(LIVESTREAM) U.S. / France Taxes for International Entrepreneurs & Expats – 24th June 2021
All right. Yes, we are alive. Okay, great. So, okay. I need to turn this off, right? So, I'm going to talk about US taxes for those who are resident in France or anybody who's outside of the US basically. So, it's universally applicable. As I mentioned, my name is Derren Joseph. I run a US tax practice within Moores Rowland Asia Pacific. So, we have over 30 offices across a number of countries. I actually am based in Singapore. I'm not in Singapore right now, but I've been based in Singapore for nearly eight years right now. And I'm also, our firm is also a member of Fusion International, which is how I'm connected to Hervie’s firm. So, whereas our practice is very Asia focused fusion is very European focus. So, there's a great network within Europe when we need that skillset to the table to help clients with their international tax issues, because I'm US qualified. I'm legally required to, of course, tell you that nothing we say here should be construed as advice. We may be tax consultants, but we're not your tax consultants. What we're doing is having a general conversation about general principles. And if you want answers to, and we, we, we will address some of the questions that you raise, but if you want actionable intelligence. So as in a solution that you go away and you can act upon, you need to engage someone who will take a deeper dive into your services. So, this is purely an educational or for some people, it's an entertainment thing. It is not us giving tax advice. I just need to be pretty clear with that. And more importantly as well, we're not encouraging you to pay less than your fair share of taxes in any jurisdiction in which you were exposed.
So, the two cases that because people ask all the time, you know, c'mon outside of the US you know, is the IRS really going to bother with me? These are the two guys that I use as a case study of people who are outside of the US and the Internal Revenue Service went through a lot of trouble to track them down, but we can come back to that. If that's a question that people want to explore, but otherwise, this is how we're going to do it. I'm going to talk about citizenship-based taxation. In general, I'm going to clarify some misconceptions around factor and what your basic responsibilities are. And I'm going to finish off with President Biden's tax plan.
So, citizenship-based taxation, as everyone should be aware, the US is one of the few countries in the world. If not the only country, depending on who you're speaking to those taxes, you, even though you're no longer tax resident, even though you're not physically resident in the US. So, the only way to stop being a tax resident of the US is actually just to give up your passport or your green card. And that's what you have. But having said that there are the countries, including those in Europe, where the tax can follow you around. If it is, even though you're not physically resident in France or other countries, if it is your center of life is still deemed to be in France, or you're not properly tax resident somewhere else.
There are certain conditions where there's a fallback rule that kick in, and you'll still tax resident in France. So, in that way, the US is not exactly a loan and more and more we see in clients that nationals have different, especially developed countries where the tax systems are becoming increasingly aggressive and following them wherever they may be working or investing and moving, right? So, people, well, you know, I'm outside of the US, how is the IRS? How is the US government going to find out? How do they find out? This is the answer we give it's through the foreign account tax compliance act, otherwise known as FATCA.
There are some misconceptions where people think FATCA is a tax. It is not a tax. It is a framework for information exchange. So, when people ask, I'm outside of the US, how does the government know what I'm doing? FATCA is the answer, what FATCA could do? It creates an empowered the government to US government to enter into a series of bilateral agreements with nations all over the world, including France. Of course, also the countries that you wouldn't expect like China and Russia, they all signed. And what it means is that France has to some extent set aside its local bank secrecy laws. And it no legally requires financial institutions in France, not just bonds, but financial institutions in general insurance companies, brokers, whatever.
They're all legally required to look at their account holders or their investors and trying to figure out if they're US exposed. Now, I mean, just like me, I'm sure many of you have more than one passport. So even if you go to the financial institution and you show them your other passport, not the US one, if that representative is looking at you and they suspect that you are still US exposed, they are legally required to report you, even though you may deny being US exposed. So, it is FATCA could be quite powerful and invasive, but the bottom line is that your account activity at your banks in France or elsewhere in the world, they are being reported to the IRS.
Keep that in mind a US person. No, we always talk about US, US citizens, right? So, you have a passport, but the US tax rules also applied to permanent residents, lawful permanent residence, otherwise known as green card holders. And as we live in an era or a time where there's a, an unprecedented health crisis, there are also people subject to what we call substantial presence. We have had so many clients, not just in France, but elsewhere in Europe, that we're stuck in the US for longer than they planned to be stuck last year. And, or they were stuck in some other jurisdiction where they did not plan because flights would sort of severely disrupted and they triggered substantial presence by virtue of being in a country for longer than they planned to be.
And that has tax consequences, which we're dealing with. There are also accidental Americans, once one of your parents is a US citizen and is deemed to be domiciled. There's a strong likelihood that you would be a US citizen. And this applies to people, even though they've never been registered with the US embassy, or even though they never got this certificate of birth abroad, they don't have a social, they don't have a passport, they're still a US person. Once one of their parents is deemed to have been domiciled in the US and finally people ask, well, this is weird. What does that mean? NRA spouse, right? So nonresident alien spouse. So, if an American is married to a French national, for example, they can elect under Section 613(G), to elect to that French spouse to be treated as a US person for tax purposes.
And that you may think, well, why would you ever want to do that? There are certain advantages to doing it. So, clients do make that election. And if that's something you want to explore, we can talk about that later as well. So, responsibilities of US persons, obviously you need to file and pay taxes, right? But I think what people sometimes don't understand is that, well, there are different types of income rights. So, it's not just the income that you earn, but it's also investment income. And you also going to trigger taxes by when or tax reporting. Anyway, when you gift, or you receive assets. So, you know, girlfriends, boyfriends, business partners, whatever, whatever it may be, if there's a transfer at, are you giving a receiving, you should check with your tax professional to see whether there are tax consequences to that.
Another thing that people don't often realize is that under the US tax rules, the penalty for not reporting, something can actually be higher than the penalty for not filing or paying taxes, paying taxes that are due. And that's because the US is really focused on information. They want information. So, you are required as a US person to report your financial accounts and to report transfers and whatever. Sometimes failure to report what you have. And this has nothing to do that. Any tax calculation, just simply not reporting an investment can lead to not just civil penalties, but criminal penalties as well. So, they're pretty aggressive. So, the point I want you to take away is that international taxes, from a US perspective, it's not just about paying taxes, but more important to the US government is reporting. They want to know everything which that you direct and I'm going to break that down in this next slide. This slide is what I think to be a really great acronym. And just for keeping it simple for us persons who have US international exposure.
So, for example, if you're living in France and what I tell everyone is do your best, BEST, do your best. B- bank accounts. And when I say bank, I also mean financial institutions as well. All you need to do is ensure that everything is reported. So just by having an account in France, that doesn't mean necessarily meaning it would be paying taxes to the US. The US just wants to know. So, report, when in doubt report, because there's typically no tax consequences, they just want to know. Whereas if you don't tell them it can lead to criminal penalties, right? So, B bank.
E- estimated taxes, when you're in the US and you get paid on a W2, it's normally net of taxes. So, your employer would withhold taxes, send to the IRS and give you the rest. And obviously when you're working international, independent on what you're doing, that's not going to be the case, right? So, you're responsible for working with your chosen tax team to make sure that you estimate what your tax liability would be for 2021 and making the requisite installment payments to the internal revenue service, estimated taxes, very important. If you fail to make them on time, the right amount, you may be subject to underpayment penalties.
S state taxes. You may think, hey, I don't live in the US anymore. I don't care. But most states in the union are domicile states, which mean that under certain circumstances, even though you are no longer live-in state and you live in France, you may still have a state tax obligation. And I'm not just talking about the obvious one would be, if you have state source income, like if you have a rental property back in California, New York or whatever, but under some circumstances, even though you're not there, you can be deemed to still be a resident of that state and what we've seen, and what we've encountered on quite a few occasions is that at some point in time, you return to the US and understand that the IRS does talk to the state franchise tax boards.
They know when you're back in the us and they will write you. And you may find yourself returning to US with a big welcome surprise where your state is asking for years of back taxes, simply because of you didn't understand those state tax liabilities, state tax obligations. So, what we do is we work with clients to make sure that they severed ties with these states, even though they're physically not present, they even sometimes need to take concrete steps to sever ties. And especially with states like California, talking about a wealth tax, this is something that's even more important than before last but not least would be your transfer taxes.
So, as I kind of hinted before they're gift taxes. So, if you give a gift, there may be a reporting obligation. And in the unfortunate event of your demise, there would be potentially a state tax obligation as well. And we don't, you know, it's unfortunate, but sometimes you leave a complicated situation too, for your loved ones. So that's why we say estate tax planning is something that shouldn't be ignored, but stepping back, looking at it, we tell you do your BEST.
In terms of stimulus payments. Yes, they were two rounds of stimulus payments. Last year, if you miss them, you can still get them on your return. So, you need to speak with your tax team, and you can possibly get a recovery rebate credit. If you didn't get a physical check or one of the physical cards last year, it, it, it can happen. It can still be, you know, dealt with many of our clients are higher income earners and they contact me, and they ask, well, hey, where's my free money. You know, the US government has been giving out checks, where was my check. Then we need to explain to them that there are threshold. So, I just have this one screen that reminds you that if you earn above a certain amount, you made this be disqualified from the stimulus check payments.
So, if you didn't get it double check to see whether it's because of your earnings, they're also checks for this year as well. So, please check that out and make sure that you're not missing out, or that you make that the IRS has your latest information. So, they know how to find you? On the IRS website, irs.gov, there's a fantastic portal. And it's with lots of FAQ’s. All the information you need to know about the stimulus payments. And you can update your address. You can give them your bank details, whatever you need to do. Check that website out. It's pretty comprehensive.
There's often some sort of misunderstanding as to what the filing requirements are. People think, hey I make less than a hundred grand US, so less than the foreign earned income exclusion. So, I don't need to file. That is such a misunderstanding. So even though you earn less than the foreign earned income exclusion, which is like 107 grand this year, you may still be required to file a tax return. And just in case you think that the filing threshold is pretty high. No, it is not. If you, if you're married, filing separately, the threshold is actually $5. So, if you earned, for example, more than $5 last year, a tax return is due to the U S government. So please pay attention.
And don't assume that, hey, I live outside of the US. I don't need to file a return. Probably you do check it out. The Biden tax plan will, of course, right now it's still a plan, right? And there's a lot of negotiation, both in the house and in the Senate. So, nothing is guaranteed, but this is a starting position. As far as negotiation goes, actually I have quite a few slides. If someone wants to take a deeper dive into it, but in short, if you're hiring higher earner, then it's probably going to impact you. If you will, a lower income earner, probably not. When I say higher and higher income earner, it's probably the threshold that has been bounced around that right now is 400K.
So, if you earn above 400K, they may be extra social security self-employment taxes that may be applicable. So, you know, that 400K is as the threshold. The top tear right now is 37%. And they're talking about raising that to what it was before President Trump, which was standing 9.6, so 400K's that magic number, which you probably, at which point you probably need to be sitting with your tax advisors and having a conversation about protecting yourself. If you have a structure, you're running your own business, then you need to talk to your advisors about your corporate structure as well.
Under president Trump, the tax cut and jobs act. A lot of people shifted their structures towards USC copes because the corporate tax rate fell from 35 to 21%, which is of course a big reduction, right? President Biden wants to raise that to 20%. So, you know, have a conversation with him. If it is that you have a corporate structure that involves certain low tats, offshore jurisdiction, Cayman, BVI, Hong Kong, Singapore, you need to speak with your tax team as well, because there's a certain tax. It applies to low tax offshore structures called guilty GILTI, Global Intangible, Low Tax Income tax. That is going to go up. So, if it is, you have a corporate structure, talk to your tax advisor. If it is that you have more than 400 K in annual income, speak to your tax advisor as well. That's a quick takeaway from that. There's other stuff that's going on, such as let's see the child tax credit. That's been getting a lot of publicity, but our understanding is that that does not apply to those who live outside of the US if it is that you are outside of the US, you file your 1116, 2555. You may not qualify for it. Please speak to your tax professional because I know that's a big question right now.
So, on that note, I'll hit the pause button and hand it over to Herve and we'll come back together for the Q and A session afterwards. So over to you, sir, you need to unmute yourself. You're still on mute. You need to mute yourself.
Oh, here I am but sorry it is not the screen I wanted. It's all right. What do you see? Do you see some text Taxes for entrepreneurs in US and France or not? Yes, we do. Yes. Great. So sorry.
So, Herve Beloeuvre. I am a chartered accountant in France, and I have a practice in the Paris area. I have a team all people speaking English, and we are accustomed to serving clients in English, Americans, or people from other countries who live in France, or we have some financial interest in France and need to pay taxes. I will speak to you about the different, the main taxes that exist in France, and then to US.
So, first France is not always seen as country with keen entrepreneurs. The world bank does a study every year, which is called doing business. And they choose to France has made a lot of progress to welcome a new company. And in fact, when you want to set up a company in France, you can do it globally in less than one week. And the global notes it was giving for boise study from the world bank was 93.1 for France for starting your business.
The main question you will have to face with what is your legal status? Are you an independent worker? Do you want to build a company? Then you have to choose your tax status. Will your revenues be taxed? And the personal income tax or corporate tax is your activity professional or not professional. And you have to, to answer the questions about your social status, you can choose to be self-employed or a, or a, or an employed worker. And of course, it changes a lot to your social contributions and the pensions you can have when you're retired.
The first tax we'll speak about is cooperating income taxes as a taxpayer is the company. And the taxation was being will be based on the net result, determined by you can take books. So, it is compulsory when you choose this tax to have accounting books, you have a series of tax credits, which can apply the main ones are to, to, to sustain researchers. So, there are some special features for researchers as a kid or a chef or a young, innovative company.
And there's also the most common tax credits and the cost lock to the French state. The main rates for SMEs for, for small and medium enterprises on this net result are 15% was a threshold of a net revenue of 38,120. And the burbs that the rate will be 26.5 And the trade is to go to 25. That says what is announced for 2022, but I don't know, it can change at the end of the year.
So, with the crisis, I don't know what will happen globally is the taxation of the dividends for the shareholders is a 30%. This includes as we sit later, this includes CSG, which is a tax, the designed for financing's a social system. Then there is a may, well, the, the personal income tax. In fact, it looks many people tell us, oh, it is very complicated.
It changes every year. In fact, in France, personal income tax was established in 1917. It was a tax to finance the war. So, and it has remained since so more than one century and the basic rules are still in effect. So, it is not such a bad tax. Well, it has some logic. It is paid by physical persons only, and you will have to pay it if your tax residence is in France.
So, tax residents in France serves the definition, depends on the tax treaties with every country globally. If you spend more than six months in France, you will be considered as a tax resident. You will be also considered as a tax resident. If you family in France, while you can be considered as the tax rates, that if your family is in France, or if you have the main, your main sources of revenues in France is there is no consideration in nation of nationality to determine if you are a tax resident in France, is that the main, low, but tax the tax treaty with the U S makes us sometimes there are, there are some rules relating to the nationality of, of the taxpayer zero, many, many tax credits on this, this tax.
So only 40% of the population in France pay effectively is a person on income tax. So, you have 60% chance. You have a 60% chance not to pay anything. And it is a progressive tax. It's very important. As the rate goes from zero to 45%, 45% with some different levels at 11 and 30%. And if you are very high, really, I revenues of 250,000 euros one person, then you have a temporary rate contribution for high revenues, which is three or 4%.
It is temporary. It was set after the 2008 prices. So, it is temporary, but it has already nearly about 10 years and due to the COVID crisis, the temporary contribution could last quite a long time. What is very important for income tax in trials was personal in tax. It depends. It is determined by household. So now basically it is two adults with children. So, these adults must have a legal lens. They can be married; they can have a back. And of course, you do the current form of families. Children can be on the children of one parent. There are some options to include in this household, the children from 18 to 25 years of age, especially if they are students, in fact, and your children can be in your household. Even those who don't live at the same address, or even those are abroad.
For example, you can, if you are in France and have some children who study in the US they can be in your household. And the principle is that you have a globalization of the revenues inside. So, all the revenues of the person of the household doctors, wives, and what you give to your children doesn't matter at all. And the charter has put in the corner in the corner. So, for the same revenues, a difference one you have now, so who is one person? It is a red line, or when you have an hour so with three persons with three parts that somehow sold with two children. And so, it shows that there is a real, a difference in the taxes paid by the household, depending on its composition of people. What is taxes as a personal income tax? Global is a rate of the article 13 of the tax code is you take the gross revenues, less the expenses to get your revenue, or to keep it. So, depending on the different sources of revenues, if you have wages or pensions, they are the sources of the information for the tax office will be the employer or the social bodies exacerbation.
If you ask some investment in income or capital gains, the information will be given by the bank. So globally on this main source of revenues is a tax office is directly informed about your revenues and we'll prepare, and we'll prepare a pre-filled tax return for you on the sources of revenues, and it needs, they need information from you. So, if you have income from property, you have an accounting to make. And or if you have a, a professional activity was business profits or nonprofit, commercial profits or cultural profits, then the sources of revenues will be accounting books that you have to report on your tax return.
In all these cases, you have some simplifications, which they are different names, but the measure of simplification is always the same. You don't need the accounting books met. You will be at the taxation based on your turnover. Then you have a rate representing your, your expenses. And this rate, for example, if you have real estate will be 30%. If you are a micro-entrepreneur, it can grow to 71% representing your actually your expenses.
I must warn you that it is a simplification, but it doesn't pay any, it is a tax optimization because under these simplified modes, you, or as soon as you have one new for revenue, you have, when you have taxable revenue who has with, with, with the parenting books, you will count your real expenses. And maybe for example, you have a deficit and this deficit, maybe you can deduct it from the other revenues. So sometimes it is more effective to pay a chartered accountant and to lower your taxes.
As a simplified method is simplified but not optimized. And so, you shouldn't make the difference for me. What is the main, one of the main tax related if you live in France is to hire some people at home because tax rate of 55% of the cost? And in fact, it is to avoid that people are paid on the black market are paid directly in cash, and don't pay near social contribution that taxes.
So as a state is really ready for an effort, and it creates some employment. Yes. So, is it's a tax credit is very common, and it can be used for, to get assistance or file your tax return? It is many uses for housekeeping, gardening and et cetera. And the services must be given my registered company by a licensed company. So, about the revenues you could have from a US globally.
So, the tax treaty with the US is designed for voiding the double taxation of the revenue. So, the world should be to revenue is to be taxed in the US or is to be taxed in France zero. There is a case of real estate is very simple. It is the rule worldwide for every country. The real estate is taxed where the real estate is, that is quite logical. So, if you have some real estate in the us, you don't have anything to pay in France. It will be taxed under the US rules. And the reverse form is the same.
If you have some real estate in France, it is to be taxed in France. If you are a tax resident in France is then all your revenues must be declared in France. And you will have some mechanism of text credits to avoid a double taxation. So, depending on the type of revenue, sometimes the tax rate will be equal to is, is the taxation in France. So that means you won't have to pay anything. And, and there are some, some other cases, whereas the tax credit is only equivalent to the taxes paid in the US that's mainly as a case with dividends, capital gains.
All, I would say the, the revenues from the financials fair and yeah, as a rule will be globally to declare all your revenues in France. I would John myself to dare and way we will say that the US tax department wanted to know your revenues. Even those are not taxed. There's a logic is more and more the same in France. So, we'll ask to declare all your bank accounts worldwide, or your life insurance contracts, you are wide, et cetera, not to accept, but just to know where the money is and what people I wanted to make a point of all about the tax was easy, which is contribution sociology, heart disease.
So CESG and in fact, it is a tax that was designed maybe 30 years ago to finance the social security system. As, as we put in increase a, a social contribution, some of the workers and people were thinking that the, the people who have some capital needed to find the social security system. So as the rate on activity re revenues wages or pension is 9.70% and patrimonial revenues, it is related state or financial capitals or dividends.
It is $17.20%, and people often forget it. So that's why I pointed. And part of it can be deducted the following year for 6.8%. It's quite complicated. And yes, people forget it because, because in fact, we don't communicate so much on it. It exists, but people don't, don't say it for example, on salaries, it is global in the social contribution as social contributions. So, people only look at the net wages every month, but they have paid the at CESG and for dividends is there is a rate of 30%, which includes for 4 NGF.
The CESG as a part would be, would be the, the personal in the tax. And if you have some real estate, et cetera, you will have an extra tax notice when you have in July, you will get your personal income tax. So, the notifications and artists, and you, if you have some CESG on some revenues, which didn't bear it, then you have an extra tax notice and to pay this the last, no another point in France, what exist in France is Impot sur la fortune.
So that is some real estate wealth for people who are residents in France, it is based, well, first when we say real estate, we consider real estate and companies where really states are more than 50% of assets, and it is applicable. If you real estate is more, one dot 3 million euros was more so to determine your words for residents who will consider the real estate worldwide and for non-residents the real estate in France. So, if you are us tax residence, and I, for example, some apartments in France, one apartment in Paris, well, one big one, nice apartment in Paris plus one house in Paval to subsidize that even though you are a Us tax resident, you may be subject to this tax, even though you don't pay in France, any personal income tax is the right, goes from a zero to 5% to 1.5%. And you can have a tax credit if you pay the federal wealth tax in the US so always the principle of a double taxation of avoiding the double taxation. There is the pros and the problem was in expatriates. They build the special scheme to, to welcomes people from abroad.
So, in fact, if you're a company and you recruit a manager abroad to work in France, and, and there's a condition that this manager has not lived in France for the past, for the past, for the five last years, Zen, the employment contract should make a difference between the normal salary for the fine chance and an infatuation premium. And so, there's a premium will not be taxed for eight years and the personal tax and for, so for the wealth tax on real estate, then the rules for non-residents will apply. So only the real estate in France will be considered for calculating this tax and not so real estate in other countries. That's the main points I wanted to stress to give you a very general review on some main taxes in France, and I'm ready with Derren to answers some of your questions.
All right. Thank you very much for that fantastic and comprehensive overview for those who have been messaging, sorry, because we're live streaming there’s other platforms, including Facebook and on YouTube. And on LinkedIn, we did send a message. Hannah sent a message using the Eventbrite messaging function. And I also send an email so sorry, you guys missed it, but I'm glad that you're able to view it on the other platforms. If you have questions as well, please put your questions in the chat box below wherever it is that you the live stream. And I will pivot from zoom. And I will ask those questions once time permits, but we'll first address the questions in the order in which they were received. So those who email them ahead of time, we will go with those first. So, the first question is, I'm particularly interested in the tax treatment of ROTH distributions in France, also rollovers from traditional to ROTH, how are they treated? So, it's essentially just from a US perspective. Their retirement plans fall into two very broad categories. I know I'm being really, really broad. There are those where you can pay the tax upfront, like with a ROTH and you get the distribution upon retirement more or less tax-free. And then those where you get a tax deduction. So, you're not paying tax on that income that's being invested. But whenever it is, you do take a distribution upon retirement, that distribution will be subject to tax. So those are the two basic baskets, but the question is not only US tax treatment, it's on the tax treatment in France. So, Herve?
Yes, well, the main rule is that the US tax office, French tax office are independent. So, when you have a tax advantage in the US you don't have any in France. And the contrary is the same. So, for example, for ROTH distributions for you, for France, it is a purely a financial product that will produce dividends or capital gains. And then in the tax treaty between France and the US there is a treatment of dividends. There is a treatment for capital gains, and there are no special mentions for some special products.
So, the rule is that when you are in France, if you are a tax resident in France, you will get the dividends. You will get the tax, the capital gains, and you will have a tax credit equivalent to the, to the taxes paid in the US. The tax doesn't say the taxes paid the same year. So maybe it's, the taxes were paid, let's say 15 years ago, I would say it is not illegal. The tax doesn't say only the taxes pages in here. So, I told you, his principle is your revenue, your taxable revenue in France. It is your revenue less, or what you've paid to get it, or to maintain it, to keep it. So is the tax you paid in the US are deductible from the US tax treaty representing what you paid in the US to get distributed.
Right. And I'm jumping slightly to another question. That someone else ask. So, they're asking whether pensions are taxable in the other countries. So, if you'll be US pension, would it be taxable in France? If we have a French pension, would it be taxable upon distribution from a US perspective, from a treaty, I guess they were referring to the tax treaty. Any comments on that?
The manner when you consider your taxes in France is the first question is, are you a tax resident in France or not? Right? There are some rules that I defend is that are defined by the French tax code. There are rules different given by the tax treaty. And then the first question is, are you a tax resident? If you are a tax resident in France globally, you will have to consider all your revenues worldwide and deduct tax credits representing the taxes paid in the US.
Okay, great. Moving on to question two, can you be considered a non-resident for tax purposes? If your primary income is US-based such as rental income and retirement income and still be a resident?
I don't know the tax treaty by heart, but globally. The rule in France is if you spend more than six months in France during the civil the civil year from January to December, you are considered as a French tax resident, right?
I think perhaps this questioner may have in mind, because other European countries like famously Spain has the Beckham rule. Portugal has the NRA, non-habitual resident. NHR program, both the UK and Ireland have res non dom. So basically, these tax structures that allow someone to live in the European country of choice, assuming they are not a citizen. So they live there, but they are not taxed on the income that arises outside of the European country of residence does a similar structure exist in France.
Is if you are a tax resident in France, then you have to consider all your revenues worldwide. And then the tax treaty with the U S and other countries will apply and say, where does, where is the revenue to be taxed? And the is the main exception is real estate. When you are, if you are a tax resident in trance and real estate in Spain and us, it won't be taxed in France, but that's globally as the main rule. Otherwise, you have tax rates to compensate the taxes you've paid in the other countries.
Okay. Wonderful. Perfect. Moving on, question three. I'm a US taxpayer who's worked in France for many years and have now retired here. I have savings in a 401k, so a US pension structure from a previous job in the US and in similar plans Perco and IPE sponsored by employers in France. I know that under the US/ France tax treaty, when I take a distribution from the 401k, the US retirement plan, I declare it in both countries, the France tax it. So, I guess that's a statement and they're looking for some sort of confirmation, any comments?
In the French law doesn't know what 40 K is, even though it looks like a French financial product like Perco and IPE, it is not known in France. As for the French side, it’s an account with a capital interest and capital gains or pensions, and to be tax under these laws. There are no special rules for that.
Yeah. Okay. All right. Understood. Understood.
So, let's move on. Number four. What about distribution from the Perco or IPE I will not own any French income tax on these only social charges, because my contributions to these plans were not tax deductible. So, they were after tax, I guess, right? However, if I declare IPE and Perco distributions on my US Form 1040, presumably I'll have to pay US taxes on them. Do I know if I can get a tax credit, blah, blah, blah. Okay. So, from a US perspective, it is exactly the opposite of what Herve just said.
So, it will be declared on your US tax forms and you get tax credits for it. So, the bottom line is that it's, it'll be unusual for someone to be double taxed because of the principle of foreign tax credits, as well as ability to apply the treaty. So, moving on number five, my question is how will you serve the clients residing in the US?
So, I guess somebody is still in the US who are involved in international and national trade if they were to retain a firm of about 10 to the market and in the process of doing research.
Okay. So, I guess someone is in the US they have some sort of business idea, and they're looking for help from assistance, from a tax or accounting perspective. We can definitely help you. We have quite a number of clients who run their own businesses or have substantial shares in businesses that do cross border transactions. What we need to do typically is have an introductory call on zoom, but we need to see a business plan. So, we need to understand exactly what are the jurisdictions in play, where the shareholders, what is the nature of the product or service? What is the supply chain look like where the key personnel based? So, we are looking for what we call permanent establishment and therefore cross-border tax issues. So typically, when we see a decent business plan, we get a sense for what the scope is, and we can talk it through and clarify stuff on a zoom call. And then we would be able to give you a quote for assisting you in any way in which you believe, or that you require assistance as no problem at all. Just shoot me an email and we can take it from there.
Next question. I'm a US taxpayer recently retired in France after working a number of years in France. My French employer offered a Perco retirement plan that I can contributed to. My contributions were not tax deductible. And I've been told that when I take distributions from the plan, they will not be subject to French income tax, only social charges. Is that correct? Herve?
So as far as I know, there are two ways to use the Petco when you retire you choose was it, you want to immediately capital and get back all your money, or you choose to get a pension every month for the rest of your life. If you want to get a pension, a regular pension, then it is taxed to the French income tax with some reduce rates depending on your age when you retire, or when you break the plan. But if you want to get the capital, you will pay only a CSJ so 17.2%, and then after you'll get your capital. But when your capital will produce some interest or some capital gains, then your pay your income tax.
Okay. Understood. And there's a follow-up question in there and will my Perco distribution be subject to US income tax? And it really depends, if it is that it is truly deemed to be a pension? Then typically it's only taxable in France. Alternatively, even if it may be taxable to the US, you will get credits for any tax that has been paid on that money. So, I guess if it were not to be deemed to be a pension, we'd need to bifurcate the sums on the investment and understand what portion of it is, the, what we call in us taxes, corporate so the original investment, which is after tax income. So that's already been taxed and what portion of it is a gain. So, whether it's a capital gains or dividends, and we will need to treat each of those accordingly. So, stepping back the answer is you're not going to be taxed twice because of the principle of tax credits, which we've explained a little bit earlier, as well as the ability to apply the treaty. So, I think that's what most people are worried about as you can see from, from the questions. So, I'm scrolling down some more. And I think there's one more question.
I filed my French tax declaration jointly with my French husband, who has never lived in the US. What are his tax responsibilities towards Internal Revenue Service? Well, as Herve pointed out at the beginning, the French tax process is completely separate from the US one. So just because you filed jointly in France, doesn't necessarily mean that the implications from a US perspective, you're not required to file jointly. If you are US expose and you're married to someone who's not US exposed in this case, they have just 100% French. Then you can file married separately.
In which case your spouse's financial situation is in no way exposed to the internal revenue service so it’s your situation only. Except where you may have joint assets. So, if you have like a joint investment account, or then, you know, that will be obviously declared, and if it's 50 50, then you just pay tax on your portion, or if there are joint financial assets. So, for example, joint accounts, cause remember they are those asset declarations where you declare certain life insurance policies with cash in it, or brokerage accounts, or just regular bank accounts, savings accounts, or whatever.
If it's joint with your spouse, then it's a joint asset. So, it's going to be on that asset declaration form, whether it's a FBAR or foreign bank account report or the form 8938 or 8621 if it's an investment structure. So, it will be declared, but his portion of the returns of whatever your spouses, his, or her return on that investment should not be subject to US taxes. So don't worry. It was non-US spouses’ investments are not going to be exposed to the US tax system that I know, that's your concern.
I'm going to flip over to some of the other platforms to see whether there are any questions and I think we're okay. Right? Yep. Okay. Okay. So, on that note, thank you very much for logging in and attending and submitting your questions. Please, if you need to be in touch with us, I believe Hanna put our contact details in the chat box below, and Herve he flashed his contact details as well. This entire session has been recorded and will be available on our website, HTJ.tax as well as on our Facebook page, on YouTube and on the other podcast platforms, iTunes, SoundCloud, wherever it is, you get your podcasts, this will be available. Feel free to reach out to us if you need our help, otherwise we will see you next time. Thank you. Bye.