(WEBINAR) U.S./France Taxes for International Entrepreneurs & Expats – 16th MARCH 2021
This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
Thank you for joining us this evening. We appreciate it. My name is Derren Joseph. I'm here with my colleague Herve and Hannah. And we're going to be talk about the US/France tax. So how we'll approach it is pretty simple because I know you guys have lots of questions. You emailed us a lot, a lot of questions. So, I'll talk for just like really quickly 15 minutes on US tax principles. Herve going to talk for 15, 20 minutes as well. And then we jumped straight into the Q and A. We will go through the questions that were pre-submitted first and then time allowing for the rest of the hour. Then we'll take questions from you guys.
If you have questions in the chat box, if you're looking at us from zoom, the chat box below, you can type your questions there. If you're on Facebook or LinkedIn, you can take your questions under the live stream. And without further ado, I will share my screen. All right, great. So, as I mentioned, my name is Derren and I run a semi-autonomous team doing in US international tax within a larger practice called Moores Roland. Moores Rowland. We have 30 offices in 15 countries. I’m actually based in Singapore; I've been based in Singapore for coming on eight years.
This is who I am. And because I am US quantified; I am required to say that nothing we share here today should be construed as advice. Please treat it as an education piece. What we hope to do is equip you with the general principles that you would need to engage with your own chosen tax professional. But for those who thinking, I'm going to come here with pen and paper, and I'm going to figure out how to do everything on my own. I'm going to be an expert at the end of one hour, impossible, impossible. And as per the terms of my license, nothing I say here, say here today should be construed as encouraging you to pay less than your fair share of tax in any jurisdiction in which you are exposed. And please bear in mind that we are recording this and it'll be available on our website afterwards. So, if you do not want your image to be captured, please switch off your camera.
Disclaimer. So, for those who don't think that the long arms of the IRS reach outside of the US, I always use these two guys as a case study. One of them used to be my not friend, but one of my connections on Facebook, he no longer is because after he was detained by the US government and did some time in jail, he never came back onto Facebook, but we can talk about it if it's of interest.
But the point is that the IRS is not afraid to reach out outside of the continental US, if there are tax issues. And I was just jumping straight into it, as we all know, the United States practices, citizenship-based taxation. Now most OACD countries, including France taxes on your worldwide income, but what makes the US, I think unique is that even though you are no longer in the US, then you're still required to file and pay taxes. No matter how long you stay out of the US you're still required to file taxes. And we drill down into that later on as well.
So, no matter how long, and there's so many misunderstandings around this, like if I earn less than a foreign earned income, exclusion of 107,000, it is this year, then I don't need to file and pay taxes. That's all wrong. We will take a deeper dive into later on. People ask me the question all the time. While you know, I'm on the side of the US I'm living outside of the US, how is the IRS going to know what I'm doing? Come on. How are they going to figure it out? This is the answer, FATCA. So, FATCA which is contrary to some popular misconceptions online. It is a framework for information exchange. So, what it does, it has empowered the US government to sign a treaty with France and France has now obligated all its domestic financial institutions to go through their account holders and identify anyone that they deem or their suspect of being US and report them accordingly.
Now, this is important and important point because I'm sure many of you just like me. You have more than one passport. So, you went up into financial institution, brokerage house, whatever they ask you, what is your nationality? You show them the other passport, whatever that is by law, they're required to still look for certain indicators that you may be US exposed. And if you deny it, then by law supposed to highlight you as a recalcitrant account holder, that's a special designation. They don't have to tell you that, just flag you and they send your details to the IRS. Anyway, because from their point of view is better to report someone who is not than to miss someone because then they get, if they miss anyone who may have been us exposed, no one wants a repeat of what happened in Switzerland.
So, their default is if in doubt, report them. So please bear that in mind. That's how they find out in terms of a US person. I think everybody gets that if you're a us citizen or a green card holder, but what some people miss is under section 7701, there's a category for substantial presence, which really was a big deal. In 2020, there are many people who are friends, citizens. They have, they're not US citizens. They're not green card holders, but because of the travel disruptions, they were unable to return. They weren't able to leave the US and they spend way more time than they intended to stay
Yeah. And not just French nationals. People from all over the world were unable to leave the US and they may have inadvertently triggered substantial presence. So, something to keep in mind, accidental Americans. Again, this is something that we, you know, I think it was a thing ever since they, after the aftermath of the second world war, where you've had us service men and, and Europe for the first time. So, if you have one us parent and one lesser French parent, and you have a child from that union and this certain circumstance, that that child is a us citizen that is, regardless of whether you registered the birth with the US embassy, you didn't get a socially, didn't get a passport. It doesn't matter. That is a us person who will be subject to taxes later on. And then we can talk about the section 6013G election. If it's of interest under certain circumstances, you may want to elect that your friend's spouse, your non-US spouse be treated as American on your tax returns. It's a strategic move. And some people use it to their advantage, not just from tax planning, it could work for you. But if you intend at some point to get a green card, it's something to consider. So, we can talk about that later on, if there is an interest. So, responsibilities of US persons, now that we have defined who they are.
Well, I think it goes without saying, found pay taxes, but what people don't get is that when it comes to international tax, the IRS is apparently less concerned with getting money in the door and more concerned with data. Data is what they really want to get. So, they want to know, you know, where's your money, where's your money being stored? Who are you receiving money from, who you gifting money to? And the reason why I say that is their real focus is clever given the penalties. So, the civil and criminal penalties that are levied for not disclosing information, we are the proportion would, you know, the low interest rates that you get, you have to deal with.
If you didn't pay your taxes on time, it is way out of proportion. So that it's clear what the IRS is focuses on information. And we'll get into a bit further on probably in the next slide, this slide. So, this is an acronym that I've created for those who are US exposed and live outside of the US. Just a really cool way. I think of remembering what your responsibilities are. So do your BEST. You must do your best. B- bank accounts. And when I say bank accounts, I don't just mean regular bank accounts, but all financial accounts, some of which may be an insurance policy, some of which may be infringed pensions. It may be brokerage accounts. You may have shares in French companies, any sort of financial asset. The IRS wants to know about that. That is way important. Remember I said information, right? E- estimated taxes will obviously, if you were in the US and you got paid on a W2, then there's withholding, right? So, the IRS is getting them money along the way. If you outside of the US that's not going to happen, right? So, the IRS does not like to wait until the following year to then get like April 15th of 2021 to get taxes due from earnings in 2020. They want to get it along the way. So, you need to work with your tax team or with your software or whatever, to figure out what your estimated tax liability would be to the U S in advance and make them an at least four quarterly installments failure to do that would lead to fill out a form 2210, which is where you calculate your underpayment penalties and the penalties, depending on how much you earn so, it really depends.
State tax issues. Do your best status was state 50 different States, 50 different rules understand that most States are domiciles States. What does that mean? It means that even though you learn, you've been living in France for a considerable period of time, you must still be taxable back in your home state, depending on what the situation is. So, it's worth having a conversation with someone to make sure that, you know, you're not incurring or accruing any liabilities there. And, and some people say, well, I live in France. I don't care. We've had many cases where people, at some point in time, you go back home and then you don't know that they've stayed franchise tax boards.
They talk to the federal government in there, so they know exactly what's going on with you. And when you do come back, they have a nice tall bill waiting for you. And we've had to deal with that for many clients. So please make sure that you're properly severed connections with States. And it's been going to become an even bigger issue for those who were connected to California or any of the other States that may be planning a wealth tax. So again, just keep that in mind, T stands for transfer taxes. Again, this an area that's often not well understood because all the other taxes you can kind of look at the inland revenue tax code.
You can look at the code and see, you know, what is what, but when it comes to transfer taxes, that is relying on the concept of domicile. And it, we rely more on case law and looking at the way the courts interpret it as opposed to tax code. So there, the point is that you're living outside of the US, you get in relationships or whatever, and you receive gifts and you give gifts understand to non- US spouses, girlfriends, boyfriends, whatever the case may be. There may be tax implications to that in terms of reporting. Remember we said, the IRS has all about data. Data's new gold, right?
They want data. They want to know what you're doing with the funds coming and going and failure to report that may lead to a penalty that could be as much as 80% of the unreported gift. And then of course that, sorry, I don't need to be morbid, but you know, it's a thing we need to think about, which is your state taxes. And I say that because a part of our practice is dealing with non us widows, non us widowers, who have to untangle a web of unfinished business with their former, you know, the recently departed US spouses. So, sometimes planning can go a long way to taking care of your family and the unfortunate, sad event that you do part on. So, it's morbid, but we have to mention it anyway.
I'm going to touch on stimulus payments because of course it's a thing right now. So, I think most people would be familiar with this slide and who qualifies for a stimulus payment. There've been two rounds. Well, there were two rounds last year, one around summertime and the other one late December. And there's a third round as of last weekend, I think last weekend was signed. So, the most recent round is there. The third round is the most generous, but for those who did not get anything and the first two rounds, it's, you know, there's still hope there's something called a recovery rebate credit.
What does that mean? It's a refundable credit. So, if it is when you're doing your taxes for 2020, and you have a tax liability, it will be reduced by the amount of the best rebate credit. And if you are owed a refund, it will be increased by the amount of, of the credit. Most of, many of our clients are higher income earners. So, they like the email. Then WhatsApp me anytime there's something to do with a stimulus payment, like where's my money when they're the most common reasons for not getting any of the payments is, you're a victim of your own success. You earn too much. So please pay attention to the phase outs. When you earn above a certain income level, the amount you get gradually decreases until it completely disappears.
The third one is we mentioned it is quite generous, and it does include partners with potentially and things like that. For those who are married to, to non- US nationals, please bear in mind that the IRS is in a complete mess right now. And I mean, it was always a difficult agency to deal with, but with COVID-19 and the shutdowns last year, and when they had to reopen it was with social distancing, whatever in the offices. The bottom line is that if have people filing returns, there is a backlog, things got lost.
Things are not being processed. We've had no end of complaints from our clients. So, if you've had issues with 2019, you're not alone, a lot of people have. So, the key takeaway I want you guys to, you know, to walk away with is <inaudible>. You want to try to e-file as much as possible that's when you know, it's going to get processed. Chances are very low, that it gets lost or miss or misplaced, or whatever happens in the IRS. So please eat out, make sure your, your chosen tax team County file your returns. And if they are not Americans themselves by law, they cannot, the IRS won't give them a license. So, you're looking for someone who is a US person as well. Then the IRS will give them permission to e-file returns for clients and ask, if you do have a spouse that is not American check to see whether their software can still file a joint returns or married filing separately returns, where a spouse does not have an item. So that, that just helps you To, you know, to their credit. Let's give credit where credit is due. The IRS's website is pretty comprehensive. So please, if you have any questions about, about the similar payments, you know, well thought out and it explains everything. If you want to change your details, you can also do that to some extent online.
I mentioned early in one of the earliest slides of there've been so much misunderstanding about filing thresholds. This it changes regularly. So, it's always worth paying attention. If you have a look at this, you see the, the threshold for filing a tax return. If you file married, filing separately is $5. So, if you made more than $5 in 2020, I'll return this to you. So, there's so much misunderstanding that we see, and we hear in some of the online Forums, of course, within the last 40 to 72 hours, they've been so much, you know, media storm around president Biden's tax plan, but this is all news. While the campaign was going on last year, his campaign team did release a comprehensive tax plan. It's probably one of the more comprehensive, you know, our tax professionals, not just me, but many of us have ever seen. So, nothing has come as a surprise because we knew this since last year. But remember, this is just his proposal. Once it gets to Congress, there'll be negotiations in both the Senate and the house. So, this is just like the starting position.
I think in terms of, as I mentioned, it's pretty comprehensive. It'll take hours to go through it, but just to call out some of the key things for those who reside outside of the US like we do the cap on social security is proposed to be removed, which means if you make more than 400K, you're going to be facing some extra taxes. So, these are designed to target whom they believe to be the higher income earners. For those who have corporate structures, entrepreneurs, business owners, who may be listening, maybe watching this, the corporate tax rate is proposed to jump from 21 to 28. So that will just not only affect those with a US structure, but for those who may be impacted by GILTY, which is a global intangible, low tax income tax on your foreign structures, GILTY is calculated as a percentage of the US corporate income tax. So, you may, if it happens, you may see some movement on that side as well. The capital gains rate is proposed to be increased for those making more than a million. And as the step-up in basis, for those who engage in more advanced tax planning, it's going to be revised as well. So, these are just some of the things that sort of look at, or I also want to call out the last one where the estate and gift tax exemption under president Trump, it was pushed up to 11 million president Biden proposes to bring it all the way back down to three, really, really expensive than that. So, with that in mind, I will hit the pause button and I turn it over to my colleague who will talk about things from the France point of view over to you.
So, yeah, I'm Herve Beloeuvre. I am a chartered accountant in the Paris area. They have a practice in which we're accustomed to dealing with English speaking clients who serve clients from Australia, the US, New Zealand and various countries around the world. These countries are clients can be residents in France or non-residents, and we serve them for their interest in France. So, first I wanted to tell you about starting a business in France. There are a world bank issues, a study every year, it is called doing business. I am contributed to this topic. It studies in which countries, it is easier to do some business, and it compares one and 90 countries for the items starting in business funds is considered as a, as a, as a rank of 37, which is not so good to my sense. And the quotation is 93. So, we have done a lot of efforts to, to make it easier, to set up a, an activity in France in usually to get an activity to you, to declare an activity you get in France, what we call a number, which is the directorial fall, fall economic activities in France. And in fact, when you declare your company or activity you all to entrepreneur, it takes less than a week to, to get this number, which will be useful for a lot of things. And in fact, those all activities opened to US citizens. We don't make any difference. And as a US citizen, you can have a company, you can manage it, you can do whatever you want. If you want to set up a company, you will have a, the activity you use, the main questions you will have to face is do I wish to be independent? Do I want to set up a company? Will I be taxed under corporate tax or the personal income tax will by my activity be professional? Would it be non-professional and what would you be? My social status? Who lie be self-employed or employed? I would be on my pays lip. Who's an employer? It will change a lot of, quite a lot of things. First, I wanted to tell you about is a cooperate income tax. So, in this corporate tax, the taxpayer in the is a company. It is based on the knelt with net result. So, in fact, in all companies, you need accounting books and you can, then there are some tax credits. The main tax credits are given. When you have innovated, an innovative activity, if you do research or whatever is then you can have really huge tax credits to go forward. And, and, and yes, any innovating activity in France, there are some other tax credits, but which would be difficult to use is when you set up productivity in some poor, poor cities of the country, the new you could get some advantages, the basic rate for corporate tax, it is a 15% up to a natural result of 38,120 euros a year.
So, for 12 months, and then if you are over this net result, the taxation will be on 26 dot five. That is the rate for 20 2021. There is a, there has been a move, a visitor who's the last years to decrease this rate. The trend is announced to the objective is to go to 25%. This objective is announced for 2022. I'm not sure that I can assure you that in 2022, this Z, this rate won't move. Never forget if you set up a company which is tax standard, corporate income tax is that after taxation, the money stays into the company. So, to give it to give the cash to shareholders, you must distribute dividends. And those dividends will be taxed at a level of 30% for the shareholders. The it's quite a difference with when you set up a company and the personal income tax, because then there's a personal income tax. You, you may be taxed a bit more wildly different rates, but you get the money directly without a distributing dividend. Okay?
The is the main tax in France that concerns most people is a personal income tax. The habit in fancy too says that our taxes always change. People just forget that these taxes there's a rule for this tax were established in 1917. It is in fact, quite an old tax and the basic rules for personal income tax are in fact, very stable. So, it is paid by physical persons. Only. It is imposed on people who have their tax residents in France.
There is no relation with nationality. There is no mention of national, the old people. I think the tax rate in France must declare their must produce a tax return for corporate, for a personal income tax non-resident can be submitted to this tax in check, especially if they have some real estate revenues in France. And so, yes, I've said there was no consideration of nationality. The stakes could be considered a very extensive, but in fact, only 40% of the population will pay for it. It is declared by everyone, but only 40% of people paid. It is a progressive tax. The rate to go from zero to 45%, there are some steps that 11%, 30%, 41%. But in fact, it is a yes, a progressive tax as a first, the first part of your revenues is tax to zeros. And the upper is an, an upper part will be taxed at 11 and then 30, et cetera. For high revenues, there is a temporary contribution of a three or 4% over this personal income tax. It is temporary. So, we don't know when it will, when it will end. It is temporary range, the French way. It can last very, very long till they can still, the tax office doesn't need any money. More. It is about 10 years old. I think it was, it was established after the crisis of 2008. What is very different, important for personal return cash? It is, it is determined by household. It is not determined by person. So, what is a household? It is two, let's say adults, max, who have a legal link to be in the same household, you must be married, or you must be a United with a PAX, which is a, a civil contract between adults.
Next is a marriage. Of course, it's two adults can be of the same gender in the household. You will add a dependent child. So, they need to be dependent of need to be children of one parent. In fact, only the, the children and they're 18 automatically members of this household. If your children are between 18 and 25 years old, they must say, I want to be in the household with my parents. And when they are between 21 and 25 years old, they must be students. In fact, the children don't need to have the same address as their parents. So, for example, you can be a resident in France and have a youth child being students in the USA and will be member of your household. What is important about it also is that all the revenues inside the household will be fertilized. So, I would say the revenues of the parents and the revenues of the children ISER. So, and there was no deduction inside. If I take the example of someone having a child, being a student in the U S issue, send him some money, some pension, it is not deductible because it is inside the household. And so, I have made a chart on the bottom, right? That choose a different for the same revenue on the, on the orange line. It is a tax paid by a single person and for the same revenue on the blue line, it is the tax paid by. Let's say a family with two parents enter children. So, it has really, really an impact on a and the tax is paid. And it is important. For example, to make simulations, if you have children 18 to choose whether they are to be included or not in the household and the decision to include them or not can be changed every year.
The basic rule, you know, in all taxes in fast to define what is a taxable revenue is to say it is a difference between the gross revenues, less expenses to get it or keep it. So, the problem here is to say, if depending on the different sources, possible sources of revenues, where does information come from? If you have wages of pension, the sources of information will be given by the employer as a social, as a pay in pension. If you have investment coming, if your capital gains, in most cases, the bank will give the information. If you have income from real property, you will need a simplified accounting. If you have business profits, in fact, commercial profits, if you have non-commercial profits, that is for example, for, for doctors, for architects or whatever's that's, non-commercial profit. If you have agriculture profits in all these cases, you need accounting books. So, accounting books, you may need a chartered accountant. It's a, it's a cost. So, if you have only a low activity, you have a simple, some ways to declare Aziz revenues in a simpler way than maintaining a can take books. That's what we call the micro systems. So, you can be a micro entrepreneur. You can have some Michael from CA revenues for Merlin income, et cetera, is there exists. The basic rule for these micro systems is you will leak. Claire only is a, the gross revenue is your, your net income and your turnover. And with that will be a percentage of expenses will be automatically applied. The percentage depends on the activity can rise from 30% to 71%. It is simpler, but I must warn you that administrative simplification doesn't mean that it is a tax optimization, because for example, it doesn't mean that you will pay less taxes. In fact, with those micro systems, you will never have, for example, a deficit, as soon as you cashing one, a Euro, then you will pay some taxes. Even those arrays, a discount rate, maybe with the canting books, depending on your situation, maybe you can declare a deficit or a very limited revenue. So, simplification is not always a tax optimization. Okay. On what about the tax credits about? So, this personal income tax is quite a lot tax credits. Most of them are related to real estate, but one which is very accessible to everyone is in fact, employing someone at home, the most common tax credit. In fact, you can get a tax credit of 50% of the, of the cost, and you can employ someone a, a term by directly employing is a person, or you can, I would say by hours by services to a licensed company, and this will be declared as a service at home. There is quite a very variety of the services that are available for this tax credit. The most common are escaping or guarding the children. But the assistance who file a tax return from a charter, they can't be considered as a service at home. And so, you can get as a tax rate, it was this kind of service, Just a global view of the taxation of a US revenue.
So firstly, there is a tax treaty that will say for each type of revenue, if the revenues are to be taxed in the U S or in France, depending whereas arise, the most common rule is that for real estate, it is always taxed in the country. Whereas a real estate is real estate is very practical for a tax office because it doesn't move. So, all, all tax office in the world wants to tax wants to take the real estate of that country for some cases. Your revenues, even in the US are to be declared in France and is that will be a, a calculated tax credit to avoid taxation. The tax rate will represent as a French or the American taxation. And so, in fact, you can't do without a computer quite complicated. I wanted to give you drills to worry about, I would say a hidden tax, which is contribution. So, generally it is infected tax to find them the social security system. It is quite heat. And you don't see if you get salaries. You, don't say it because it is in the concessional contributions. If you get some dividends, communication is made around the rate with a rate of 30%. And, but in this rate of 30%, more than the AF 17 5%, 20% 17, that 20% are in fact, a CSG to finance a social security system. And if you get, for example, some real estate driven using false, you will have your tax notice for personal income tax plus a tax notice for, for CAG.
And when do I have spoken for example of rates for the, for the personal income tax going from zero to 45%, this was before CJ. So even though you pay zero for personal and income tax, you may pay 17 dot 5% of taxes just for your real estate revenues, if you have some, okay, so it is not to be ignored. We have a wealth tax in France, so it is good <inaudible> which meant. So, tax on really state wealth. So formerly it was a tax on, on the complete wealth of a person from 2017. It has turned into a tax only on real estate. It is based on the market value of your real estate. And you must include the values of companies where real estate is more than 50% of the assets. Okay. For the, for the value of the real estate to sets the tax begins, it is applicable only if your real estate is worth more than one, that 3 million years, what the extent of the real estate considered for the residents in fonts. It is a real estate worldwide. Okay. And for non-residents, it is a real estate in France. You’re in fact, your sets will be this managed by the loans you can have on these assets. It is the, as I said before, the world is that a, you make the difference between the gross revenue and the gross capital and the expenses you need to get it. So, the loans will diminish your, your, your assets. The rates are from a zero dot 5% to 1.5 person, but that's every year, 1.5% is a, is when your wealth, your real estate wealth is a greater than 10 million euros. So, what we say usually is we say the usual rate is a 1%. And so, if you have a wealth tax paid in the USA, it can come, it can be considered as a tax credit. The rule is always to avoid double taxation between France and the U S What, what nice came out.
I wanted to tell you about is the impact rate scheme for if you have a company and you want to recruit a manager coming from abroad, there is a special scheme for that. So the condition is that there is a person you, you target is as not add his residency in France for the last, for the last five years, but in your employment, contractually identified, I would say, as a salary corresponding to the competence of the people and the usual rate paid for this type of competence and work, and you can identify the, an impact creation, price premium, something that you will pay to the work so that he comes to France and is this premium will not be taxed for ages and as a personal income tax rules. And for five years, I saying, yes, we got so far years considering there was a wealth well tax and real estate. So, we use for non-residents will apply. So only the real estate in France will be considered for this, for this tax. I finished on this point, about French taxes. I wanted only to point the most important items. And now I think give back the microphone for the Q and A
Thank you very, very much for that overview. So now we get to the fun part, right? So, Q and A, again, apologies, but I'm going to start, we had like over 200 RSVPs and we had at least a hundred questions. So, we couldn't do everyone. I apologize in advance. The first one we got is and ask your own suite is good estate planning tool in France. However, it is unclear how, and <inaudible> in euros is you are treated by the IRS. You'll use, please. We had a long conversation, Herve and I about this one, the thing is that <inaudible> is not a standard product, so you can't make any sweeping statements around it. Although we have seen people do it in online forums, but you know, these people aren't qualified. They can say what they like. So, for us as qualified professionals, we need to see the contract. We need to understand what the product, how its product is constructed. And that is to see whether I know where people have a problem. This is where some of these investment or pension or insurance products are treated as PFIC from a US perspective. So, for those who are not familiar, just quickly touch on what a PFIC is, a passive foreign investment company. And it is a regime that was created in the 1980s because US domestic financial institutions were complaining that Americans who invested abroad got a tax advantage, and some of the products that they were investing in an unfair advantage. So, to try not just to equalize the playing field, but basically to penalize you, and I'm going to be honest, right? It is to penalize us exposed persons who invest in certain financial products outside of the U S so yes, the, the Pacific regime does apply in some circumstances to the us, your own city. So again, you need to speak with your consulting team and they will interpret it, and they'll be able to defend the interpretation. Each one is, could be slightly nuanced and different. Next question for you, the U S stimulus payments. We talk, we spoke about three rounds of payments. How are they viewed from a French tax perspective?
This stimulus payment? In fact, I didn't know this came. So, I, I don't know so much. Yeah.
When we discussed it early on, and we went into the mechanics of it, you mentioned that all income will be reportable and therefore it will be taxable potentially.
Yes. But in fact, it is a stimulus payment is what you got in the last year. You took et cetera. And I'm not.
So, there were two stimulus payments in 2020, and they're so far, there's been one in 2021
And are accessible to people not being resident in the US absolutely.
Wherever they reside. Yeah.
We will cut the bike reference. Don't declare am I, I don't see how the tax office in France <inaudible> I don’t know how the tax office in France, but in fact is a new what controlling cost. So, the one comfort is a one come for you to you for 5,000 euros. I don't think, I don't think so. Or the penalty would be 10%, just like 500 years I'm at work and serve your clients.
Understood. So, it depends on your risk, your risk tolerance. Okay. Gotcha. So next question. As us, ex-pats retired living in living in France. So therefore, French tax residents, my spouse and I are subject to French gift tax for any cash gifts provided to non-family members. We have no kids, blah, blah, blah. So basically, gifts to non-French residents as they await that in a tax efficient way
In a French system one considers a nationality. If you give a, some money to someone who is not of your family, it will be taxed under 60%. There are some small allowances, but in fact, they are linked to with the habit. If you a lot, you can give a lot. If you earn very small, you must send in fact, put your pattern money in danger. So, do what you wish be reasonable. I would say only under that, in this question, there was a second part of the question was, was very interesting because it's a bar.
Remember as a, as a person was saying, I want to give to some us charities I live in, but I, what I want to give to us charities, what is important to know is that you can give freely to a charity, but this charity must be declared in fast. So, my, I have had the case with some, an Australian case. They, the Australian as the Australian week in France at given to the salvation army in Australia, salvation army is in Australia, is not a charity. And there's a French low, so gifts to the salvation army international. And that is then it can be a French charity or an international charity. And so there will be no tax, but if you give to the US salvation armies, and it is a 60% tax,
Right, which again, it was similar to the U S in the S for it to be deductible in the US it needs to be US qualified charity, even though it's recognized in another jurisdiction, it must be in the US. So, I guess it's pretty consistent.
Next one, blah, blah, blah. Do you all, both American and French nationality. And I'm a 50% owner of a French company in SAS since 2018. Okay. So, they're providing a service and they're doing it online. So, there's no tangible, there's no physical product. So, what they're asking about, and we discussed this earlier, the VAT, if it is that they, the, the com they using an entity that's outside of France, do they have to use, do they have to add VAT to that?
In fact, under the us French tax convention, you, if you have, you must define where you have a stable establishment. And then in this country where you have established establishment, you must make accounting books for this activity in this country. So, the, the problem is to determine whether you have a fixed, fixed activity, affects the establishment in France or not. If you have a fixed establishment in France and you sell a service to the USA, then you will have to put server. You have to protect each and the VAT 20%, because in fact, the service is produced in France.
Okay. And that covers quite a number of people ask that whether there's any tax advantage to using a company outside of, outside of France to do business, but to reinforce your point in this answer like 20 questions that were asked, if it is sorry…
Remember, just to remember two things, first VAT taxes, operations, not structures. So, if you are an independent or company, doesn't matter at all, there's a problem with what are the permissions you make. Secondly, on all our towns or in France, it is rich inequality. So, the taxes don't depend so much on whether you do your activity as an individual or as a company or whatsoever you do it as is the objective is that people are quite taxed the same way for as the activities average, they have the same revenues. They will be Texas. Same way. Bye-bye
Perfect. Okay. Next, next question. I reside in France, pay personal income tax in France, up-to-date in the US. Okay. So, they have a company, and I guess this is for a US perspective. They have a company in France, they company's bank account will be included and they have bars, but the company also has to file. Has you need to report the existence of the company on a form 54 71, which forms part of your tax return. So even though it's a company, so it's separate and law from you, once you have a share in that company above a certain threshold, it it's, the lowest threshold rule is 10%. You need to report the activities like the financials of that company as part of your personal us tax returns. And if you have signing authority over the bank accounts for that company, it must also be reported on your personal app bars as well. Moving on quickly, someone is asking the same question again, they have a company outside of France. It offers no advantage once everything is being done in France. Next question, stimulus checks that was answered as well. Next question, as a dual citizen, what is the best way to work as an independent consultant?
Do I set up an LLC in the US and bill clients via that entity or create a friend associate team like a Sue or, or to entrepreneur? We, that we discussed that from the French point of view, he's he or she has arts. What are the tax implications from a US perspective as well? So, both sides we've discussed the French side as mentioned for the US side. You need to report the existence. If it's an incorporated entity, it will be on the 5471. If it is an auto entrepreneurial, just be on your schedule C they're asking about CFC and guilty.
So, for those who are not familiar with it, CFC or control foreign co-op rules. So, if you have an entity outside of the US and it's more than 50% owned and or controlled by U S exposed persons, it's considered a controlled foreign Corp. And there's certain CFC rules that kick in. And one of them is the guilty rule, which is the global intangible, low tax income tax. Now, the, the guilty as of last year, there's a high tax-exempt exemption. So GILTY and CFC rules basically work to prevent you from deferring paying taxes. So even though you don't take all the profits from the company out in terms of a bonus, or in terms of, you know, some sort of yeah.
Distribution to yourself, you are from a us point of view, you're deemed to have done. So. So in other words, you're paying tax on Phantom earnings. So that creates some sort of cashflow issues because you need to pay tax on that company's earnings, even though you didn't constructively receive them. Now, the guilty rule in particular, as the name suggests it's for low tax. So, if it is you have the French corporate structure, which Herve mentioned is taxed at 15%, one five, then yes, guilty may kick in. But if you have one of the other structures, which is tax at above that the threshold is around 19%, then no, you do not need to worry about guilty.
So just to cut to the chase, if it is that you don't understand the nuances of it, it's worth having a conversation with someone who understands both to make sure that you pick something that works for you, right? Next question, who or what is subject to guilty tax and filing form 5471 mentioned that already guilty would be if you have a corporate structure where the, the tax rate is considered to be low by us standards, the guilty tax will kick in to make sure that you don't enjoy a tax benefit by having a company outside of the US from 5471, we already mentioned any interest. This could be value of voice. So, this includes those who use nominees’ value of voice. That's more than a that's 10% or more. Next question. This one is for you as an auto entrepreneur, hire and pay sub-contractors for work. Can I have services in the US? Can I have clients in the US outside of France?
As I said, as an entrepreneur, you will use a simplified way of taxation. You will declare near your net income. So, if you can do what you wish, or you can take subcontractors, et cetera, but you will not be able to, to diminish your, your tax due to your expenses. So, it's really not a nonsense. Sorry to say that, that if you are the true entrepreneur, it is, it is for beginning a small activity, just to K state, et cetera. At the beginning, you thought propranolol was only a temporary status, so have made at all to make expenses
Understood. So, someone else is asking about declaring their bank accounts. Basically, if you have bank accounts outside of the U S that exceed a certain threshold, then it triggers the foreign bank account report, otherwise known as FBARS or FinCEN, if it is that you have been negligent and you did not file them. As in the case, in this question, you should disclose them under what is called the benign compliance procedure, which is an amnesty and all but name. It allows you to go back and retroactively, make certain disclosures and file certain tax returns. And in return for voluntarily coming forward, the IRS would agree, typically not to pursue civil and criminal penalties. So, this is for those whose noncompliance is deemed to be non willful. So, they did not intentionally set about to evade taxes. So, it's something to consider and you can, and you can speak to your advisors about that. There's a follow-up question from this person. What are the chances that the situation will get better in the future? I know there are people who peddle what I believed. I'm being honest, false hope, and you know, it just is not on the legislative agenda for Congress to consider us persons outside of the US.
So those people who peddle the idea that at some point in time, FATCA be repealed or we'll go to territorial tasks or whatever the case may be. It's not going to happen. You know, you can just look at the behavior of Congress. And then when you look internationally, the opposite is happening where you seeing certain countries around the world, including especially European countries who seem to be leaning in the direction of the us, where they're seeking to tax citizens. They own citizens who no longer reside domestically. And it is definitely the case with Canada, the UK, Australia, New Zealand already, and certain European countries. So, the US is not going to backpedal. In fact, other countries are going to catch up. And when it comes, when you deal with the history of tax, you'd see that the US is actually the leader when it comes to certain policies like transfer pricing and taxes and digital services and stuff like that.
So, moving on, blah, blah, blah. Okay. Okay. So, this, we've got quite a few questions on the French social security system. So, people who paint French social security in order to avoid legally avoid having to paint a us social security as well, they need to get some sort of document from your staff. Can you comment on that Herve?
It shows that you will have international rules. You will have only two to pay for one social security system, because you will be were only knew hospital at a time. So, send me an email and I will answer you by email to challenge you on which website to go to an answer.
Okay. That's great. And are these, so those who are watching on the live stream, just leave a comment and we'll come back to you for those on, on zoom. If you look in the box at the bottom, you will see surveys, email address that you can reach out to him directly. Someone else asks about other French investment products, and you know, again about the fee per call. So basically, from a US perspective to answer all of those, any US tax professional would need to see the contracts and to understand how it's structured, to see whether from a US perspective it's self-directed and therefore tax transparent. And it could be whether it is not transparent and whether the rapper would hold. So, we, a us person and a us tax professional would need to see it. So, it's on a case-by-case basis. The last question, because we are already at the top of the hour for Herve, can I be the beneficiary of a trust in the US, even though I'm a tax resident of France and what are the implications of that Herve?
So, the French rule needs to know what a trust is. So, you can be the beneficiary. You can be an administrator doesn't matter at all. There will be no diversity tax on it, but first likes, you know, owns real estate in France. So first, if you are a member, whatever your position, if you are a member of a trust in track, the administrator of the tru
st, if there is a French tax resident must be class, a trust is a French of sororities. And then every year is an administrator. Must declare what else? Our revenues on really step unreleased, state owned by the trust in for some real estate in France. So, it's really not much. I have not sent a lot of examples, but just remember you as a French tax resident use administer mass declared as a must, declare the trust to the French authorities and the addicts you get. Sorry, if you get some revenues from the trust, then they ought to be put in your tax return in the places where they need to be. If it is capital gains on, on real estate, it is to be placed at the time, or if he's interested to try to be in their interest, for that. Okay, great. I apologize.
We have not even touched on half the questions the response has been overwhelming, which means clearly there's a demand for proper advice. So over, and I will, we will speak to each other and we will run this again. And for those who did not get their questions answered or discuss, we will endeavor to do so at the next occasion, Merci beau cop.
Here are four ways we can help you.
- Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax
- Stream premium education or videos at www.HTJ.tax
- Contact us for Tax optimization consult via zoom
- High Net Worth. We can quote for doing your US International taxes returns.
Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at email@example.com to engage us to advice on international tax or business matters.