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INTRO:
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DERREN JOSEPH:
Good evening. Good afternoon, to most of you. And good morning to anybody who may be in a different time zone. Welcome to HTJ. tax. We do these live streams every week. This has been a particularly busy week. We’ve been doing about three live streams this week, but typically it’s once per week. If you want to catch what the next ones would be, you just put HTJ at our tax. So today we have the honor and the privilege of everybody leading the talk on French taxation as always, please note that this is being recorded. If you’re with us on zoom and you do not want your image to appear, you just need to keep your cameras switched off for those who had colleagues or friends that could not make it and will be recorded and will be available on YouTube, SoundCloud, Spotify, iTunes, wherever you get your favorite podcasts, you’re going to be able to see a copy of this, including on our website. You should do a text. Please keep in mind that we are not giving advice. We’re having a general conversation about general principles. You can take it as education, or you can take it as entertainment, but it is not advice. If you want legally binding advice, you need to reach out to airway or me and engage us, and we will understand your situation inside out, and therefore be in a position to give you advice. No one can give you advice based on a few sentences or a sound byte on a zoom live stream. So with that in mind to new therapy and he will present for about 20, 25 minutes, and then we get into the Q and A, I know that you guys are sending questions. Those who have sent by email, we have received them and we will address them in the order in which they have been received. If you have questions and you didn’t get a chance to submit them, please type in the boxes below and we’ll get to them in the order in which you take them without further ado, the floor is yours.
HERVE BELOEUVRE:
So, so I have to share my screen. Ah, whereas Yes it is. Yeah. Okay. So I go a bit around, around the taxes that exist in France. The main ones I am in France in the Paris opera, and usually what was there in two for Firenze. Well, so it can be residents or in France or residents somewhere else, but something to do with the French tax office and American tax office. So a bit around the main taxes in France. Yeah, just about starting a business in France to begin usually France as a, not so much a good image about setting up an activity, but there is and as world bank was doing a study every year, which is called doing business. And it stated that Wednesday, Wednesday make a ranking of all the countries in the world, such as seven countries, where it was the most. It was quite easy to, set up a build, to set up a company. And we had the global note and different criteria for the flying district. In fact, you make a business in France. It is a bit less than one week. Some say that <inaudible> as one day to create a company and there is no restriction for American citizens to, to set up a country in France, except for some, except for some jobs. So like chartered accountants where some special, special competence is required. As the main questions, you have to answer, to set up a company as a legal status was a, you want to work in it as an independent for, as a company. Your Love’s a choice to be taxed under personal income tax or corporate tax. And we’ll seize the differences in a few minutes. You may choose whether it is a professional or non-professional activity. And what will be very important for social contributions is to define whether you are self-employed or employed as a salaried worker of the company. Both choices are available. And, but it is really an important choice for, for, for the life of the company. First, the first type I wanted to go around was a, what we call French apple store associates, which is in fact, the company in CapEx. So as, as a principle, basic principle, the taxpayer is the company and not the show was a manager. The taxation is based on the net result, the gross revenue, less, the expenses needed to acquire or maintain the revenue. And as this net result must be determined by accounting books. So we have taxation, which is very linked to accounting, as a way to reduce this. This tax is mainly based on some tax credits. And the main tax credits are, are especially, specially designed for researchers. So we have what we call <inaudible> or <inaudible>, but all of this requires in fact that you are inspected by the ministry of research, the rate of commercial income tax. It is 15% of the net results for companies to buy a physical person up to a result of such EA 120 euros. And above these results, Zinzer’s rate is 25 percent over the years of his last years, this rate as gone decreasing. But now it is, we have achieved as the objective at the putting it at 25%. So in the coming future, in the near future, it shouldn’t go down again. Taxation, if you distribute dividends, then the taxation for the shareholders is a certain percent, but then, or taxes are paid and you keep the scent. It’s 70% left. Our main tax. In fact, as is the basis for the taxation system on the revenues is a personal income tax. It is usually considered as changing every year. But the see is that are people who don’t know it’s it because it was established in 1917. It is a real taxation mode that has been established to finance the war as a first world war. And since then we have kept yet it all the taxpayers are only physical persons. In fact, sometimes he says that some companies are taxed as his personal income tax. But in fact, it does only mean that their revenues are taxed in the person of, in the, in the person of the shareholders. What will be very important is to determine whether your tax residence is in France or abroad. And to determine that the rules are given by the tax treaty between France and the US globally, the tax-free key defines where revenues are to be taxed. It is structured by, the type of revenues. And then it says it is to be taxed in this country or in this country globally. If you are a non-resident in France, you will be taxed mainly on real estate revenues because real estate revenues in all countries are always taxed in the country. Whereas a real estate is we have a no consideration of nationalities. So be you American or whatsoever, you are considered a, as a French person. That’s taxation is concerned. Lots of people in France don’t pay this tax. It is only paid by 40% of the population because it has a progressive rate and the marginal rate begins at zero. So a lot of people don’t pay for it. And the marginal rate of this tax can grow to 45%. In fact, the first years are for when you are taxed at zero, then 10, 11 persons, and move that to a certain percent, et cetera. And for very high revenues, there is a temporary contribution or 3 or 4% above that. And the temporary contribution lasted from 2008 and redundancy ended, but it is temporary. Yes, about the US revenues. If you are in France while globally, the revenues are tax to where the person is, the main exception as already say that is, is a real state, whereas taxation or cause in the country, whereas a real status. If there are some other revenues that are in the US for example, it does even those, they are to be taxing the US it doesn’t mean Xero’s not to be declared in France, but there is a tax credit which will avoid the double taxation. And I think you can reverse the principle if you are in the US and moving using France. I think the IRS is very interested in knowing your revenues in other countries than the same interest, but it’s very important. Our personal income tax is not determined by person but per household. Remember that was built in 1917, where globally only the husband was working. So the household will be two adults. We are adults maximum, and they must have a legal link. It must be married or PACS PACS in France. And you can incorporate in the households, the children we have, or at least the one parent in the two adults or children under 18 are considered as part of the yellow horse. You have an option between 18 and 45 years old. And there is no obligation that the children to live at the same address as their parents. So you can be, for example, in France, I have a child who is a student somewhere else in the world and consider his or her revenues and get the advantages of it inside and hours or order revenues are globalized. So if you say you are giving the pension to, for example, a chart within your household, then there is no reduction for that. It is inside your household. You do what you want, but in and outsold, all the revenues are totalized. Before determining, before determining the tax to be paid, I have done a little chart too, to illustrate the effect of this household. The is a blue line. Well, the orange line is the tax to be paid depending on revenues. When there is any one person in this household with the same revenue was two adults and two children in the household that is a blue line. Okay. So it does really, it has really an effect on the global tax to be paid. Most, most of the personal tax work, must be declared every year, but the tax office is mostly paid by withholding tax. So where does the tax office get information on your revenues? If you have wages or pensions, then it is the duty of the employer of the pension fund, et cetera, to give the information to the tax office for investment income for capital gains. It is the banks will have to declare the revenues to the tax office. If you have some types of revenues, then, in fact, you need accounting in your effort. If you have income, from a real estate property, then it is a quite simplified form of accounting. And for business profits and informational profits or profits, you will need full accounting books for small companies. There are some simplified ways to declare the revenues that avoid the cost of accounting books which is what reports call the micro for CA or micro-entrepreneur et cetera. I want to insist that it is an administrative simplification, but it doesn’t mean at all that you pay less with the simplification scheme. In fact, the principle is that you declare only your gross revenue, and the tax office will give you the tax rate. It will reduce the revenue with a defined rate, but in some cases, it is not the most interesting for you. So it is quite rising seem to produce a study and to check whether it is the best solution, even though people consider that as there are small, the simplify is the administrative simplification. We’re a visible solution for them. I’m not so sure how to reduce these personal income taxes. The most expensive scheme for the tax office is employing in fact, someone at home, because you can have a tax credit of 50% of the cost of this person is this will apply to certain jobs only, but it is, I was keeping gardening and there are some chartered accountants who can give this tax credit to file your tax return. Of course, this only applies to French residents, and visa Americans. No, not it doesn’t apply for non-residents even though, sorry, I’m not interested in that if you are, if you are a non-resident, but have revenues in France, you may have to file a tax return, especially if you have some real estate revenues. Okay? So you can have something to declare even if you are a non-resident. Well, I know the tax risk, which is called C as G in CSG, has begun with very low rates. So people don’t read so much, but now the rates have increased and it is quite a noticeable tax. It is a special tax, which is used, to finance the social security system. If you have wages of salary, for example, the rate will be nine points 70, but if you have typically wasted revenues, then the rate will be 17, 20%. And the part is deductibles. And next year is very, quite difficult to, to understand people don’t consider so many people don’t see so much as he, as easy as it is, even in the social contributions for the salaries or when you pay dividends. It is included in the rate of 30%. But in fact, inside the 30% is our 1724, the CSG, and only two of the eight that 84, the personal income tax. And so when you have this kind of revenue, the personal income tax is calculated. And then there is any then for the CSG on a special ed Patrick, when your revenues this year, she also applies when you sell something and they calculate the capital gains. Another tax I wanted to tell you about is Limpot sur la fortune Immobiliere (IFI). It is the worst tax compared to the last five years has been changed. And before 2020, 2017, the wealth of a person was considered, now, it is only the real estate’s actual money. And so it will include the basis for taxation will be the real estate you own personally, and the real estate you own through companies where real estate is over 50% of the assets. You will be, you will be a taxpayer for this tax. If you really state is a real 1.3 million euros. And what we were considering, we were speaking of the household for, for the personal income tax. And then this rate, this rule of the household does apply to the wealth tax. So it means that if you are in a couple, in a married couple, then you will be a taxpayer in a global real estate. Patrimony is over 1.3 million for the two persons. If you are a French resident, this limit of 1.3 million will be applied to your real estate worldwide. If you are a non-resident but have some real estate in France, only the real estate will be on real estate in France will be considered. So what, again, even though you are non-residents, maybe you have something to declare in France because 1.3 million, it is, it is an apartment in base white. I would say we have three or four main rooms, but an apartment in Paris is commonly over a 1.3 million year risk. The rates of this tax will begin at 0.5% and it increases, from but 2 to 1.5, but you need quite a, an important one to be at the 1.5%. And there is a tax credit. If you have to pay in the US as a debt, it’s federal, one is tax again, the principle of avoiding the double taxation. If we have some schemes to facilitate the calming of US people into France. So there is a specialist. Kids came from Patriots. Each applies when you are a company in France, whatever your, your origin, and you want to recruit the manager abroad to work in France, this manager Merson be the resident in France for the five last years. Then you, you make an employment contract, whereas we’d identify on your normal salary. And then in patriation and imitation premium for personal income tax, a premium will be not taxable for ages and as well, stocks are considered, or the rules for non-residents would apply I think, five years. And this means this person will only be taxed on these real estates in France and not on Israeli state abroad. That’s what I wanted, to tell you to have a quick overview of some French taxes and how they can impact your situation.
DERREN JOSEPH:
Okay. Fantastic. Thank you for that. So what we will do is just jump into the questions again, for those who just joined us. If you email the questions in advance, we have them. If you want to ask a question, I’ll just type them in the box below and we get to them and the order in which they were sent. So the first question is whether someone is asking how independent contractors or how is independent contractor revenue from the US viewed and taxed in France? So, so one is a tax resident in France, and then an independent contractor with clients in the US. How is that going to be taxed?
HERVE BELOEUVRE:
It depends on the address you put in, and your invoice. If you are considered if you consider that you are established in the US. Well, The principal was the tax treaty. First, we’ll say, where are you? A tax resident? The tax residence will be many determined by where you spend most of your time in France or in the US if you spend more than six months in a country, then you are a resident in this country. Now you have people who spend four months in three countries and serve their hours are rules that say, where are your main, where is your family? Where are your main financial interests? Then you can say, you are in independent work in the US or in France. If you are in independent work in the US you can completely work for a French client. There is no problem with that as the problem will be is that you, after a while bailed, in fact, the permanent in France is then you’ll have to pay VAT in France. After a while, you have to consider the job. The service is produced in France or in the US so that’s in fact, the main question where have you produced this service, if it is produced in the US and if it is produced in France, then you have to set up your company, get an ID identification number that will be used for personal income tax that will be used for VAT. And then you have also social contributions to be in.
DERREN JOSEPH:
Hmm. Okay. So, so just to summarize it, the benefit of the person at asks, it really depends on where, I mean, I know that the person says they’re resident in France right now, but they tax residents in France. In the sense, as you mentioned, with the 180 3 days on it, or the center of life test, right?
HERVE BELOEUVRE:
You can be an independent worker having some activity in France and having some activity in the US so most, I would say, an accountant produced two sets of invoices. One was a French address. One was an American address. And so it will tell us for this job, I have reduced it in France, was a job. I offered it in the U S And of course, all that was defined before zoom was existing, Certainly, but these are rules that are considered as a level of OCD, et cetera. And these are words of the years after the second world war. So certainly as you need to be adapted to our current role.
DERREN JOSEPH:
Okay, understood. So in short, I would recommend that whoever asked this question, perhaps reach out to Arivale and seek a consult where they can put all their cards on the table and help make an uninformed decision because we don’t have all the facts. Right. But once they reach out to you to be able to point them in the right direction, okay. Question number two, I’m just repeating them in the order in which we received them. Someone is asking about the task treaty. And so I’m not gonna read it out because, in your question, you referred to a table once, and you’re asking about a tax on a new treaty and the tax treaty, as we’ve seen it, you know, every, and I did discuss this before we went live on this, on this Livestream, and we are not seeing a table one in the tax treaty. And so I’m not too sure what documents you were looking at, but if you can, perhaps, if you, if you are able to, right now, if you can send us a link in the chatbox below to what treaty documents you seeing with this table, and then we’d be able to address that. So I apologize for that. Moving on to the next question, how is the 401k, which is a US retirement plan seen from a French resident’s perspective. This is gonna, this is tax Indy us. What is the marginal tax rate for retirement plans? When the retirement distribution is received by French chats residents
HERVE BELOEUVRE:
Globally, pensions are to be taxed in France Taxes, salaries. So, you know, I was thinking a bit with you, as I know, there is an article in the tax treaty, about social security, but in fact, it says it was on the other side, it was saying that your contributions to the schemes were deductible. That’s what it says. But in fact, when you received a pension, then in fact is taxable, whether you come from, from the US or whatever country,
DERREN JOSEPH:
Right? So this talks a little about the marginal tax rates. And you did show some of those numbers in your slides and in terms of, so if it is that it’s going to be taxed in the US a and it’s US source, presumably you get a tax credit against whatever your liability is.
HERVE BELOEUVRE:
The global principle is no double taxation.
DERREN JOSEPH:
Okay, fantastic. So again, don’t go ahead.
HERVE BELOEUVRE:
But sometimes it happens that the tax rate is only partial and covers the most, in most cases, the taxes in the US are lower than the French tax. So sometimes the tax credit will cover the cost and offers the US a tax, but you will have to pay supplementary tax as it is doing France Taxes, projects, and residents.
DERREN JOSEPH:
Exactly. So you’re going to pay the higher of the two, but you’re not going to be paid tax twice on the same. Okay. Gotcha. All right. So I hope that answers your question, whoever that was. Next question for foreigners residing in France with kids who do not live in France, how do you prepare for inheritance tax? And the person said it could be massive. So I guess they have a substantial portfolio of assets tax or inheritance taxes.
HERVE BELOEUVRE:
As far as I know, I am not a nursery and I am not really a specialist in inheritance, but inheritance flows worldwide will depend on the nationality of the person and where the money is, and where the person will die. So, because there are two levels to consider for an inheritance, for example, in France, would you don’t have the right to disorientate your children. For example, if I have some children I can decide on 20% of my wealth. I can say I give it to a charity for example, but I must leave 75% for my kids. And this is not also a case in the US as far as I know. And maybe it depends in the US on the state where you are. So you are first to consider who Oz years, depending on the application, and then the taxation comes. And, then taxation will not decide the US. Yes, they will only state. We know the US first. And then the taxation applies. So we have some schemes in France to avoid inheritance rights, which are mainly called, which are mainly life insurance. So that’s a that would be the first, the first tool to use.
DERREN JOSEPH:
Okay. So you definitely that the systems in the US and France, a very different France, as you pointed out, it has forced Airship rules, which the US does not.
HERVE BELOEUVRE:
Yeah. If you have, some questions or a client has questions about that, I will transfer him to a nursery. You can speak English Because really this is not a matter of chartered accountants.
DERREN JOSEPH:
Right? So it’s highly specialized there. Same in the US, you know, of all the sub-categories within tax estate planning and estate matches is the area with the most litigation. So there’s, you know, it, it is very, very peculiar.
HERVE BELOEUVRE:
And there are very peculiar notaries of tools that I don’t know at all. For example, in the case of a client, I have discovered is he had made a contract with his married, with wife and the solutions were depending on the countries, and related stakeholders. So in some countries that were uncommon in some of the countries that we’re apart, et cetera, they can do that. They’re not on the, it’s not at all my competence.
DERREN JOSEPH:
Okay. So please reach out to me, HERVE BELOEUVRE, and everybody will point you in the direction of,
HERVE BELOEUVRE:
And of course, if I have a question I cannot answer, I will transfer you to someone who could assist you.
DERREN JOSEPH:
All right. So please do reach out in every direction. And he punched you in the right direction. Okay. Moving on. Next question. I’m a retired American lawyer. I receive a check each month from a private disability policy, which I bought and paid all the premiums for since I paid for it. And I’m not an employer. It is tax-free in the US. If I move to Paris, would France Taxes it?
HERVE BELOEUVRE:
First? I’m sorry because I served this question and it was, I think, on the 30 or something like that. And when I came back, the office forgot to answer. It is sure for me, that it is a taxable pension. See, I don’t see how some rules that are stated in the US would be imposed in France. I don’t know any equivalent system in France. For example, when we say life insurance is not to be taxing for students to say simply, it shows that if you get life insurance in the US it is not legal life insurance as Francais sees it because the, in the French laws, it will be written that it is a contractor must follow the article 25 on the insurance code in France, et cetera. So it is not possible to show such an American contract could follow, this rule. So I think it is the same in France. If you, if you have had life insurance and for example, it is not accessible, I’m sure it would be taxable in the US as a problem. If you have very special schemes in the country, it is not easy to transfer them to another country.
DERREN JOSEPH:
Right. So it’s, it’s highly likely that this will be taxable in France.
HERVE BELOEUVRE:
Yeah. Yeah. But after that, we have to consider, what is the rate? What is the bound? What will be the rate of taxation? Oh, it will apply. And people live well in France. So we have the image of paying taxes and we live well. No, it just shows that in France, we have certain services that are free for the US. And that would be, it could be expensive in the US but we pay for it through our taxes.
DERREN JOSEPH:
Okay. Gotcha. Okay. Moving on. Next question. Hello. Here’s my question. I’m a US citizen living in France. I have a US-based life insurance policy. Again, another insurance US-based life insurance policy with my wife as the sole beneficiary. If I die either in France or the US, while I am a French tax resident, does my wife have to pay any French chats on the payout she receives,
HERVE BELOEUVRE:
I don’t know, what life is like in the US but you have two situations. If she, if she gets a revenue every month, then for me, it is a taxable revenue. If she gets a pension, if she’s in the US at the time of her husband’s disease and gets a capital, then there is no revenue in France. When you transfer some, cash from the US to France, it is not a revenue when you transfer your capital. So it is not taxable depending on the conditions when the person is deceased.
DERREN JOSEPH:
Right. So it depends on the circumstances. So, yeah. Gotcha. Okay. Okay, Tom, I hope that answers your question.
HERVE BELOEUVRE:
And I want you to do that many people. Sometimes I have some people calling me and telling me, oh, I want to reduce what is the best way not to pay. And there’s a logic we have started. Accountancy said, we have to consider second tenses. And then we applied the rules, but it is not. We put the circumstances. So that applied, we don’t change a life. We consider life as it trends.
DERREN JOSEPH:
Right? So in other words, we can’t, as, qualified professionals, one con give advice with the sole intent is tax mitigation. There must be some broader purpose. And then if it happens to give a tax benefit, it does, but it’s not only about I’m going to avoid taxes kind of thing. Right?
HERVE BELOEUVRE:
Yeah. And, and we can improve, we can optimize taxes, I would say for the future. But when decisions are made, we have to abide by the rules. And so you should come and see people before you make important decisions. And that’s a good time to see a consultant. And, when it is decided, then you apply the rules.
DERRENJOSEPH:
Gotcha. Okay. So, in short, in this situation, it really depends on the circumstances. Like where are you going to be with your wife? Could it be, and that, that would kind of drive it. If Tom, you want to get, a deeper dive into the situation, please feel free to reach out to every directly to discuss it. Okay. All right. Moving on. Okay. Hello. I have a few questions on topics that you might be talking about when the webinar tonight. Okay. I’m a dual national I’m American and French and might file separately with a friend’s spouse and my friends, spouses are not okay. They asking about P FIC, passive foreign investment companies, and PFICs, which we’ve discussed previously PDRs. And as you’re also viz consider prefix, and what do you have to, what do we have to declare? So this is from a US perspective, from a US perspective, it’s highly likely from our experience that they may be PBX, but one can generalize and say that they all are PFICs, right? So we’d need to understand the specifics of these policies and if they are P fix, then as you probably are aware, because, from the way you phrase your question, I can tell you’ve been doing some reading on this. Then it must be disclosed on your us returns in very specific ways as a form 86, 21, where you essentially need to mark to market every year. So even though you do not take a distribution from it, you are deemed to have received a distribution. So you pay to tax us taxes on that Phantom income. So from, you know, from a task compliance perspective, new probably would want to sit with a US qualified professional to see whether they are P fixed. And if they are P fix, then you’d need to do two things. You, from a US perspective, may need to take corrective action and refile or amend previously filed returns, which neglected to disclose them as PFIC. And, you know, we can do that into something called the streamlined compliance procedure was for the, allow us to do it. You would pay interest on any taxes that maybe you would, but you would legally avoid penalties, both civil and criminal. So that let’s say huge win. So that’s the first thing we need to deal with in the past. And then we can help you plan for the future because there are certain ways of disclosing them that it’s not gonna eliminate taxes, but it could potentially minimize them from a US perspective. So I hope that helps answer that part of your question. The next part of his or her question is about rental property. I own a rental property with my husband. What, do I declare to the IRS? What volume of the property is it 50? Okay. Gotcha. From a US perspective, you would, whoever’s doing your us tax return. Then you share the financials with that person. So how much is the rental income and all the expenses that would be associated with that problem? And if it is that you own half of it, it’s a 50-50 split with your husband. Then 50% of, the net profit will be attributable to you on your chest return. But it is definitely even though it’s outside of the US and definitely must be disclosed on your us return and taxes paid, if you, so moving on, this has like full sections. So this is the pub. What is the threshold for form 89, 30 needs generally speaking? So for me, the 9 38 is a financial asset disclosure form foreign financial asset disclosure came in with FATCA in probably in 20 11, 20 12 or so. So it mirrors what’s on the F-bomb, which is the foreign bank account report. It kind of mirrors it, but they have awesome key differences. Anyway. So the threshold for disclosure, if given that you’re outside of the US if you’re married, filing joint, then you’re looking at the maximum aggregate balance on the last day of the tax year is more than 400,000 or more than 600,000. At any point in time during the year, then it’s disclosed. If it is your filings separately, married, filing separately, then it’s 200,000. So it’d been maximum aggregate balance on the last day of the year is more than 200,000 or more than 300,000 at any point in time during a year, then it just goes, but of course, it’s not just cash in the bank, right? It could be insurance policies, it could be assets that you hold. For example, if you invest in a home and you hold it through a company that may add to the value, so it, you know, shares in companies. So, you know, you’d probably want to sit with a professional to see that you get it correct. At least the first time you’d do it to see, you know because those thresholds are pretty key and you don’t want to miss that because failure to report, could be unpleasant. Okay. And the last part of your question, oh, no, there’s another pot out for that. So tax treaties, can we deduct taxes paid to us due to passive income on your French return? And I think everybody mentioned that before the principle of tax credits is upheld by funds, unlike some of its European neighbors, because some of the European neighbors aren’t as easy to do with the tax office. So it’s great. The great news is that every delivery to the US is TA taxes paid to the US and will be reflected on the French chat’s return. But bear in mind, that France’s taxes tend to be higher. So you won’t get the full exclusive,
HERVE BELOEUVRE:
I’m sorry, one thing I wanted to add don’t think that when you pay you, for example, I have seen some people who already told me, or I have the, I am used to paying me, my income tax in the US so I continue to pay in the US and so I don’t have anything to pay in France. In fact, this is the US tax office. Doesn’t give any monitors, a French tax office. So it is your responsibility as taxpayers to have the tax switching respected. And so if some revenues are to be paid in France, then the tax office will ask you that as cash. And it is useless to say, but I have already paid that, to the American tax office, go to the American tax office, get it reimbursed, but pay a franchise office. So that’s how it works. Okay. Is it don’t work in common?
DERREN JOSEPH:
Yeah, it’s, it’s, it’s quite a common misunderstanding. People think, well, I just need to file one return somewhere in the world. , not understand that the obligations and the responsibilities are a little bit more specific than that, but that’s to clarify the last part of this. Sorry, go ahead.
HERVE BELOEUVRE:
Yeah. We had the question of Roger Healey. Maybe you don’t say it. I don’t know why.
DERREN JOSEPH:
Yeah. I’ll get to that. I’ll get to that one because he asked his own last well, I mean, in terms of this list, so Roger, Roger, I’m not ignoring you. Roger, will we get to it soon? So this, this person, the last question they’re asking is a retirement. And as your answer, melody, so how is French retirement reported on US taxes? They asking if they can invoke the foreign earned income exclusion. So, I mean, just like France, the US wants you to report your worldwide income. So definitely it will be reported, right? However, when you suggest that section nine 11, the foreign earned income exclusion, it literally means the income has to be earned. And if it is that you receiving the proceeds of an Astros malady or some sort of retirement product that won’t qualify under section nine 11, it has to be earned income. So, so to answer your question, yes, it’s reported to the internal revenue service in the US, but no, it will not be considered earned income for the purposes of that section nine 11 exclusion. Okay. And moving down. Okay. Yeah. So we can get to run this part. Now, the US federal is sorry for the delay. US federal wealth tax is none at this point in time. There has been some discussion among the political class about imposing a wealth tax, both at the state level and at the federal level. But as of yet, you know, found goodness that there is none. So nothing
HERVE BELOEUVRE:
Is he, it is simple. Or you have read the French tax treaty. And it says it is, I can be a tax credit if there is a federal wealth tax, but the tax reality doesn’t change every year. I think our current tax treaty dates from 1994. So maybe there was at this time a project for Wells stocks, and it was in the tax treaty. And I thought, honestly, I am not competing for a US tax I’m competing for French. I can read the text to tell you whether this is to be taxed in France or not. So it sends, there is nothing to afraid to set French Wells tax today. No, how nicely it is not when the tax office builds a tax, they don’t put so many ways to upset it. No, if you have some real estate, in fact, what you can do to offset some real estate for of the French, whereas tax is two too, to be able to say it is the professional real estate. That’s the main point. But, and as it is always the same thing, you are taxed on the net worth. So if you have credits, if you have bank credits to pay for, for the real estate, then each of sets as the value of the Wells. For example, I said, it is usual that an apartment is 1.3 million worth in Paris, but if you have a credit of 1 million, then the value is only 300, 300 years. And then the value of your real estate will grow as the years. You have to wait some years before it is 1.7 million euros.
DERREN JOSEPH:
Hmm. Okay, great. Thanks for that clarification. Okay. And so there’s nothing to correct, Roger. You’re absolutely correct. So it is nothing to offset and yeah, at this point in time, anyway, of course, things can change in the political classes. We all know any other questions. Yes. I can clarify. What is, I’m just going to comment a bit more on prefix because it is important because, in France, so many of the products that may be tax-efficient from a French perspective may not be tax efficient from a US perspective. And that’s where they’re treated as PFIC is basically one of those mechanisms within the US tax code that ensure that us taxpayers aren’t able to defer income and defer paying income taxes to the US-based on what they make outside of the US. So one of, the three most popular onsite deferral mechanisms that you would, that our clients would typically encounter would be the first one would be Subpart F that’s the oldest one, I think it started, but maybe in the sixties, I believe. And that is it’s triggered for those who own companies outside of the O have a substantial stake on material stake and companies outside of the US. So I wouldn’t get into it, but if you want to be can, the second would be PFIC, which is a mechanism that came up in the 1980s, I think 19 86, 19 87, and President Reagan’s tax reform, huge tax reform act in the 1980s. And then we have the guilty taxes, which were a creature of President Trump’s tax cut and jobs act back in 2017, but going back to the thing. So a PFIC is something that is recognized under section 1297. So passive foreign investment companies, when you have a structure. So typically it’s a structure that looks like, a mutual fund. So a mutual fund outside of the US even though the wrapper may be in the form of a pension, maybe in the form of an insurance product. When you open it from a US tax perspective, it becomes transparent. And it’s seen as a farm mutual fund, and it’s triggered if you have more than 75% of the gross income as passive income, like interest dividends, capital gains, or more than 50% of the assets for the production of passive income. So the 75-50 % rule is an important point to bear in mind is that it is anti-deferral. So what the service wants you to do is, even though you have not taken a distribution, if there’s any fluctuation in the value of the underlying investment, you must reflect it on your tax return. So it is a particular Bombay people have been quite upset by it had been lawsuits. And as you would imagine, many times when you consult with someone who is a French financial advisor, they are selling it to you from a French tax perspective, but they are not called this sense of the US tax implications. So that’s just giving you a bit more context as to what it is and the need for special planning. As I mentioned before you look back, you address the historical emissions, we can, we can help you implement proper planning going forward to minimize the tax burden.
HERVE BELOEUVRE:
And I think it is important to have a strategy. If you come to France and say, for example, we spent five years in France and then go back to the US it won’t be I same strategy for investing as saying, I come to France, I hope to marry, to have kids. And then retiring fast. Of course, as a financial product, we will not be the same. So it is important to just speak as a strategy, what you want to do in the long-term.
DERREN JOSEPH:
Absolutely. You know, we, I’m a firm believer in I’m sure as everybody is pointed out in planning. Yeah. If you fail to plan, you plan to fail. So before you make important decisions, sit with a professional and get some planning done. Okay. Any more questions? I’m just going to pick, and take a quick look at Facebook to see what people are doing on Facebook. All right. Great. Well, on that note, thank you very much for your time this evening, this morning, if you’re looking at it, in some part of the US, please feel free to reach out to either me or HERVE BELOEUVRE directly. If you would like to engage us to take any of the tax issues that you would have explored. If you want to take it forward, just reach out to us. Otherwise HTJ tax. We do this every week, and we love talking about taxation. Have a good one. See you next time. Bye-bye
OUTRO:
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