France is an attractive country to be tax resident

If one looks at the corporate tax rates in France of companies, one is taxed at 15 percent on the first EUR 42,500 of corporate profits and 25 percent thereafter.

An interesting aspect arises if one is subject to social security outside of France and not liable in France. This means one is taxed on a flat tax at 12.8 percent subject to the tax treaty where the dividend is derived. Some countries may have a withholding tax of 15 percent in the distributing country. This would mean no tax at all would be due in France although one can’t reclaim the difference back of 2.2 percent on the withholding tax taken.

For persons not subject to French social security and paying elsewhere, this makes France an attractive place to be tax resident, competing with places like Cyprus and Ireland.

One should not forget, however, that France has a wealth tax on property, and for new residents their foreign property is exempt from this tax for the first five years. Debt is deductible over the period of the loan to a maximum of 20 years. This debt is depreciated for wealth tax purposes over 20 years or less if the loan is of a shorter period.

Americans are taxed on their worldwide income, and for French-source income, the treaty is not favourable for social security. However, for American-source income, Americans are taxed only in the US under the treaty – meaning the tax has a credit in France equal to the tax due in the US. This makes France, apart from the wealth tax, an attractive place to live for Americans.

Lastly, France has inheritance taxes so careful tax planning is important before becoming resident. The US tax treaty once again needs examining as to the exemptions involved. There are forced heirship rules in France and their application could certainly create issues unless addressed in advance. The use of life insurance can mitigate some of these problems, as well as settling assets to third parties before becoming a resident.

Conclusion

With good advice and careful structuring in advance of being a French tax resident, one can enjoy the life in France. If you have the chance, why not discuss the opportunities?

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Photo: Uwe Rieder