Editor’s note: There are many reasons why an American may seek to relocate to Europe, chief among them retirement, work opportunities or simply a better work-life balance. This is the second article of a four-part series in which we discuss key financial considerations Americans should keep in mind when considering a move to Europe. In addition to France, we zoom in on Italy and Portugal. Part one, an introduction to the series, is Considerations for Americans Who Want to Move to Europe.
There are several critical financial planning areas Americans need to understand before moving to France.
Historically, many have moved for a job transfer or to retire abroad, but increasingly, Americans with U.S.-based businesses are moving, too.
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This article broadly covers employment and work visas, how to move to France as a U.S. business owner, retirement and tax planning, investing and capital gains, and estate planning and inheritance.
Employment and work visas
For Americans moving for work, understanding visa categories and tax implications is critical. Those transferred by a U.S. company may use their company's visa process. Those hired directly by a French employer need sponsorship for a work permit and long-stay visa.
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Income taxes
The Impatriate Regime, or Article 155B, offers a significant tax benefit for qualifying Americans who move to France for work. It exempts up to 50% of their income from French taxes for up to eight years.
To be eligible, individuals must not have been French tax residents for the previous five years, must be hired from abroad and must receive taxable compensation as wages.
This aims to attract skilled foreign talent (and incentivize skilled French talent to return from abroad) by providing substantial tax savings. It enables Americans to maximize contributions to U.S. retirement accounts, laying the groundwork to benefit from lower U.S. tax rates under the double-taxation treaty.
Navigating moving to France as a U.S. business owner
Many Americans reason that, because their business operations are based in the U.S., their business' tax domicile remains the U.S. even if they, as the owner, relocate to France.
Unfortunately, that's not the case. Activating French tax residency means that your worldwide income becomes subject to French taxation, meaning that you could be double-taxed if you haven't properly organized your affairs before leaving the U.S.
To ensure you're clear on the most tax-efficient route forward, you will want to speak with a French tax lawyer (avocat fiscaliste) about the type of French business entity you should establish.
Additionally, it's a good idea to work closely with a U.S. CPA specialized in working with U.S. business owners who are residents abroad to ensure you depart the U.S. with no loose tax strings.
"Filing as a U.S. taxpayer abroad can feel very different compared to doing so in the U.S. It's not just timing considerations (since almost all expats should consider extending until October 15), but because a whole new set of rules, deductions and credits are introduced," says Nicolás Castillo, CPA and founder of Rook International CPAs and Advisors.
Retirement accounts and tax planning
Moving to France long term requires careful appraisal regarding the allocation of one's assets.
One of the biggest advantages for Americans moving to France is the ability to continue contributing to tax-advantaged U.S. retirement accounts like 401(k)s and IRAs.
Thanks to the U.S.-France tax treaty, these accounts will continue to be taxed at U.S. rates while an American is living in France rather than potentially higher French income tax rates.
This benefit is particularly valuable for retirees. Consider a retired American woman moving to France with $3 million in combined IRA/401(k) balances.
Assuming she takes monthly withdrawals totaling $65,000 annually, under the treaty she would likely qualify for a lower overall tax rate from the IRS on that income vs being taxed at French rates, which could be as high as 30%.
To maximize the treaty benefit, Americans living in France should make maximum contributions to their 401(k) plans and consider contributing to Roth vehicles such as Roth 401(k)s or Roth IRAs, if eligible. Withdrawals from Roth accounts will remain completely tax-free when taken as a resident of France.
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In some cases, dual French-American citizens may not be eligible for tax deductions on U.S.-qualified retirement account contributions.
While withdrawals tend to be more straightforward, long-term U.S. citizens residing in France should consult with cross-border experts in tax planning and financial planning.
Investment portfolios and capital gains
The tax treaty between the U.S. and France also provides strategic opportunities for investment portfolios and capital gains taxes. If structured properly beforehand, capital gains on most investment holdings may be taxable only in the U.S. rather than in France, with some exceptions.
Before relocating, Americans should consider reorganizing their portfolios toward holdings that would remain taxable solely by the U.S. under the treaty guidelines.
Depending on the complexity of one's portfolio, it may be prudent to engage a cross-border financial planner specializing in U.S./France planning to support and guide you.
Wealth tax
France does impose a wealth tax on French real estate assets. This is called the Impôt sur la Fortune Immobilière (IFI). It applies during the first five years of residency in France if you have not been a French tax resident during the preceding five years.
If your net worth in property (the value of your property holdings less any outstanding mortgages) exceeds €1.3 million (about $1.5 million), the French wealth tax will apply to you.
The calculation extends to real estate investment trusts (REITs) as well. Americans may want to reassess their REIT holdings before becoming French tax residents.
Inheritance and estate planning
France calculates inheritance tax differently from the U.S. The tax applies per beneficiary rather than on the total estate value.
There are also forced heirship rules requiring set amounts for legal heirs. This means that according to French law, even if the deceased wrote a will, there are restrictions if they have a living spouse and children.
In essence, spouses and children may not be disowned and prevented from inheriting.
Americans moving to France should review their wills, trusts and overall estate plans to understand how French inheritance laws and taxes could impact their wishes for passing on wealth.
In some cases, trusts may need to be revised or dissolved.
Expert advice may be in order
Enlisting professional legal and financial planning assistance from cross-border experts is important when relocating to France. An immigration lawyer can clarify one's immigration pathway, while a cross-border financial adviser can optimize tax and investment strategies.
It's also a good idea to research U.S. and French accountants with expat clientele who fit your particular profile.
With proper planning across retirement, investments, wealth/inheritance and residency status, Americans in various life circumstances can make the most of the financial advantages France offers over other European destinations.
The next article highlights the financial considerations for Americans wanting to move to Portugal.
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