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Tax Treaty Considerations for Expats in France

Submitted: January 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside France, and intend bring money earned from them into France during your stay. They also apply if you build up some investments in France during your stay, and intend to leave them there after you have left France. France has a network of tax treaties in force with over 100 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in France; only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

The withholding tax rate in France on dividends sent to a country without a tax treaty is 30% (21% for residents of other EU countries, Iceland, Norway or Liechtenstein), if sent to a country with a tax treaty the rate is generally reduced to 15%.

The withholding tax rate in France on interest sent to a country without a tax treaty is 0%, unless it is sent to a non-cooperative jurisdiction (see below).

The withholding tax rate in France on royalties sent to a country without a tax treaty is 33.33%, if sent to a country with a tax treaty they are generally reduced to 10%.

You should be aware that France maintains a list of non-cooperative jurisdictions (NCJ), mostly tax-havens. There is a withholding tax of 75% on dividends, interest, royalties, and capital gains on French real estate and shares in French companies, sent to persons or entities in NCJ jurisdictions. In addition income from the provision of certain services, sent from France to an NCJ, is also subject to the 75% withholding tax. The list of countries currently includes Bermuda, Botwsana, the British Virgin Islands, Brunei, Guatemala, Jersey, the Marshall Islands, Montserrat, Nauru and Niue. Once a country is put on the list, the rules apply from the beginning of the following calendar year. When a country is removed from the list the change is backdated to the beginning of the year.

France’s tax treaties with other countries generally restrict the amount of withholding tax those countries can charge French residents to 15% on dividends, 0% on interest and 10% on Royalties.

For the complete rules and rates it is necessary to read the treaty itself. A link to each France treaty in force can be found here. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in France you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-French country to one with a more favourable tax treaty, or even to France itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than France, you may benefit by becoming tax-resident in France as early as possible. At the end of your stay in France you can also rearrange your affairs to ensure that any ongoing income from French employment or investments is also taxed at the lowest rate possible in the future.

 

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