France is an ever-popular destination for Americans seeking a new life experience abroad, offering incredible history, landscapes and culture, a sophisticated cuisine, and a high quality of life. However, investing as an American in France comes with challenges due to expats being subject to both US and EU rules. In this article, we outline several important considerations to bear in mind when managing your investments while living in France.
- Managing US investments from France
- French retirement accounts
- IRA contributions
- Tax implications for US expats in France
- Investment pitfalls: PFICs, foreign mutual funds and MiFID II
- Currency considerations
Managing US investments from France
As an American living abroad, you must comply with US reporting requirements, including continuing to file a US tax return each year and also filing French taxes. Furthermore, you have to file additional US forms to report any overseas financial accounts and assets you have. EU rules meanwhile can limit your ability to invest in the US. When you file your US https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbartaxes, you can claim either the Foreign Earned Income Exclusion or the Foreign Tax Credit to avoid double taxation of the same income.
Many American expats choose to maintain their US investment accounts when they move to France, for convenience and also to avoid potential US tax complications related to some French investment products. However, some US financial institutions may restrict services to Americans residing abroad for regulatory reasons. Due to this complex financial and investment landscape, it’s advisable to consult with a US expat-specialist financial planner to find out what options you have for continuing to invest in the US, in terms of brokerage accounts and investment types, staying compliant with EU rules as a resident in France, and not limiting your investment opportunities or triggering unnecessary additional reporting or taxes.
French retirement accounts
If you are employed in France, you may have access to French retirement accounts, such as the Plan d’Épargne Retraite (PER). These accounts offer tax-deferred growth and can be a valuable part of your retirement planning strategy. However, it’s important to coordinate these accounts with your US retirement accounts as part of your overall retirement plan.
IRA contributions
Living in France doesn’t mean that you have to stop funding your US retirement accounts. You can still contribute to an IRA as long as you haven’t excluded all your income by claiming the Foreign Earned Income Exclusion. For this reason, it may make more sense to claim the Foreign Tax Credit to avoid double taxation. Your expat financial and tax advisors will work together to plot the best path for you.
Tax implications for US expats in France
If you spend over 183 days in France within a calendar year, you become a French tax resident. As a tax resident, you must declare all of your worldwide income to the French tax authorities, including from investments, rental properties, and pensions. However, the US-France tax treaty provides several benefits:
- US source pensions and retirement income: Pensions and retirement income from US sources, such as IRA and 401(k) accounts, are only taxable in the US
- French source pensions: Pensions from French sources such as the Plan d’Épargne Retraite (PER) are not taxed in the US for American expats living in France.
- IRA contributions: American expats can reduce their French taxable income by deducting contributions made to a US IRA.
- Roth IRA contributions: Available but subject to income limitations.
- Roth IRA distributions: Tax-free in both the US and France.
By understanding these rules, you can optimize your retirement planning and ensure that you minimize your US and French tax bills.
Investment pitfalls: PFICs, foreign mutual funds, and MiFID II
Many French citizens utilize assurance vie, a tax-efficient savings vehicle, but this strategy is not advisable for US expats due to the IRS classification of “assurance vie”, in common with all non-US mutual funds, as a Passive Foreign Investment Company (PFIC). PFICs are subject to stringent US reporting and unfavorable tax treatment, including higher tax rates and interest charges on gains. To avoid the PFIC pitfalls, it’s generally advisable for US expats to steer clear of French mutual funds and instead focus on certain US-based investments or individual foreign stocks that do not fall under the IRS PFIC classification.
However, EU MiFID 2 rules for EU residents limit access to certain US investments, including many US ETFs. As such, consult with an expat specialist investment advisor who will know which investments are both US and EU compliant and best meet your financial planning goals.
Currency considerations
Investing as an American expat has the added factor that you may have investments or want to invest in the US but have or want income in Euros. This presents two challenges: first, that the value of your US investments can rise and fall as the relative value of the dollar rises and falls compared to the Euro, and second, that you stand to lose money when transferring funds between the US and France.
An expat financial advisor will help you plan your investments to minimize risk due to currency fluctuations, while a specialist currency broker can help you minimizes currency exchange losses.
In conclusion, investing as an American living in France requires careful planning and a detailed understanding of both French and US financial regulations. By staying informed about tax implications, choosing compliant and tax-efficient investment options, and staying on top of your cross-border reporting requirements, and seeking advice from financial and tax professionals with experience and expertise working with Americans in France, you can successfully navigate the complexities of investing as an American expat and achieve your long-term financial goals.
If you have any questions about financial planning or investing as an American living in the EU, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
