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VOICEOVER
This podcast channel is about you: successful international entrepreneurs, successful expats, successful investors sponsored by HTJ.tax.
DERREN JOSEPH
Good afternoon, good evening, good morning, depending on where you are. Welcome to HTJ.tax, where we do all things tax. We try to demystify this somewhat confusing world of cross-border taxation. We’re live-streaming this, but we’re also recording it because some people couldn’t stay for the entire thing. This is being recorded and will be available on our website, YouTube, Spotify, SoundCloud, and over 20 other platforms. Basically, wherever you get your podcast, you can get a recording of this. So, it’s no problem if you have to leave early. Remember, though, that while we are tax and investment professionals, we are not your tax and investment professionals.
So, we will have a general conversation about general principles. If you want what we call actionable intelligence or advice, you need to address your specific situation. You’d need to engage a qualified professional who would advise you on your specific needs. So again, we’re having a general conversation with general principles. We hope you will emerge with key concepts that you’ll need to keep in mind as you navigate and retain a professional to advise you on any need. So, we want you to walk away with the key concepts. We’re not giving investment advice, and we are not giving tax advice.
Okay. So, with that in mind, we’ll get into the questions that you guys submitted in advance. If you didn’t get a chance to submit your questions in advance, that’s no problem. Just type them in the box below, and we will get to them in the order in which we’ve received them. Okay. So, without further ado, we have one other tax professional who’s meant to join us. Hervé, but I guess he’s running a bit late. In the meantime, we will start with the questions that have been posed.
DERREN JOSEPH
Oh, sorry, my bad. We have an investment professional with us. Normally, we just do taxes, but we have an investment professional. Cedric, please introduce yourself.
CEDRIC BERNIER
Yes, so my name is Cedric Bernier. I’m a financial advisor for American expats in Europe (especially France). I am in the south of France, near Nice, on French Riviera. And I’ve been here for a little over one year. Before that, I was with Wells Fargo advisors in the US, and I was a financial advisor there. So yes, I’m licensed in France, US, and UK. So, I can, basically, help clients with pretty much everything they need. Yeah.
DERREN JOSEPH
Okay, fantastic. So, let’s, let’s jump right in because we have quite a number of questions, and I’m respectful of everybody’s time. What investments should we expats avoid while living in France, Cedric?
CEDRIC BERNIER
Yes, one thing I see in Assurance Vie in France is that it’s a great tax-deferred investment. However, for Americans, it’s not tax-deferred in the US, so most of the investments inside of it, such as mutual funds and foreign ETFs, become problematic when filing taxes. This issue can end up costing a lot of money. So, I would say this is the main recurring problem I observe. Typically, Americans are not allowed to open these accounts, but some firms offer it anyway. Alternatively, some individuals may forget to mention that they are American, as they could have both French and American citizenship.
So, I would say that even if you’re French, if you are a US taxpayer, you need to be aware of that.
DERREN JOSEPH
Yeah. You, you dropped for a little bit. Could you repeat the end of what you said? Some people forget they’re Americans.
CEDRIC BERNIER
Yes, I have French and American clients, and when they go to a bank, they sometimes forget to mention that they’re American. So, they open Assurance Vie, thinking it’s totally fine, and then they start looking at the impact. They file taxes in the US, and it’s not tax-deferred in the US, so that’s an issue. So yes, any foreign mutual fund or ETF that’s not a US investment, you’re going to have some issues with the IRS in the US. So, you want to pay attention to that.
DERREN JOSEPH
Right. And, to be more specific, from a US point of view, it can be potentially a bit toxic. Assurance Vie could potentially be a PFIC. Are we correct in saying that?
EDRIC BERNIER
Exactly, because most of the investments are going to be PFICs. Those passive foreign investment corporations are the investments you want to avoid, and they will be inside Assurance Vie. While Assurance Vie is tax-deferred in France, which is great, it’s not tax-deferred in the US. Therefore, you don’t really have much benefit from having it. I would say that’s one of the investments I see repeatedly where most people forget to file taxes and declare it in the US. After 10 years, you could face penalties and interest, you know, so it’s something to avoid. If you can plan ahead, don’t open an Assurance Vie. It’s not good for you as an American.
DERREN JOSEPH
Right. And just to provide clarity for those who may not be familiar with what a PFIC is, as Cedric mentioned, it stands for Passive Foreign Investment Company. It was created under the 1986 tax reform during President Reagan’s administration. PFICs were created in response to complaints from US domestic financial institutions. They raised concerns that US taxpayers could invest in foreign mutual funds and receive tax advantages, which they perceived as unfair. PFIC rules were introduced to level the playing field, but they also resulted in somewhat punitive tax treatment for US taxpayers who invest in foreign mutual funds.
Specifically, looking at code sections 1291, 1296, and 1297, individuals can be required to mark to market and pay taxes on unrealized gains. This aspect can be a significant pain point for investors since they end up paying taxes on gains they have not yet realized. It essentially means paying taxes on phantom income. We are not suggesting that you shouldn’t invest in PFICs, but it’s crucial to be aware of the potential punitive tax consequences associated with them. Therefore, we strongly recommend seeking advice from a professional before proceeding with such investments.
DERREN JOSEPH
Okay, thank you for that. Let’s look at the next question before I quickly see whether Hervé has joined us. Nope, I guess not yet. Next question: My main concern right now is gifts. I’m making a gift to my girlfriend; she’s a French citizen. So, this person provided a lot of personal information. So, I will distill it and keep it as anonymous as possible.
DERREN JOSEPH
So, I’m an American citizen in France, and I have this concern. “What are the tax consequences of making gifts to a non-US partner?” Essentially, it depends on the amount of the gift. There’s an amount that adjusts for inflation in 2023, and I believe it’s $17,000 US dollars. So, if the gift is below $17,000 US dollars for 2023, no gift tax return would need to be filed.
If the gift exceeds $17,000, then a gift tax return will need to be filed. And bear in mind that I’m assuming you are domiciled in the US for gift tax purposes. If you’re unsure about that, it would be wise to seek advice because being a US citizen doesn’t automatically mean you’re domiciled in the US for gift and estate tax purposes. Domicile for US estate and gift tax purposes has a very specific definition that, unfortunately, is not spelled out in the US tax code, so we have to refer to case law. So essentially, if your intent, combined with deliberate action, suggests to the Internal Revenue Service (IRS) that you have established a domicile outside the US and now reside in France, then we would need to have a different conversation.
But let’s assume that you are still domiciled in the US. You have a lifetime exemption for both estate and gift taxes, which is currently somewhere between 12 and 13 million dollars and adjusts for inflation. So, if you want to give your girlfriend a significant amount, say $20 million, then the portion exceeding the exemption amount may be subject to gift tax. However, once the gift is within the exemption limit, it won’t be subject to gift tax but will still require a declaration.
So, I hope that clarifies what you need to do. It is advisable to seek advice to ensure clarity regarding your domicile, the nature of your relationship, and the corresponding filing thresholds and paperwork requirements. Failure to properly report the gift could result in penalties of up to 30% of the unreported gift, so it is crucial to handle things correctly. Seeking professional guidance will help ensure that you are following the appropriate procedures. I hope this information is helpful. Now, moving on to our next question.
DERREN JOSEPH
Okay, I would like to know if, as a US citizen, it makes sense to invest in European stocks through a PEA (Plan d’Épargne en Actions). I understand that European stocks would be taxable in France but not in the US, and I believe that the PEA provides a tax shield in France. However, I’m curious if there is also a tax advantage in the US. Cedric, what are your thoughts on this investment?
EDRIC BERNIER
Yes, my understanding is that the PEA is similar to the Assurance Vie. It is not a tax-sheltered account because it is not classified as a retirement account. It functions as an investment account and is not tax-sheltered in the US. However, if you invest in stocks within the PEA, you don’t have to worry about the PFIC issue. So that aspect can be favorable. But you still need to consider the tax implications in the US. On the other hand, if you’re referring to the PER (Plan d’Epargne Retraite), which is a retirement account, then it would be treated differently. The PEA, however, is not considered a pension plan and would be subject to taxation.
DERREN JOSEPH
Okay. Right. And just to clarify, it is not tax-deferred in the US under either circumstance, correct?
CEDRIC BERNIER
Well, in terms of pensions, yes, that’s correct. I have clients who have PER and they’re tax-deferred in both countries. It’s the same thing with an IRA, tax-deferred in France and the US. And similarly, the PER is tax-deferred in both France and the US because it’s a pension. A French pension would be taxable in France when you withdraw funds from it, but it’s tax-deferred right now if you have one. The PEA is tax-deferred in France, but it’s not tax-deferred in the US, so it’s still considered a taxable investment. It’s sheltered in France, but not in the US.
DERREN JOSEPH
Okay, both are tax-deferred or tax-preferred in France, but only one would be in the US.
CEDRIC BERNIER
Yes
DERREN JOSEPH
Which is the PER, not the PEA?
CEDRIC BERNIER
Exactly.
DERREN JOSEPH
Furthermore, if I understand you correctly, there’s a risk depending on what you are investing in, that we can’t go back to the whole PFIC issue that we mentioned. Otherwise, if it’s direct in stock, then that’s fine.
CEDRIC BERNIER
Yes.
DERREN JOSEPH
Okay. Right. So, one needs to be very careful because, depending on the investment, you may have to make a PFIC declaration, as discussed earlier. That would require filing Form 8621. It can also involve making declarations on the Statement of Foreign Financial Assets (Form 8938) or the Foreign Bank Account Report (FBAR), which is also known as Form 114. So, it’s important to be aware of the tax deferral aspect and the potential danger of unintentionally falling into the PFIC situation, which can be quite punitive for US taxpayers.
DERREN JOSEPH
And, I guess that’s why it’s super important for someone to consult with someone like you, Cedric, someone who’s qualified and who understands both systems and is able to give that advice as opposed to someone who just wants to sell you stuff.
CEDRIC BERNIER
Yes, exactly.
DERREN JOSEPH
Now while we’re at that point, aside from someone qualified, what else should someone look for in a financial advisor?
CEDRIC BERNIER
Yes, so the main thing is to find someone who can understand your needs, you know, both in the US and France. Because what I see is a lot of people who even have a tax advisor in the US but one who doesn’t really understand what’s happening in France. So, they don’t really ask questions; they don’t know what to ask, so the clients don’t know what to disclose. So, finding people who actually understand what they need and the risks and consequences of investing in those investments is important because you can be investing in the wrong investment for years and years. You’re going to have penalties and taxes. It might become a big problem later on.
And sometimes people don’t want to come clean because then it’s too late. They feel like after 10 years; they should just not do anything about it. But the IRS is hiring thousands and thousands of people, so it’s a great source of income for them. I would say not to just look away or turn a blind eye but rather deal with it. If there’s a problem, tax professionals like yourself can figure out a way to get the clients back on track and compliant. However, if you’re planning or don’t have any investments right now, it’s important to make the right decisions beforehand and have a plan. Americans want to have a great retirement, and when you’re in Europe, it can feel challenging to plan due to limited investment options.
So, to have a team around you, a tax advisor, or a financial advisor who understands your needs, you can plan and have a great retirement plan.
DERREN JOSEPH
Fantastic. Thanks for sharing that. Okay. And again, for those who just joined us, if you haven’t had a chance to submit your questions in advance, please type them below, and we’ll get to them in the order in which we receive them. Our next question is number four: can I open an IRA or Roth IRA while living in France, Cedric?
CEDRIC BERNIER
Yes, that’s something we do. I mean, the main thing I try to bring to my clients is value and peace of mind. If you already have an IRA in the US and your custodian or the firm doesn’t allow you to change your address, you would have to keep it with a US address even if you don’t live there. However, what most people don’t know is that you can open an account with your French address without any issues. Not many custodians allow it, but we partner with custodians who do. This provides peace of mind for the client, knowing that they receive mail in France and everything is set up with their French address.
And if you have an IRA but not a Roth IRA, you have the option to open a Roth IRA even while residing in France. You can contribute to the account based on your earned income, provided you meet the eligibility requirements. Additionally, you can perform Roth conversions annually. This means that until December 31st of each year, you can decide on the amount and convert from a traditional IRA to a Roth IRA. By doing so, you can benefit from tax-deferred and tax-free growth.
DERREN JOSEPH
That’s good to know. You mentioned the Roth, assuming that there is income, right? Because taxable income is required, correct? Yes, I remember seeing a debate where some teachers at an international school, along with their preferred tax advisor, argued that the only reason they lack income is because of Section 911 of the foreign income exclusion. So, without that exclusion, they would have income and would be able to invest in a Roth. They were even planning to challenge the IRS on this. Do you know of anyone else who has taken that position? Are any other expats who were successful?
CEDRIC BERNIER
Right, I get it. I don’t have the current information on whether any other expats have taken a similar position and won against the IRS. However, it’s something that hopefully will change. But even if you cannot contribute to a Roth, you can still contribute to a traditional IRA and then perform a backdoor Roth conversion gradually. So, yes, if you can, that’s great. And if you can’t contribute to either, at least you can ensure that your existing IRA is set up so that your French address doesn’t create any problems.
DERREN JOSEPH
Okay, I understand. Indeed, certain platforms in the US may not be accommodating towards clients who have relocated outside the country. I’ve come across clients who claim that using a VPN solves the issue, while others mention that even with a VPN, they still face restrictions and get locked out, unfortunately.
CEDRIC BERNIER
Yes, the stories I hear the most are about having an account, specifically an online account, and relying on it for all transactions. However, at times, the account gets unexpectedly shut down. Consequently, resetting the online account becomes problematic because it requires a US phone number. If you don’t have a US phone number, certain platforms may discover that you’re not in the US and proceed to close your account. I used to be employed by Wells Fargo Advisors, and they made a financial decision to discontinue serving the expat market. Essentially, I had to inform my clients that, regrettably, due to their residence in Norway, we could no longer continue our services. It was difficult to notify them that, after 10 years of serving them, we had to let them go and close their accounts.
So, it’s happening more and more. You see Merrill Lynch, JP Morgan, and even fidelity. It’s kind of all over the place. The firms are making that financial decision to not deal with expats, and you have to be aware of that, especially if you use someone else’s address. You might not receive an email or notice, and if you’re not paying attention, the account could close without your knowledge. So, it could be a big tax event.
DERREN JOSEPH
And to clarify, this has nothing to do with SEC rules. It simply relates to the policy framework of the financial institution. They don’t want the additional compliance burden, which comes with an extra cost and risk when dealing with Americans abroad. Am I correct in stating that?
CEDRIC BERNIER
Yes, and even though some firms don’t permit it, it’s ultimately up to each advisor to decide how they apply the rules. An advisor may be aware that a client is overseas and that changing the address is not possible, yet they want to retain the account and the associated revenue. Sometimes, the advisor themselves will eventually make the decision to continue without disclosing the client’s overseas status. However, in some cases, management may intervene and require disclosure. At that point, the advisors must comply and align with the firm’s policy. But yes, during my time at Wells Fargo Advisors, we were still keeping it somewhat hidden.
At some point, management made it clear that the policy had no exceptions. While certain firms may be slow to implement changes due to their desire to retain clients, more and more firms are becoming increasingly strict in the past few years. It’s important to note that these decisions are primarily driven by financial considerations rather than regulatory requirements.
DERREN JOSEPH
Absolutely. Okay, so the next question on our list is: Do I pay VAT or charge it when I invoice clients outside of France? I suppose if you’re not an entrepreneur but rather self-employed or a consultant, this question often arises. The answer really depends. I was discussing it earlier with Hervé. Unfortunately, he’s not currently online to further delve into it. However, some of the questions he would typically ask include: Are you selling goods or services? Are you certain that you have no clients in the EU? Is it strictly outside of the EU?
Do you sell to companies or individuals? Do you sell through an online portal? And if so, where is the online portal located? These factors need to be considered, making it a complex question to answer. However, in general, if you are a service provider with clients outside of the EU, you may not need to charge VAT. Nonetheless, it’s advisable to seek specific advice regarding the particular nuances of your situation before proceeding.
DERREN JOSEPH
Okay, onto the next question. What should I do if my brokerage account in the US is frozen or if I receive an account closure notice? Cedric,
CEDRIC BERNIER
We touched upon this earlier, but the main thing is not to panic. If you’re unaware of the options available, it may seem like a daunting situation, with the account closure being a harsh reality. However, there are actions you can take to address it. Everything can be handled electronically. When a client receives a three-month notice, it’s relatively simple. We can open a new account within one or two weeks, and all the necessary processes can be done electronically. There’s no need to rely on traditional mail. Funds can even be transferred electronically with most custodians and companies. Therefore, it’s advisable to plan ahead and be proactive.
Obviously, it is better if you can handle it before such a situation arises. However, if you receive that notice and you can act promptly, it can be done within a few weeks. As long as you have your statement, typically, one statement is enough for us to review the account, create another account, and transfer the funds in just a few weeks. So, it is indeed possible.
DERREN JOSEPH
Okay, fantastic. I want to welcome Hervé to our Zoom Livestream. It’s great to see you. Would you like to say a few words? Introduce yourself.
HERVÉ BELOEUVRE
I’m a chartered accountant. I am in France, in the Paris area, and I work for quite a number of English-speaking clients from several countries. I assist them with French taxation rules and administration in general.
DERREN JOSEPH
Okay, fantastic. Thank you for joining us. Just moving on to the next question: I’m on question seven. Hello, can you help with a 1040X? You filed a dual-status return for 2022, and an error was made. Okay, so I assume that you have left the US and are now a tax resident in France. Since 2022 is your final year of residency in the US, you are neither a citizen nor a lawful permanent resident, and you do not hold a green card. So, for part of the year, you were a US taxpayer, and for part of the year, you were not, or perhaps you surrendered your green card or passport at some point during the year.
DERREN JOSEPH
So again, for part of the year, you were a US taxpayer, but for another part of the year, you were not. To correct this, you need to file something called a dual-status return, which indicates to the Internal Revenue Service (IRS) that you were a US taxpayer for a specific period. However, since you ended the year not being a US taxpayer, you would not file a regular Form 1040. Instead, you would need to file a Form 1040 together with a Form 1040NR, and depending on your circumstances, you may also need to file Form 8854.
Now, regarding your question about making a mistake, if you made an error, the IRS typically sends a vaguely written letter notifying you of the issue. Although you haven’t mentioned the specific mistake, the best course of action would be to resubmit the entire tax return with the necessary corrections.
DERREN JOSEPH
And since you made a mistake on your own, you’d probably want to speak with a professional service provider to ensure you get it right because this is your final return. We don’t know your circumstances, such as whether exit tax calculations are due, etc. So, the point is that the implications of getting it wrong can be quite expensive. So, you’d probably want to seek advice to ensure you do it correctly. However, you probably aren’t able to adjust just one part of it. It stands as one submission, from Form 1040 to Form 1040NR, including the schedules and everything else associated with it and potentially Form 8854, if applicable.
DERREN JOSEPH
So, I hope that helps. Moving on to question eight, why is it hard for Americans to find a brokerage firm or bank in France or the US that wants to provide service to them while living in France? Cedric, what are your thoughts?
CEDRIC BERNIER
Yes, we touched on that as well. I think the banks, with FATCA—I mean the banks in France—have to report to the IRS. So, they don’t usually want to deal with Americans. Some do sometimes, and we see private banks in Monaco. I have some clients who want to invest, and they are Americans, or they want to have a bank account. There may be some banks that will help, but they usually require having a bank account. They want to provide an investment account for the clients. And then, yes, in the US, as we mentioned, most firms don’t want to deal with all these rules and regulations.
CEDRIC BERNIER
So, it’s all about following these rules and the associated costs and compliance issues. Yes, I would say that more and more, you see firms following the rules in place. As we mentioned earlier, sometimes it’s more of a financial decision for them.
DERREN JOSEPH
And to your point, that’s why the banks in Monaco and France would prefer it to be an investment account. This way, they can ensure that it’s worth their effort and the additional compliance burden.
CEDRIC BERNIER
Yes, because I frequently encounter banks in Monaco, and sometimes they require a minimum of one, five, or ten million dollars for Americans. The reason behind this is the cost involved. Banks are reluctant to engage with American clients unless it proves to be financially worthwhile. That’s precisely why we specialize in helping Americans in France, as limited options are available. There aren’t many professionals who hold licenses in both France and the US, making it extremely challenging for individuals to find someone with the necessary expertise.
DERREN JOSEPH
Understood. So, in that case, what would be your role? Would you act as an introducer, or what role do you play in helping the US taxpayer access banking facilities?
CEDRIC BERNIER
Yes, that’s correct. Many banks, especially private banks in France or Monaco, don’t allow individuals to simply walk in and open an account. You typically need an introduction from someone or have a substantial amount of wealth, such as five or ten million or more. In my role, I act as the introducer and work in partnership with these banks. Depending on the client’s needs, we can assist with various services. For example, given the significance of the wealth tax in France, we can help American clients deposit their cash, which can remain in cash or be invested. Additionally, we can help them leverage their assets by obtaining a mortgage with no income requirements. Generally, a deposit of around one million can secure a mortgage of around 1.7 million with a low-interest rate of below 5%.
CEDRIC BERNIER
So that’s the kind of services we can offer Americans that they probably won’t find on their own because it’s hard to find. But yes, that’s what we do.
DERREN JOSEPH
Okay, fantastic. Hervé, any comments on the challenges foreigners face when banking in France?
HERVÉ BELOEUVRE
As I understand, it’s clear that the FATCA regulations pose a significant threat to French banks, and they can face substantial financial penalties if something goes wrong. As a result, small American clients may not be of interest to them. This situation has created difficulties for some American clients when trying to open bank accounts in France. Moreover, it’s not only a challenge for Americans but also for non-residents from other countries globally. Non-residents are generally not well-considered by French banks.
HERVÉ BELOEUVRE
And the problem is that if you have some real estate in France, the French tax office wants a French bank account for paying local taxes, et cetera.
DERREN JOSEPH
So, you’re saying it’s not just Americans but in general.
HERVÉ BELOEUVRE
I was very surprised to see that a citizen from Luxembourg can’t put up a bank account first. I don’t know exactly why.
DERREN JOSEPH
I guess, to your point, there’s a risk. I guess banks see that there’s a risk if they get the slightest thing wrong. It’s not just major findings but reputational risk as well. So, they’re just going to be super cautious.
DERREN JOSEPH
Moving on to the next question, I’m looking at question nine. Could you please explain how the expatriate tax regime works for those moving to France? Hervé, this may be one for you.
HERVÉ BELOEUVRE
First, it’s important to clarify that the expatriate tax regime in France does not apply to all Americans moving to France. It specifically applies to non-residents who are called upon by a company to work in France. To benefit from this regime, which can be quite advantageous, you must first have a work contract stating your company’s request for relocation to France. Within this contract, the premium or compensation for the expatriation will be defined.
HERVÉ BELOEUVRE
So, it can be your company that tells you to come to France, or you can have a new contract and come to France to work for this company. But overall, it is not open to everyone. And it is open to those who have the intention, I would say, to come to France to work for a foreign company. After that, it becomes very interesting because your expatriation premium is subject to favorable taxation for eight years. But yes, it requires a lot of paperwork before coming in, and you need to inform the tax office that you are considered an expatriate, etc.
DERREN JOSEPH
Right. So, that’s the key thing, and I guess that’s what makes it quite challenging. There must be some sort of affiliated company already present in France that is hiring you from the related company in the US.
HERVÉ BELOEUVRE
Yes. And it is usually dedicated to high potentials, right? It’s for someone that you will get in the US or elsewhere and say, please come to France, and I am ready to pay for that.
DERREN JOSEPH
Right. And as for high-potential individuals, is there a minimum income that they typically consider?
HERVÉ BELOEUVRE
No, there is no minimum requirement, but you will need a lot of paperwork because to determine the premium, you will have to compare your salary with the average salary for the same position in France. So, for example, if you were paid 20% more because you were coming from outside, then those 20% would not be subject to taxation.
DERREN JOSEPH
So, you get a tax break on the incremental bonus you get from moving to France. And regarding potential capital gains, are there any tax breaks available if you sell capital assets?
HERVÉ BELOEUVRE
Yes, there are quite a number of other advantages. For example, if you come from the US and have stocks there when you sell them, your capital gains will be taxed only for half of the amount.
DERREN JOSEPH
Okay. That’s pretty interesting.
HERVÉ BELOEUVRE
And there is quite a lot of information available because what happens if I come first and then my family joins me the following year, etc. So, there are many conditions, and in a way, it is a regime that requires caution. Therefore, it is important to inform the tax office and ensure everything is in order to avoid any unpleasant surprises in the future.
DERREN JOSEPH
Right. So, in other words, you should submit paperwork in advance of the move to make sure everything is okay.
HERVÉ BELOEUVRE
Yes, it is. The text clearly says that you should have a work contract before coming to France and saying what will be the bonus for expatriation, et cetera.
DERREN JOSEPH
And roughly how long would the regime be available to that person?
HERVÉ BELOEUVRE
The regime will be available for eight years. And It is not open to people who are French tax residents for the five years before coming.
DERREN JOSEPH
Right.
HERVÉ BELOEUVRE
But when you are under this regime, for example, you can work for one year in Germany and then return to France, and the regime continues to apply. So, it can become quite complicated, I guess.
DERREN JOSEPH
Right.
HERVÉ BELOEUVRE
But of course, it can be very interesting for some people.
DERREN JOSEPH
Right. After eight years, do you have to leave and go back or suppose you really like it in France and want to stay? No?
HERVÉ BELOEUVRE
No, no. The objective is to attract highly talented individuals to come to France. So, we are willing to make tax concessions to incentivize them. However, after eight years, you become a regular French tax resident.
DERREN JOSEPH
Okay, understood. Thank you. But?
HERVÉ BELOEUVRE
But you have time to get inhabited. It’s Good.
DERREN JOSEPH
Question 10, can I transfer my US investment accounts to Europe as an American Cedric?
CEDRIC BERNIER
Yes, that’s something that most people don’t know: it is possible. So, if you have US investments, like US ETFs or stocks, they are taxable in the US. You can transfer them to a European platform, but they will still be subject to US taxes, even with your French address. However, we can assist you in transferring the assets in kind and retaining them. That’s not a problem.
DERREN JOSEPH
Okay, fantastic. I just saw someone. I think Jennifer just asked a question; can you send it again because it got lost as things are scrolling up? Sorry about that. Next, is question 11, are US pensions and social security taxable in France, Hervé?
HERVÉ BELOEUVRE
I was checking the tax convention, and it says that pensions made under the social security legislation of a contracting state or resident of the other contract state shall be taxable only in the first pensions. So, if you get pensions from the US, they are taxable only in the US.
DERREN JOSEPH
Only in the US? Okay.
HERVÉ BELOEUVRE
Yeah.
DERREN JOSEPH
Hmm… So, it will only be taxable in the US and not in France upon distribution. Okay, understood. And it doesn’t make any difference based on the nature of someone’s employment before they retire. Whether it’s pensions and social security from the private sector or the government, am I correct in saying that?
HERVÉ BELOEUVRE
Yes, there are two articles in the convention. Honestly, I don’t know them by heart. But generally, what I understand is that public remuneration is only taxable in the country where it is paid.
DERREN JOSEPH
Cedric, what is your experience with the pension space?
CEDRIC BERNIER
Yes, this aligns with my experience with clients. The French pension is only taxed in France, the US pension is only taxed in the US, and the same goes for social security. So, it’s indeed a great benefit. The tax treaty between France and the US is considered one of the best. I have clients in Australia and other countries where the tax treatment is not as favorable.
In some cases, even the Roth IRA is subject to taxes. Italy has additional taxes as well. But in France, it’s different. France has a great tax system for this.
DERREN JOSEPH
So just to clarify, whether it’s a Roth IRA or a traditional IRA or derived from public or private service, it doesn’t matter. The taxation will only occur in the US and not in France.
CEDRIC BERNIER
Yes.
DERREN JOSEPH
Okay. So that’s good news. Definitely, good news because in Spain (Streamline your US tax returns in Spain with our efficient and dedicated team. Contact us) and Portugal, American clients have lots of issues with that. So, France wins.
CEDRIC BERNIER
Yeah.
DERREN JOSEPH
Okay, moving down, Question 12: Can I invest in ETFs as a US expat living in Europe?
CEDRIC BERNIER
Yes, that’s a question I often hear because Americans want to diversify. Sometimes, they don’t want to invest in individual stocks because they are aware of specific issues when buying mutual funds in Europe. So, for my clients with IRAs, we can purchase ETFs without any issues. However, when it comes to cash investments or taxable investments in Europe, it becomes a bit more complicated. Sometimes clients need to be classified as professional clients under the MiFID rules in order to buy ETFs. We can find ways to work around that by using different platforms and offering model portfolios consisting of US ETFs specifically designed for our clients.
We can also move over ETFs from the US, and we can keep them as well in Europe. And then if a client has at least 500,000 and then we can, you know, they can be considered professional clients. They have different rules to follow, but we can work with them to get them compliant, and then we can buy ETFs for them.
DERREN JOSEPH
Hmm. So bottom line, it is a challenge, but you and your team have ways of legally and properly working around it.
CEDRIC BERNIER
Exactly. Yeah.
DERREN JOSEPH
Okay. Sorry. So, someone is sending me a message on another platform, so I need to read it off here. Okay, so Simon is asking if you were recruited and have worked in France for a year and filed your first French tax return, but you didn’t know about the special regime, and your contract didn’t mention the bonus expatriation. Is it possible to define the bonus expatriation retroactively? Hervé?
HERVÉ BELOEUVRE
Sure, if you want to gamble and take some risks, why not? But I wouldn’t suggest you do that because I consider it dangerous. There is a risk that after one year, it may go unnoticed, but in the second or third year, the tax office will come knocking at your door and ask you to justify that you were an expatriate.
Honestly, we don’t see that regime every day. Okay. So, it exists in the law, but it is not for everybody. And I’ve seen a few examples where it is only done by big companies. It is something you do with your employer; you don’t do it alone or by yourself.
DERREN JOSEPH
Cedric, any comments or thoughts you want to share?
CEDRIC BERNIER
No, I don’t have any comments on that.
DERREN JOSEPH
Okay. So ideally, it’s best to do it in advance rather than retroactively. If you choose to do it retroactively, you’re taking a risk. So generally, it is not recommended.
HERVÉ BELOEUVRE
Only in this case, I would suggest scrutinizing the text closely. For instance, returning for a few months and then deciding whether or not to come back can be a strategic approach to determining tax residency in different countries. Being aware of the problem and carefully examining the text can enable intelligent decision-making.
DERREN JOSEPH
Okay. So, she says she’s happy with that answer, and she’s very risk-averse. So, next question: I’m a freelancer living in France, working with US clients. I live in Strasbourg and am a Lebanese citizen, but I’m a tax resident in France. The question is not very specific, but we can just speak about the issues.
DERREN JOSEPH
As a freelancer, it is essential to ensure that you are properly registered, such as an autonomous, entrepreneur, or self-employed. You should speak with someone to ensure that everything is compliant. We previously discussed whether you should charge VAT to clients in the US, and it is a conversation you should have as well. Hervé, do you have any additional thoughts on this general situation?
HERVÉ BELOEUVRE
In general, if you live in France, you have to pay social contributions and taxes in France, even if you only work for US clients. Regarding VAT, services are usually taxed in the country where they are produced, so VAT should be taxable in France. The fact that the freelancer is Lebanese doesn’t matter.
The tax office in France only looks at whether you are a tax resident or not. After that, the law is the same for French people, Americans, and for Lebanese people.
DERREN JOSEPH
Hmm, indeed. And assuming, well, we don’t know the nature of the work being performed, but let’s assume it’s some sort of consulting service from a US point of view. Generally speaking, there should not be any US tax issues at all because, as you said, the work is being performed in France. So, it is 100% a French tax matter, not the US. Assuming there’s no dependent agent or permanent establishment in the US, it is solely subject to French tax laws.
HERVÉ BELOEUVRE
Except for example, if he has a mission in which he must spend, let’s say, three months in the US, then maybe he can consider that he has a permanent presence in the US. In that case, for his earnings in the US, he would be subject to US taxes, and this would not be considered in the French taxes.
DERREN JOSEPH
That’s a very good point. So, for whoever asks this question, if it is that you have any physical presence, do you have any boots on the ground in the US at all? That changes the whole structure of what we are discussing.
HERVÉ BELOEUVRE
The matter is not spending one or two days; it is having a permanent base in the other company.
DERREN JOSEPH
Indeed, I hope this helps. If you want specific advice, please reach out to Hervé directly, and he’ll be able to guide you. Okay, Question 14, I’m looking forward to today’s webinar. My general questions revolve around tax equalization for retired American expats living in France. For example, if taxes are paid in the US on interest and capital gains, does it mean no taxes are paid in France, or are there nuances and thresholds that we need to be aware of? Am I correct in assuming that France will not tax Social Security and withdrawals from my IRA Roth or IRA? A lot of questions there. Hervé, do you want to take a bite?
HERVÉ BELOEUVRE
Just to clarify, the principle of the tax convention between France and the US is that a single revenue is taxed in one country or another, but it is not double taxed thereafter. The tool used to avoid this double taxation is to declare the revenue that is to be taxed in the US in France, but there will be a tax credit that eliminates French taxation. However, I don’t know exactly how this tax credit is calculated, and I cannot say for certain whether it eliminates taxes such as CSG, which is a tax used for social contributions or related services in France. So, there is a tax rate you must declare.
DERREN JOSEPH
Okay. So, I guess that he, he speaks about that there’s retirement income, there’s interest income, and there’s capital gains, right? So, the retirement income we discussed at length previously, so that’ll be taxable in the US only, not in France, with all things being equal. In terms of the interest in capital gains, we are saying that, well, if it’s US sourced, so the US is going to tax it. But when France looks at it, they’ll give credit for what has already been paid in the US, and the difference, if any, would be payable to France. Am I correct?
CEDRIC BERNIER
Yes, I think you are correct.
HERVÉ BELOEUVRE
I think so too. But, honestly, in those cases, I’d go back to the tax convention. Yes, I read it, and there are so many cases that I prefer to read against the tax convention before I answer.
DERREN JOSEPH
es, absolutely, absolutely. So, whoever asked this question, please reach out to Hervé.
HERVÉ BELOEUVRE
In certain countries, there is a system of taxation at source. In such cases, a certain percentage, ranging from five to 15%, is withheld as taxes in France, for example. Therefore, there are numerous different cases worldwide, each with its own specificities.
DERREN JOSEPH
Cedric, any comments or thoughts?
CEDRIC BERNIER
Yes, I agree. There is no double taxation for pensions or retirement accounts, which is great news. The Roth account is tax-free in both countries, which is also a positive aspect. Each case may vary depending on the individual’s income, but generally, US investments are taxed only in the US, and a tax credit is applied in France.
HERVÉ BELOEUVRE
Okay. And you may think I am a bit too cautious, but I have witnessed cases of individuals who have traveled around the world. For example, they have funds in the US, as well as in Germany and France. Therefore, we need to examine the client’s situation thoroughly. It may not depend on only one tax convention but possibly on several, depending on their sources of income and properties.
DERREN JOSEPH
Correct. Because I’ve spoken to clients who, in this case, would have left France to work in the US or elsewhere, and they took a position that literally interprets the tax treaty. However, the French tax office issued a notice stating that it was a misinterpretation and abuse of the convention, denying their claim. So, I agree with you that people need to be extremely cautious and not assume that a position is legitimate just because they saw it in a Facebook group or heard it from a friend. You need to look very carefully.
DERREN JOSEPH
The last question is quite long-winded, but let’s quickly summarize it. So, there is an individual who is a US and UK citizen who has moved to France. They are working from France, still employed by a UK company, even though they are not considered a proper tax resident in France. According to their statements, there is no real substance or staff in the UK, and they are essentially working alone. In any case, they have set themselves up as auto-entrepreneur in France to qualify for what they referred to as “Vitale.” The question is, do you have any comments on this structure? Specifically, can it be simplified? Hervé, what are your thoughts? Just top line, just very generally.
HERVÉ BELOEUVRE
My general thought is that when it comes to “Vitale,” it implies that they are working in France and therefore need to pay social contributions in France. An English (UK) company can employ someone in France without having a physical establishment there. The situation has been well described, and there are solutions available for this scenario. I suggest that the structure should depend on the revenue amount, as there are always generic costs associated with it. If the revenue is not substantial, it would be preferable to keep things simple. In such cases, working with a French company while in the US or even with a UK company is possible.
There are no problems with that. So, what is the interest in having a UK company? I don’t know. If you have some permanent people working in France, it will mean you have a permanent basis in France. So, you will be taxed under French laws for this part of the activity. So, really, what is the interest of having a UK company? If you don’t have any real activity in the UK, I don’t understand. It seems to me that by using less complexity, you can simplify the structure and potentially gain advantages.
DERREN JOSEPH
So, the person provided a lot of information, but there are still some missing parts. Considering this, I have a thought regarding the use of exotic structures like Estonia, Cyprus, or Malta that other tax advisors often propose. My thinking is, and I would appreciate your thoughts on this if there is no genuine economic substance in those jurisdictions, would the tax office in France potentially disregard the structure and subject everything to taxation in France?
HERVÉ BELOEUVRE
I would first consider the objective of the client. It is not the same thing if you intend to spend five years in France and then return to another country or if you plan to stay for four years and establish your residence in France. Generally, France is known for its heavy taxation, but the quality of life for French citizens is still quite good. So, it could be a matter of deferred revenue, among other factors. Therefore, it is important to determine the client’s objectives in order to provide appropriate advice.
HERVÉ BELOEUVRE
If you plan to stay in France for a long time, we have very good financial products available in the country. I can never be certain if a financial product from another country would qualify for favorable tax treatment in France. If I had a client who asked, we would read the tax convention together. It is essential to determine whether the product is categorized as an IRA or a Roth IRA and whether it generates any interest income. Do you earn some pension? Is it capital gains? I would say it in very simple words to not complicate things.
DERREN JOSEPH
Cedric, any thoughts?
CEDRIC BERNIER
Yes, I actually assist clients in the same situation. These clients are Americans who may have worked in the UK for five to ten years and now reside in France. I hold investment licenses in the UK, allowing me to handle similar types of pensions. In the UK, there are defined contribution and defined benefit plans. However, since Brexit, it has been challenging for British expats, especially those with private pensions, to either cash them out or manage them from France. Hence, we offer rollover services to help clients with their US IRAs, 401ks, as well as their British pensions.
Then we can assist in rolling them over and managing them for them. It is important to understand the rules when you move from the UK to the US. Most people start saving when they’re younger, and when you save in different countries, you have to know that there are different rules. So, you cannot combine the accounts. A lot of people ask, “Can I combine my UK pension with my US pension and my French pension?” No, they all have to be separate. But we can assist them with that and provide the necessary support in managing each pension separately.
HERVÉ BELOEUVRE
Yes, tax offices don’t work together.
DERREN JOSEPH
Wonderful gentlemen, thank you so much for sharing some of your time and your insight Cedric; if someone wanted to reach out to you to discuss these matters further, what’s the best way for them to reach you?
CEDRIC BERNIER
Yes, I work for Harrison Brook in France, so they can email me; I don’t know if we can share my information/ my phone number.
DERREN JOSEPH
Yes, please,
CEDRIC BERNIER
Yes, so my phone number is a French number (+33) if you’re out of France. But if you’re in France, It’s 0767617406. I usually give a free consultation for clients because we want to build a relationship and get to know them before they make a decision to move forward, and yes, I’d be so happy to help
DERREN JOSEPH
And Hervé? How about you?
HERVÉ BELOEUVRE
It’s in the chat box.
DERREN JOSEPH
Okay, so that’ll be hb@cabinetbeloeuvre.fr
And Cedric’s email is cedric.bernier@harrisonbrook.com
DERREN JOSEPH
Gentlemen, thank you very much for your time, I deeply appreciate it, and we’ll see you all next time.
HERVÉ BELOEUVRE
Thank you. Bye-bye.
CEDRIC BERNIER
Thank you. Thank you. Bye.
VOICE-OVER
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