US citizen, French tax puzzle: please help

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US citizen, French tax puzzle: please help


 
 
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Old 12th September 2019, 03:30 PM
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Default US citizen, French tax puzzle: please help

I posted a few weeks ago about forum info helping me get my six month French visa. It's my final “recon mission” before committing to retire in France. Thanks again!

Now I’m back with a question: can you help me understand what French taxes I’ll owe if I retire there? I’ve poured over previous posts, plus links, but still not sure I understand.

Here is a simple scenario that captures all my questions: imagine a US citizen, somewhat early retired, with three sources of annual income: (all amounts in Euros, at current 1.12 exchange rate)

E 18,000 from IRA
E 17,000 from dividends and interest
E 23,000 from the principle of a just matured CD. Interest from the CD is included in the line above

Imagine also that a similar CD comes due each year until Social Security kicks in—with Social Security being the same amount as the CD.

In the US, this combo results in about E1,275 ($1400 USD) in taxes to the US government.

What would be owed to France? Assume the US citizen at first keeps US health insurance, plus the required travel health insurance, but wants to go into the French health system eventually.

From my reading in the forum, it appears that:
The CD principal isn’t even reported in France.
The IRA funds are reported as a US government pension under article 18 of the Tax Treaty, and not taxed in France. But they are counted as income and can push up the tax rate on any taxed money.
Future Social Security would be treated the same as the IRA.
The dividends and interest—no idea how this is taxed. In previous threads, posts by NewYorkerinParis say that these are taxed, but also given a credit that will wipe out the tax. Posts by Bev and others contradict that, saying that this is taxed, and there may be no credit or only a partial credit. For example: http://https://www.expatforum.com/ex...on-france.html
As for paying CSG, I am completely confused!

I look forward to your help!

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Old 12th September 2019, 04:00 PM
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The IRA and (future) SS benefits are treated with that "credit equal to the French taxes on the amount" credit. So yes, you report them and then claim the credit. (Which the tax office calculates - just make sure everything goes into the right lines or boxes on the forms.)

There is no tax - either in the US or in France on the principle of a cashed out CD. The principle part is as if you were simply taking money out of your bank account that has been sitting there for a while. It's only the interest that is subject to tax (in either the US or France).

And the investment income (interest and dividends) is subject to tax as "foreign source income." According to the instructions I have for the form 2047, investment income from foreign sources is given a tax credit at a "forfait" rate according to the provisions of the tax treaty. So you don't report the amount of US tax you've paid on the investment income - there is a flat rate agreed for each country.

Generally speaking, the tax credit for dividends is capped at 17% and 15% for interest - HOWEVER, certain types of interest may be subject to the tax credit at French rates for US citizens resident in France. Apparently, the details on this are in Article 24 of the tax treaty. I've never really looked into it because I don't have any US source interest income.

Just a hint, if you want to consult the US-France tax treaty, use the consolidated versions available from the Washington DC French Consulate https://franceintheus.org/spip.php?article6138
I have never found a consolidated version of the tax treaty on the IRS website - they make you read through all the amendments and "technical explanations" separately.

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Old 12th September 2019, 05:56 PM
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Originally Posted by Bevdeforges View Post
The IRA and (future) SS benefits are treated with that "credit equal to the French taxes on the amount" credit. So yes, you report them and then claim the credit. (Which the tax office calculates - just make sure everything goes into the right lines or boxes on the forms.)

There is no tax - either in the US or in France on the principle of a cashed out CD. The principle part is as if you were simply taking money out of your bank account that has been sitting there for a while. It's only the interest that is subject to tax (in either the US or France).

And the investment income (interest and dividends) is subject to tax as "foreign source income." According to the instructions I have for the form 2047, investment income from foreign sources is given a tax credit at a "forfait" rate according to the provisions of the tax treaty. So you don't report the amount of US tax you've paid on the investment income - there is a flat rate agreed for each country.

Generally speaking, the tax credit for dividends is capped at 17% and 15% for interest - HOWEVER, certain types of interest may be subject to the tax credit at French rates for US citizens resident in France. Apparently, the details on this are in Article 24 of the tax treaty. I've never really looked into it because I don't have any US source interest income.

Just a hint, if you want to consult the US-France tax treaty, use the consolidated versions available from the Washington DC French Consulate https://franceintheus.org/spip.php?article6138
I have never found a consolidated version of the tax treaty on the IRS website - they make you read through all the amendments and "technical explanations" separately.
Bev--

Thanks for the detailed info! Is this how it would be applied in the CD-not-social-security example?

Total income reported in France: sum of IRA, interest and dividends: 39,000
No tax on the first 20,000 from the IRA
Tax on div and interest (actually, let’s call it all dividends for simplicity’s sake here), using the 2019 rates: (found here https://www.french-property.com/guid...ability/rates/)
From 20,001 to 27,519, the French tax rate is 14%, fully eliminated by the tax credit of 17%
From 27,520 to 39,000 the French tax rate is 30%, which reduces to 13% when the 17% credit is applied, for a total of about 1,500 in tax.

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Old 12th September 2019, 07:48 PM
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No, the tax credits are not applied by bracket like that. You take your 39,000€ income and figure the tax on it with no credits.

So, only the first 9964€ of income (from all sources) is at a 0 tax rate.

On 39000 in income, the "gross tax" would be: 5902€
Your overall tax rate is then 5902/39000 or 15.1%

You will receive a tax credit for your US IRA income of 15.1% of 20,000 or 3020€
Then a credit for 17% of the amount of the dividends in the remainder.
If your interest is of a type that qualifies for the "at French rates" credit, then 15.1% of the interest income.

So, for simplicity's sake, let's say your income is 20,000 IRA and 19,000 interest. (No dividends), then you will get a credit for 15.1% of 39,000 or 5889€ and wind up paying 13€ in tax. Those tax credits are done on the overall averages, not against specific brackets.

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Old 12th September 2019, 08:18 PM
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Quote:
Originally Posted by Bevdeforges View Post
No, the tax credits are not applied by bracket like that. You take your 39,000€ income and figure the tax on it with no credits.

So, only the first 9964€ of income (from all sources) is at a 0 tax rate.

On 39000 in income, the "gross tax" would be: 5902€
Your overall tax rate is then 5902/39000 or 15.1%

You will receive a tax credit for your US IRA income of 15.1% of 20,000 or 3020€
Then a credit for 17% of the amount of the dividends in the remainder.
If your interest is of a type that qualifies for the "at French rates" credit, then 15.1% of the interest income.

So, for simplicity's sake, let's say your income is 20,000 IRA and 19,000 interest. (No dividends), then you will get a credit for 15.1% of 39,000 or 5889€ and wind up paying 13€ in tax. Those tax credits are done on the overall averages, not against specific brackets.
Wow, I was way off. As you may have guessed, I am not an accountant or a financial professional!
Thanks for walking through this example so clearly.

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Old 13th September 2019, 06:14 AM
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Quote:
Originally Posted by GraceS View Post
Wow, I was way off. As you may have guessed, I am not an accountant or a financial professional!
Thanks for walking through this example so clearly.
Don't worry - I AM an accountant. And it took me "a few" years to figure out how it works.

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Old 13th September 2019, 07:33 AM
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I admit I don't pay attention to how all this effects US citizens but in general if you take advantage of the treaty rights the US will tax US dividends at 15%. IIRC interest at 10%.

It sounds like the French are giving you a higher credit than that. Which seems strange.

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Old 13th September 2019, 08:11 AM
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It is because you are given a credit at the rate that you would have paid tax on the sums in question if they were taxed in France

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Old 13th September 2019, 09:12 AM
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Quote:
Originally Posted by NickZ View Post
I admit I don't pay attention to how all this effects US citizens but in general if you take advantage of the treaty rights the US will tax US dividends at 15%. IIRC interest at 10%.

It sounds like the French are giving you a higher credit than that. Which seems strange.
No, actually if you read the instructions in French, there is the usual convoluted tax jargon stuff that says that they apply a flat rate based on what the US charges for tax on dividends, but that the French credit is LIMITED to no more than 17%. Not sure if that reflects higher US tax rates in the past (or possibly in the future) or if there are some particular type of dividends in the US that may be subject to higher tax rates, so that 17% is the highest the French are willing to go.

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Old 13th September 2019, 09:53 AM
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Under the US-France tax treaty, for US citizens residing in France, dividends and interest are accorded a credit equal to the amount of French tax corresponding to those revenues. It has nothing to do with the amount of the US taxes paid.

You also shouldn't have to pay any CSG/CRDS on US-source dividends and interest.

This is all a function of the US-France tax treaty; the rules for expats from other countries are not necessarily the same.

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