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DIRECT TAXES
Method of taxation of rental income in France
When the gross rental amount is lower than 27,000 euros and does not exceed 50% of the total income, it must be reported in 5C of the form no 2042.
Dividends paid by a French company to an individual resident of the United States, are subject to a 15% withholding tax in France. In order to benefit from this 15% reduced withholding rate , the US residents must file form RF1AEU No 5052 (or US form 6166) certified by the US tax authorities that they are indeed tax residents of the United States. and is also subject to a 15% withholding tax. Some investments are compensated by interest payment (bonds, Government loans, cash vouchers...). When they are paid to a resident of the United States, they are not taxed in France but subject to the US income tax. Copyright referred to in article 12.4(a) are taxable only in the country of residency. Other royalties are subject to a 5% withholding tax in the country of origin. Thus French royalties paid to a US resident are subject to a 5% withholding tax in France. They are also taxable in the United States with the deduction of a foreign tax credit for the 5% withheld in France. - Capital gains realized on the sale of real estate are taxable primarily in the country where the property is located. It is also subject to taxes in the country of residency. Capital gains realized by a US resident on the sale of real estate located in
France, are subject to a 33.33% withholding tax in France. They are also be taxable in the United States but the
income tax will be reduced by a tax credit equal to the tax withheld in France.
- Capital gains realized by an individual on the sale of movable property (e.g.
investment portfolios) are usually taxed in the country of residency.
Thus, a capital gain realized on the sale of French stocks by a US resident is
taxable in the United States.
DEPENDENT PROFESSIONAL SERVICES : An employee, who is not a US citizen, residing in France is taxable only in France
unless he performs his professional activities in the United States.
He remains taxable in France if he stays less than 183 days in the United States and
if his wages are not paid or supported by a company or a US permanent establishment.
Place of taxation
Pensions
received under the law on the French social security system are taxable only in France.
The French social security
pensions :
the pensions paid by the French social security administration (general plan, agricultural
social insurances and special plans), and
the pensions paid pursuant to the complementary plan for executives (by institutions
affiliated to AGIRC) and to the complementary plan for non-executives (by institutions
affiliated to ARRCO).
Pensions
received from the French Government: article 19 of the treaty paid to a US citizen or resident
are taxable in France and in the United States. This also includes veteran and deportation
pensions. The double taxation is eliminated by a tax credit on the US side (foreign tax
credit): the tax paid in France is deducted from the US income tax. The amount of the
foreign tax credit is calculated by using the US form 1116. Invalidity pensions are
usually exempt from tax in France and in the United States. The public pensions
received in 2007 and the years after will only be taxable in France and in the State. They
will not be taxable at the Federal level anymore.
All
other pensions from French sources which are paid to residents or citizens of the United
States are taxable in the US.
Method of taxation in France
When
they are taxable in France, pensions paid to a US resident or citizen are subject to a
withholding tax. The amount of this withholding tax is determined at the level of the tax
household ("foyer fiscal")
It
is computed on the total of all pensions after the deduction of the abatements of 10%
(possibly limited to a € 3446 ceiling). The withholding rates are as follows :
Bracket subject
to withholding 2006 income 2007 income Rate Under 13170 Euros under 13408 euros 0% Between 13170 and 38214 euros Between 13408 euros and 38903 euros 12% Above 38214 Euros Above 38903 euros 20% - If several members of your household receive pensions taxable in France or if the sole
pension received exceeds € 38214 in 2006 (after deduction of the 10% a abatement), you have to file a tax return no 2042 before June 30, 2007 and
report the total amount received.
- The 12% withholding tax is final, whereas the exceeding bracket must be taxed at a
progressive rate in combination with, if necessary, the other French source incomes.
Method of taxation in United States
- When pensions are paid by a US retirement fund, they are subject to a withholding tax paid
to the IRS.
- The French-source pensions are not subject to US withholding tax. Therefore, the recipient
must make four payments for income tax purposes (April 15, June 15, September 15 and
January 15) during the year of receipt of the pension.
Calculations
of these quarterly payments (estimated tax) are carried out using the US form 1040 ES.
- Before April 15 of the following year, a tax return no 1040 must be filed for
regularization purposes.
Pensions French citizen living in France(1) US citizen living in France French or US citizen living in the USA
French social security &
AGIRC-ARRCO Country of taxation Filing requirement Country of taxation Filing requirement Country of taxation Filing requirement
France In France In the US In France In the US In France In the US Form 2042 None France Form 2042 None (3) France
Withholding tax & 2042 None US social security USA Form 2047 & 2042 Withholding tax & 1040 (2)
USA Form 2047 & 2042 Withholding tax + 1040 USA None Withholding tax + 1040 French public pension France Form 2042 None France & USA Form 2042 Estimated tax + 1040 with foreign tax credit
1116 France & USA Withholding tax & 2042 Estimated tax + 1040 with foreign tax credit
1116 US public pension France Form 2042 None USA Form 2047 & 2042 Withholding tax + 1040 USA none Withholding tax + 1040 Private pension for activity conducted in
France or outside the US France Form 2042 None France Form 2042 1040 + foreign tax credit 1116 USA None Withholding or estimated tax & 1040 Private pension for activity conducted within
the US
Art. 24.2.b.IV France Form 2042 None USA Form 2047 & 2042 Estimated or withholding tax & 1040 USA None Withholding or estimated tax + 1040 (1) non dual citizen
(2) 1040 if the withholding tax is
not sufficient or if the taxpayer receives other income taxable in the US
(3) 1040 if the taxpayer receives
other income taxable in the US
An
employee of the French public administration, who is not a US citizen or a green card
holder is taxable only in France, even when the services are rendered in the United
States. This applies also to foreign employee of the French public administration. The
French public remuneration received by a US citizen who does not have the French
citizenship and who lives in the United States is taxable only in the United States. A
green card holder or a dual citizen (French and American) who receives a French public
remuneration is taxable in France and in the United States. The double taxation is
eliminated with a tax credit on US side (foreign tax credit): the tax paid in France is
deducted from the US income tax. Method
of taxation in France :
An employee of the French public administration residing in the United States and
taxable in France must file a French tax return no 2042 before June 30 of the following
year.
The tax is calculated according to the French tax scale.
Method
of taxation in the United States
The French public remuneration taxable in the United States is not subject to
withholding tax in the United States. Therefore, the recipient must pay the income tax in
four installments (April 15, June 15, September 15 and January 15) during the year of
payment of the wages. Calculations (estimated tax) based on the gross amount, are carried
out using the US form 1040 ES. The foreign tax credit is calculated on US form 1116. A tax
return no 1040 must be filed before April 15 of the next year for regularization.
A French resident, who is not a US citizen or resident, who comes to the United
States to teach or engage in research at a US university or other recognized educational
or research institution is taxable only in France for a period not exceeding two
years after the date of his arrival in the United States. He is still required to file a
federal tax return no 1040 NR and a form 8233 to request the exemption of his income
pursuant to the treaty.
A French resident, who is not a US citizen or resident, who comes to the United
States to study at a University or other recognized educational institution, to secure
training, or to study or do research as a recipient of a grant from a non profit
organization under the conditions provided in article 21 of the treaty is not taxable in
the United States on :
gifts
received from France; grants,
allowances or awards from a non-profit organization; income
from personal services rendered in the United States not exceeding $5000. In addition, a resident of France who is temporarily in the United States , as an
employee of a resident of France, to acquire a professional experience or to study in a
University, is exempt on his income from personal services rendered in the United States
not exceeding $8000.
A tax return no 1040 NR has to be filed as well as form 8233 to request the
exemptions provided by the treaty.
The benefits granted by articles 20 and 21 cannot exceed five years.
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