during the year in question.'

The same link also indicates that although the wording of the law (above) makes no dictinction as to the country of origin, the French social security agency URSSAF published guidance making a distinction between French pensions and foreign pensions; stating that whilst pensions from the EEA exempt the person, those from outside of the EEA are not automatically exempt. Only those non-Europeans whose health cover is met by their home country would they be exempt: 'Pour les pensions de retraite servies par un Etat hors Union européenne ou la Suisse, la perception de cette pension permettra d’exonérer la personne uniquement si la prise en charge de ses frais de santé, ainsi que ceux des membres de sa famille qui résident avec elles, est supportée définitivement par le régime étranger qui sert la pension de retraite.'

They go on to report that the distinction described above has no basis in law and that: 'In addition, all the circumstantial evidence we have seen suggests that in practice, no distinction is being made between foreign and French pensions.' https://www.french-property.com/guides/ ... uma/charge

Also, the wording of the law indicates that if a person receives any amount of pension, they are not subject to CSM. So if this is true, and if it applies to foreign pension equivalents, a person could live off of taxable mutual funds (and not pay capital gains in France) and withdraw even a small amount from a 401k (which would exempt that person from CSM).


I would appreciate learning more about how CSM tax is actually being applied to foreign pensions /pension equivalents ( e.g., 401K/403b accounts) in France. Thanks.
Last edited by 3333 on Mon Mar 27, 2023 5:02 am, edited 1 time in total.
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