Latest / IMI Podcasts / The US-France Tax Treaty’s Hidden Advantage for American Retirees

Transcript

The US-France Tax Treaty’s Hidden Advantage for American Retirees · IMI Podcasts

• 0:00
  SPEAKER_00: Tax treaties are, by design, defensive instruments.
• 0:03
  SPEAKER_00: They stop the same dollar from being taxed twice.
• 0:07
  SPEAKER_00: The nineteen ninety-four convention between the United States and France, amended by protocols in 2004 and 2009, goes a step further in two of its provisions.
• 0:17
  SPEAKER_00: Articles eighteen and twenty four can, working together, eliminate France's tax claim on U.S.
• 0:23
  SPEAKER_00: retirement and investment income altogether.
• 0:25
  SPEAKER_00: Few, if any other, U.S.
• 0:27
  SPEAKER_00: bilateral treaties produce an equivalent result.
• 0:30
  SPEAKER_00: An American retiree drawing a 401k and holding a U.S.
• 0:34
  SPEAKER_00: brokerage account can owe France zero income tax on both streams.
• 0:38
  SPEAKER_00: That claim needs qualifying, but it holds up.
• 0:42
  SPEAKER_00: Article 18 assigns exclusive taxing rights over retirement income to the country where the pension plan is established.
• 0:49
  SPEAKER_00: A 401k distribution paid to someone living in Provence is taxable only in the United States.
• 0:55
  SPEAKER_00: Full stop.
• 0:56
  SPEAKER_00: France formally recognizes qualified plans under Section 401 of the Internal Revenue Code, individual retirement accounts under Section 408, and plans under Sections 403A and 403B.
• 1:12
  SPEAKER_00: Social Security falls under the same rule.
• 1:15
  SPEAKER_00: If the payments originate in the U.S., the U.S.
• 1:18
  SPEAKER_00: retains sole authority to tax them.
• 1:20
  SPEAKER_00: Many treaties split pension taxation between source and residence, or cap withholding at a negotiated rate.
• 1:27
  SPEAKER_00: Article 18 does neither.
• 1:29
  SPEAKER_00: One country taxes, the other abstains.
• 1:33
  SPEAKER_00: The pension rule, while generous, is not by itself extraordinary.
• 1:37
  SPEAKER_00: Several U.S.
• 1:38
  SPEAKER_00: treaties assign pension taxation to the source country.
• 1:41
  SPEAKER_00: What distinguishes the French Convention is Article 24, paragraph 1, B, which extends a similar logic subject to specific conditions, to dividends, interest, royalties, and capital gains.
• 1:55
  SPEAKER_00: Under this provision, France grants U.S.
• 1:58
  SPEAKER_00: citizens resident in France a tax credit equal to the full amount of French tax that would otherwise be owed on U.S.
• 2:05
  SPEAKER_00: source investment income.
• 2:07
  SPEAKER_00: The credit extinguishes the French liability entirely, a complete exemption dressed in the language of a credit mechanism.
• 2:14
  SPEAKER_00: Charlie Maggie, founder and CEO of the Open World, frames the practical result concisely.
• 2:21
  SPEAKER_00: Qualifying pension distributions and some investment income, quote, may remain primarily taxable in the United States, while France grants relief through its treaty credit mechanism.
• 2:31
  SPEAKER_00: In many cases, this means the income is taxed in only one jurisdiction rather than two, end quote.
• 2:38
  SPEAKER_00: The provision exists because two systems collided.
• 2:42
  SPEAKER_00: The United States taxes its citizens on worldwide income regardless of where they live, a policy shared among major economies with no one.
• 2:52
  SPEAKER_00: France, upon acquiring a new tax resident, also claims worldwide income.
• 2:57
  SPEAKER_00: Without a bespoke resolution, an American moving to Paris would face two countries taxing the same dividends, with neither willing to yield through standard methods.
• 3:05
  SPEAKER_00: Article 24 resolves this by reclassifying certain income for foreign tax credit purposes on the U.S.
• 3:11
  SPEAKER_00: side, while France simultaneously credits away its own tax.
• 3:14
  SPEAKER_00: The taxpayer pays once.
• 3:17
  SPEAKER_00: An American retiree relocates to France.
• 3:20
  SPEAKER_00: She receives$60,000 from her$401,$15,000 in dividends from a U.S.
• 3:27
  SPEAKER_00: brokerage, and$10,000 in capital gains from selling U.S.
• 3:31
  SPEAKER_00: listed equities.
• 3:33
  SPEAKER_00: Under Article 18, her$401K is taxable in the U.S.
• 3:36
  SPEAKER_00: alone.
• 3:37
  SPEAKER_00: Under Article 24, her dividends and capital gains, both U.S.
• 3:41
  SPEAKER_00: sourced and falling within the treaty's qualifying categories, are effectively exempt from French tax.
• 3:47
  SPEAKER_00: She reports everything on her French return, but the credits zero out the bill.
• 3:51
  SPEAKER_00: Her French income tax on these three streams is zero.
• 3:55
  SPEAKER_00: She still files and pays U.S.
• 3:57
  SPEAKER_00: federal taxes on all of it.
• 3:59
  SPEAKER_00: That obligation follows every American citizen everywhere, treaty or no treaty.
• 4:05
  SPEAKER_00: With the right structuring and cross-border tax planning, Maggie notes, quote, it is therefore possible for some American residents in France to simply avoid dual taxation on parts of their retirement income.
• 4:17
  SPEAKER_00: Legally, end quote, exemption from French tax does not mean invisibility from the French fisc.
• 4:24
  SPEAKER_00: All worldwide income, including treaty exempt streams, must appear on the French annual return.
• 4:29
  SPEAKER_00: France uses this total to calculate the Taus effectif, the effective rate applied to whatever income France does get to tax.
• 4:37
  SPEAKER_00: A retiree with no French source income may see no practical consequence from this.
• 4:43
  SPEAKER_00: Someone who also collects rental income from a flat in Montpellier or draws a French pension from earlier employment will find those US dollars pushing her toe effectif upward on whatever France does get to tax.
• 4:57
  SPEAKER_00: The exemption survives, but it bleeds into the rest of the return.
• 5:01
  SPEAKER_00: The architecture presupposes American taxation.
• 5:04
  SPEAKER_00: Federal rates on ordinary income can reach 37%.
• 5:08
  SPEAKER_00: Capital gains face a top rate of 20%, plus the 3.8% net investment income tax.
• 5:16
  SPEAKER_00: Removing the French layer does nothing to reduce the American one.
• 5:19
  SPEAKER_00: French social contributions are less of a wildcard than they once were.
• 5:23
  SPEAKER_00: The Prelèvement Sociaux, CSG, and CRDS, France's social charges on income, were long treated by the IRS as social levies ineligible for the U.S.
• 5:35
  SPEAKER_00: foreign tax credit.
• 5:36
  SPEAKER_00: That changed in 2019, when diplomatic communications between Washington and Paris confirmed that the CSG and CRDS are not covered by the bilateral totalization agreement, clearing the way for the IRS to recognize them as credible income taxes under IRC Section 901.
• 5:54
  SPEAKER_00: For treaty purposes, French income tax now includes CSG and CRDS, which means the Article 24, 1, B credit mechanism should cover them as well.
• 6:06
  SPEAKER_00: The combined rate on investment income can reach 17.2% for non-affiliated persons.
• 6:12
  SPEAKER_00: In practice, the interaction between the credit, the social charges, and individual affiliation status still warrants professional guidance.
• 6:20
  SPEAKER_00: But the legal framework is considerably clearer than it was before 2019.
• 6:24
  SPEAKER_00: Americans abroad must also contend with the reporting machinery.
• 6:28
  SPEAKER_00: FBAR filings or FinCEN Form 114 for foreign accounts exceeding$10,000 in aggregate, FATCA disclosure or Form 8938 for specified foreign financial assets above$200,000 for single filers residing abroad.
• 6:43
  SPEAKER_00: Willful FBR violations carry penalties of the greater of$100,000, adjusted for inflation, or 50% of the account balance, and criminal prosecution is not theoretical.
• 6:56
  SPEAKER_00: French banks, meanwhile, report under both the common reporting standard and the intergovernmental FATCA agreement, so the information flows whether or not the taxpayer files.
• 7:07
  SPEAKER_00: U.S.
• 7:07
  SPEAKER_00: states are not bound by federal treaties.
• 7:10
  SPEAKER_00: California and New York are particularly aggressive in asserting continued domicile over former residents.
• 7:16
  SPEAKER_00: A retiree who fails to sever her state tax ties cleanly may find the French exemption offset by a Sacramento or Albany bill.
• 7:24
  SPEAKER_00: Dividends from a London listed stock, interest on a German bond, gains on a Hong Kong equity.
• 7:30
  SPEAKER_00: None benefit from Article 24.
• 7:33
  SPEAKER_00: The resourcing provision applies only to U.S.
• 7:36
  SPEAKER_00: source income.
• 7:37
  SPEAKER_00: The American who benefits most from this treaty is, paradoxically, the one most tethered to the U.S.
• 7:43
  SPEAKER_00: financial system.
• 7:45
  SPEAKER_00: Articles 18 and 24 are not a loophole.
• 7:48
  SPEAKER_00: They are the logical outcome of a negotiation between two countries with irreconcilable approaches to tax jurisdiction.
• 7:55
  SPEAKER_00: France taxes by residence, the United States taxes by citizenship.
• 8:00
  SPEAKER_00: The treaty lets each country tax what it claims while preventing the taxpayer from shouldering both.
• 8:06
  SPEAKER_00: That this resolution happens to be unusually favorable for Americans is a byproduct of American exceptionalism in tax policy.
• 8:15
  SPEAKER_00: No other major economy taxes non-resident citizens on worldwide income.
• 8:21
  SPEAKER_00: Article 24's generous credit provisions exist precisely because the U.S.
• 8:26
  SPEAKER_00: insisted on retaining that right.
• 8:28
  SPEAKER_00: France had to accommodate a problem no other treaty partner presented at the same scale.
• 8:33
  SPEAKER_00: From a practical standpoint, the U.S.
• 8:36
  SPEAKER_00: France Tax Treaty can create one of the more attractive frameworks in Europe for American retirees, considering relocating to France, Maggie argues.
• 8:45
  SPEAKER_00: The alternatives bear comparing.
• 8:48
  SPEAKER_00: Italy's flat tax regime for new residents now costs 300,000 euros per year.
• 8:54
  SPEAKER_00: Greece and Malta each offer their own preferential regimes.
• 8:58
  SPEAKER_00: All are time-limited legislative instruments that governments can amend or abolish.
• 9:03
  SPEAKER_00: The French treaty advantage, by contrast, rests on a bilateral agreement that has been in force for three decades and requires both parties' consent to change.
• 9:12
  SPEAKER_00: Americans can reach French tax residency through the VLSTS visitor visa, stable income at or above the net smear, approximately 1,443 euros per month in 2026, no investment required.
• 9:27
  SPEAKER_00: Or the Passport Talent Investor Route,€300,000 active investment, four-year renewable card.
• 9:34
  SPEAKER_00: Both lead to permanent residency and citizenship eligibility after five years.
• 9:39
  SPEAKER_00: Beyond the fiscal arithmetic, Maggie points to access to a high-quality public healthcare system and one of the strongest public education systems in Europe, both of which can matter as much as marginal tax rates for retirees planning long-term residence or relocating with family.
• 9:56
  SPEAKER_00: The treaty's shield is narrow in scope, limited in audience, and conditional on continued U.S.
• 10:02
  SPEAKER_00: citizenship and U.S.
• 10:03
  SPEAKER_00: source income.
• 10:05
  SPEAKER_00: Within those parameters, it is one of the more quietly potent features of any bilateral tax agreement in the world.
• 10:14
  SPEAKER_00: This episode first appeared as an article by Amada Bas on IMIDAily.com.
• 10:19
  SPEAKER_00: Subscribe for free to the IMI newsletter for breaking news and updates from the investment migration industry.
• 10:26
  SPEAKER_00: And upgrade your membership to IMI Pro to get access to our exclusive professional community, citizenship catalog, investment migration company Rolodex, private briefings, and more members only content.