UPDATE: In light of some additional learning, this post has been updated since it was first written. In short, the tax benefits of being a US citizen living off investment income in France are even better than originally described, and can result in a tax bill of 0 in France, even when deriving gains from taxable accounts.
We recently declared ourselves financially independent, which is definitely a weird and uncertain feeling. We’ll likely wait a couple more years to retire early, add to our FIREhouse (ha!) savings, and augment our early retirement travel budget a bit. Even though RE is a still a little ways out, we’ve been considering where “home” will be when the time comes. We always felt that we couldn’t retire early in France… until recently.
We absolutely adore living here in the EU, and we decided last year to make it permanent (Surprise #1! At least, if you don’t follow me on Twitter…). The European branch of my family lives in France, so we had been looking for ways to be within a reasonable travel distance from them. We had been considering low capital gains tax, high cost-of-living destinations like Belgium and Switzerland. Things began to gradually change over the past year. After a lifetime of believing that EU citizenship by descent was out of my reach, I learned that legally, I was born a French citizen. That means that our daughter also inherited my citizenship, making our life here a boatload easier (Surprise #2! At least, if you don’t read r/ExpatFIRE on Reddit…)
More recently, I had an “ah hah!” moment when I read the US-France tax treaty, which moved France to the top of our list for reasons both personal and financial. France may not be the absolute cheapest tax jurisdiction for us, but a careful reading of the tax treaty shifts it from “too expensive” into “absolutely attainable” territory.
Stepping back for a second, 75% of our investments are in 401(k)s and IRAs, and about 25% are in taxable brokerage accounts. We’ll be doing a very FIRE-standard Roth ladder, living off our taxable investments for the first five years. The key takeaway from the US-France tax treaty is the treatment of US retirement- and pension-type accounts (for US persons), as well as the treatment of taxable accounts:
- Tax-free withdrawals from Roth IRAs are recognized as tax-free (one of few countries that does this)
- IRAs, 401(k)s, 403(b)s, and similar accounts are taxed in the US only.
- Dividends, capital gains from sale of shares, royalties, and a variety of other income types benefit from a 100% tax credit for the tax that would otherwise be owed to France– even if those assets were held in a taxable account.
- Social Security is taxed in the US only.Technically this is from the Social Security Totalization Agreement.
Bearing in mind that withdrawals from IRAs and 401(k)s are taxed in the US as income, they aren’t earned income, which means they can’t be excluded from taxation under the Foreign Earned Income Exclusion. Boo. However, due to the favorable treatment of retirement accounts, capital gains, dividends, and other US-sourced income by the US-France tax treaty, we would be taxed in France exactly as though we were physically present in the US. That is to say, a person deriving all their income from US retirement accounts, or from capital gains or dividends from taxable US-based accounts, can be entirely exempt from taxation in France! Let’s do a quick case study.
An important note: while retirement plan distributions are only taxed in the US, they do get reported as income in France and may shift you into a higher tax bracket. If you ever earn any normal income that is sourced and taxed in France, it may be taxed at a higher rate as a result.
How to Retire in France (And Pay No Tax Whatsoever)
Imagine the following scenario: A married US-citizen couple with FIRE savings of $1 Million decides to retire in France. Their investments consist of 50% in a 401(k) (or IRA), and 50% in taxable accounts. They intend to withdraw 4% a year. Like us, they’ll be using a Roth ladder and living off the taxable accounts for the first five years. Of the $500,000 in taxable accounts, 50% is derived from gains.
For US citizens residing in France, holding shares in US-based accounts, the US-France Tax Treaty provides for a 100% tax credit on French taxes (Page 41, paragraphs 1 and 2 of the US-France Tax Treaty Explanation provided by the IRS), even if those shares are held in a taxable account. That means that you can owe no tax to France, even when selling shares from a taxable account. This is a huge, huge benefit.
There is one caveat to keep track of here: If you are completely professionally inactive (you have no French earned income), and you do not hold a S-1 or S-1 equivalent pension (you probably don’t), then you will be subject to a 6.5% CSM (Cotisation Subsidaire Maladie), essentially a service charge for access to the public healthcare system, on the sale of shares or dividends from taxable accounts. However, each individual also has a 20,568€ exemption. So as long as your taxable account gains don’t go over that amount (or double that amount for a couple) per year, your cost remains zero.
To fund their first five years of early retirement, our couple sells $40,000 worth of stock from their brokerage account each year ($20,000 of gains taxed at the long term capital gains rate). Simultaneously, the couple will roll any 401(k) plans into a Traditional IRA upon retirement, and then annually convert $25,900 to Roth. Therefore, for each of the first five years, we’re looking at $20,000 in LTCG, and $25,900 taxed as income.
This is where the magic happens. Consider the following:
- The long term capital gains tax owed to the US on the $40,000 total/$20,000 in gains from the sale in the taxable account is $0.
- The $25,900 from the Roth conversion, taxed as income, fits within the 2022 standard deduction for a married couple filing jointly (of $25,900). The couple will owe nothing on the conversion to the US.
- The Roth conversion is a distribution from a US pension plan, and per the tax treaty, taxes are “owed” only to the US. The resulting Roth contribution can be withdrawn after five years with no tax in either country.
- The sale of shares from from the brokerage account receives a 100% capital gains tax credit in France. No tax is owed on this sale to France.
- The couple’s $20,000 in capital gains from the taxable account are well under the 41,136€ exemption they have as a couple. No CSM is due.
- Five years down the road, the couple reduces the annual sale from their taxable account to $14,100 and begins to use the Roth conversion funds to make up the difference.
End result? 0% effective tax rate worldwide. Our couple could more than double their sales from taxable accounts before being hit by the CSM charge.
The example is slightly simplified as couple’s withdrawal rate, US standard deduction, and the CSM exemption will increase over time, and their conversions and spending should adjust appropriately.
When they reach age 59.5, the couple’s Roth gains will be tax free in both the US and France. When they reach Social Security age, Social Security income will only taxable in the US. This means it’s possible to retire in France with a lifetime net tax difference of $0, and potentially a global tax burden of $0.
More Than Money
We’ve established that under relatively common conditions, the tax hit to retire early in France is zero for US citizens. It’s not the aim of this blog to talk people into retirement abroad. Rather, if you are reading this post, you likely already have your own reasons for considering such a move. Still, if you had dismissed France as either too expensive or too high-tax, here are some of the concrete, non-cultural advantages you might reconsider, knowing that you may not pay much more than retiring in the US:
- Long term stay visas are available for people of independent means. The Visiteur residence permit, despite its name, is a renewable visa and pathway to citizenship.
- After five years of legal residence (and filing taxes every year), you can become a French– and EU– citizen without forfeiting your existing citizenship.
- Your children can be naturalized between age 16 and 18 if they have lived in France for at least five years. If not, they can remain residents of France past 18 and apply as adults.
- France has the world’s best healthcare system, overall.
- French residents have access to low or no cost university education domestically, and EU citizens have the same rights everywhere in the EU.
- OK, I said non-cultural, but… Baguettes, museums, paté, the Mediterranean, 11 border countries, cheap air travel to countless destinations… This list could go on forever!
… And Who Knows Where Else?
Every tax treaty and every investor are different. If your retirement savings are largely in taxable accounts, perhaps it wouldn’t be quite as easy to retire early in France. Still, for a great many Americans seeking the become financially independent and retire early in France, the dream might not be so far-fetched after all.
What do you think? Given the extremely favorable tax treatment of retirement accounts in France, could you see yourself retiring there? Do you know of other countries with similar tax arrangements with the US? Let me know in the comments below!
This is really interesting. My husband and I moved to Spain two years ago with plans to stay through retirement. I’ll assume you compared moving to France to staying in Spain for retirement. Can you state the difference between France & Spain tax situations for what you are doing? We are doing a similar thing. Any information is appreciated. Congratulations!
We’re still in Spain for the moment, but the situation would be totally different here. Spain doesn’t recognize Roth IRAs as untaxed on withdrawal and the US-Spain tax agreement doesn’t allow for US pensions to be taxed only in the US. In short, all withdrawals– and all Roth conversions– in this case would be treated as ordinary income by Spain, and taxed as such. France doesn’t have a wealth tax (anymore), whereas Spain does. Compared to those same accounts being untaxed in France, you would lose a huge bite to Spanish taxes dollar-for-dollar.
Thank you so much for this information. It’s definitely something to think about. I really appreciate your blog!
Great Article! We are hoping to retire early in about 5 years in Spain since my wife is originally from there. It is unfortunate to hear of the differences in tax treatment between Spain and France. Hopefully, all the additional taxes will be balanced by the savings in moving to a lower cost of living area.
France has low cost area too.
Bonus points – use for foreign tax credit to offset US taxes with income taxes paid in France
See Form 1116
Good man, you’re right! Thanks!
France! Your blog has been very helpful in our move to Spain (we recently arrived in Granada on a Non-Lucrative Visa). We also FIREd! I definitely could see us trying out France at some point…but right now Spain.
Wow, this is definitely something to think about. We retired in 2016 and have been traveling around “deciding” (having fun) where we will eventually settle. We are considering dual citizenship elsewhere taxation could be a big factor in this decision.
Good news on the citizenship front, too, as five years of legal residency and filing (but not necessarily paying, as above) taxes makes you eligible for French citizenship. Some language and integration requirements there, but nothing too tough… and then you’re an EU citizen with access to the world’s best medical care, not to mention the right to take up residence in 26 other EU members.
My dude, I’m just circling back to your blog after catching up with you on reddit last week. Somehow I had seen this post (and even mentioned it to my wife!), seen one of your Spain posts, keep a perma-tab open on TheEarthAwaits, and am only now clicking that it’s all the same person.
I’ve gotta say I’m a fan. You’re doing essentially exactly what we want to do (start off in Spain, move around Europe as the wanderlust and tax advantages take us). You posts on dental/medical tourism is especially relevant as we’re still in the US (and though we have “good insurance…”).
Thanks for the super-high quality content, I am following you with great interest as we’re a few years behind you and love to learn from others’ real-world experience. I owe you a beer, at the least!
Nice article! A small detail that makes France even better: instead of the flat tax of 30% in France, you can opt for the income tax graduated rates, which would drop the capital gains tax on the $20k to around $4,028 (I assumed $1 = 1 euro). A 20.1% tax rate! From what I see, that’s advantageous until around 40k euros of capital gains, afterwards the tax rate goes above 30%.
And if you have revenue from dividends, you can reduce the taxable amount by 40%. But not on bonds revenue… (that is stupid, but that’s the way it is).
Great point, Matt, thanks! I hope that people considering FIREing abroad don’t just write off France as impossible given all of this. Depending on how you have your assets allocated, it can be pretty amazing!
My wife and I are living in France, but not retired yet. We have an income of about €70k per year from salary in France. For our first tax year in France, we used Foreign Tax Credits in the U.S. so we could show earned income in the U.S. to be able to contribute to a Roth IRA. But now we are seriously considering this year doing a Roth IRA conversion of about $100k and using the Foreign Earned Income Exclusion to reduce our taxable income in the U.S. to take the sting out of the U.S. tax bill for the Roth conversion. Our only significant income in the U.S. for 2021 would be the $100k Roth Conversion. But after reading your warning above, I’m concerned this may leave us with a big French tax bill and even possible underpayment penalties. Our French salary is being taxed at the source, but only based on €70k salary in 2 parts. Would our French tax rate now be based on €70k plus $100k? Will that increase the income tax rate we pay on the €70k French salary? Would it also increase any CSG/CRDS or social contributions owed to France?
Hey Dom, sounds like you have a handle on it. Yes, you could apply FEIE to the 70k€ you make in France, but obviously not to the conversions since (as you appear to know) it’s not earned income. Yes, that conversion would increase your basis in France, so the taxation on the 70k€ you make would be as though it started at $100K (around ~86K€ as of today). So yeah, there are definitely some tax implications on the French side. I believe the CSG/CRDS/Social charges are a flat rate, so I believe those won’t change, but I can’t say with absolute certainty as I haven’t been in your position.
Great article. I am planning to retire in France in 5 years or less. What is the cheapest way (least fee) to transfer $ from 401k withdrawals to French bank account? Thank you!
We transfer our money from US accounts to EU accounts using Wise (formerly Transferwise). Beyond a certain amount it may make more financial sense to do an international wire (which has a flat cost) but as we make transfers on a monthly basis, it is always cheaper to use Wise for us.
Thank you so much for your reply.
I know this is old, but for future readers with this question you can further reduce transfer fees by still using US based credit cards to cover a lot of your expenses. Bonus points if it’s a rewards card. I recommend using something like GooglePay/ApplePay so you don’t have to sign every damn receipt.
We are a retired couple thinking of moving to France, following our daughter who just took a job there…
Can you explain where you found the Roth IRA rules in the US-France treaty ? I could not find any IRA or Roth references in the linked document that you provided.
The easiest way to confirm that IRAs benefit from this tax treatment is to read the IRS’s technical explanation of the treaty rather than the treaty itself. If you search for the term “401” you’ll see that both parties agree that for the treaty article about Pensions (Article 18), that US accounts covered by US Code Sections 401(a) (this is the section that includes IRAs and 401(k)s, among others), 403, 408, and 457 are considered “Pensions.” The treaty Article 18 itself is pretty straightforward in terms of stating that pensions paid from the US to a resident of France are taxed by the US (and vice versa) (Article 18, Section 1, (b)):
In terms of Roth, there are a number of places that list France as one of the countries recognizing the tax treatment, but in the end it comes back to the fact that Roth is a tax treatment, not an account type, and that tax treatment can only be applied to account types that are considered by France to be US pensions, which are thus untaxable in France.
Hope this helps.
Wow, how nice to see a official US tax document cover the technicalities of the france us tax treaty. we’ve been living in france for 5.5 years, ie 5 years of declaring our us retired income to the French government , and we are always feeling like the local tax office doesn’t quite follow the tax treaty based on where they tell us to enter our income fields. I’ll definitely be using this version, versus our goggle translated version of the French document for any tax discussions this year. And interesting tidbits earlier on, about moving money over from iras to Roth acts. I would love to do that, but as we have a rental property in the states for our non-retirement income, it makes it harder to calculate how much we will earn each year. I’ll give it a try late in 2023, when we should have a better handle on that. Thanks again.
Could you direct us to resources for tax obligations in Spain? We have always done our own US filings but everything we read here says to contact a Spanish accountant, which we would prefer to avoid. We’re here on a non lucrative visa and just renewed on our own. Thanks!
The best resource I know to walk you through a self-filed Spanish tax filing is Bill Dietrich’s site, linked below. I hope it will help you sort it out without resorting to help!
Thanks again for this. I don’t think we would end up long term living in France but I would be curious what benefits there would be for retiring in France (either for a year or long term) vs just slow traveling there 90 days at a time.
I am not sure what else to add besides what’s above! Basically as a US/French dual citizen, or a US citizen, as long as your resources are in US retirement-style accounts or pensions, you can pay zero to near-zero over what your US tax obligation would be, in addition to having access to French healthcare, potential access to French education (I know you have a little one), and all the other positives of living in a more collectivist society. Obviously these advantages wouldn’t apply if you don’t reside in France. Hope that you are able to find the right scenario for you!
Hi, I was pointed here through Reddit and I’m looking forward to exploring your blog. I don’t know if this article has been updated, but I suggest you take a closer look at Article 24 of the US-France tax treaty and the subsequent protocols. Look carefully at the treatment of all types of US-based investment income for US citizens based in France. You can also take a look at the technical explanation as published by the US Treasury. Yes, the story gets better in your scenarios. https://www.irs.gov/pub/irs-trty/francetech.pdf?fbclid=IwAR3B5ioUj2vZco_H0mDDBBCjBZFx_EcMGh9lM_3EFHIlC7GR0n68YryOUpk
Hey Goos, you’re right of course, and I have been meaning to update this article to reflect the fact that, of course, the taxes paid to France can be taken as a Foreign Tax Credit. I don’t even know why it slipped my mind in the first place. Thanks for mentioning it and I promise to update the article soon(ish). 🙂
Actually, it is even more than that. Article 24 of the US-French tax treaty provides for a mechanism in the treaty where by the French tax is essentially exempt for a wide range of US-source income for US citizens. No FTC is even required. This is different than in other treaties, where you effectively pay the higher of the two rates. This explained a bit on page 41 of the document I linked above.
Thanks again for this insight. I’ve updated the article but would love to have your feedback.
You are welcome! As we discussed offline, there are few special situations that will get flagged.
People should keep in mind the special handling applies to US-sourced investments. And that some real estate-intensive investments like REITs may be subject to special handling.
Income of real property rental in the US also gets a full credit. But please note that depreciation is only allowed by France on furnished properties (and no formal recapture) which can have implications for health care charges and CG.
I’ve been warned, although do not have first hand experience, that certain LLCs and complex holding structures used by some real estate pros in the US to get preferential rates can get unwound in France.
CG from real property (even in the US) is one of the few exceptions to the full credit. This is only credited at the US rate on the French taxes(and the French rate is quite high, especially for exceptional gains). Also, as I mentioned for rental properties, there is no depreciation recapture and there is a phase out period based on length of ownership of the property (zero on both by 30 years), There is also a full primary residence exclusion.
There is the health care charge (CSM) for those that do not have income over the current threshold. There is also a a wealth tax (on real estate only) and the inheritance tax..
We have lived in France in a visitor visa for 5 years, with all our income coming from the states… either from our original house, which we owned and lived in for 25+years before turning it into a rental, to finance my non-retirement income when we moved over here. Someday, not in the too far off future, we may consider selling it, as long distance maintenance is a pain. But, we would have very high capital gains, and we no longer qualify for the us capital gains deduction, as it is no longer our primary residence.
I’m also sweating what would happen in the french taxes side, and your comment about a 30 year ownership peaked my interest. Could you explain, or provide doc links for where I could look into that further? Merci !
I just saw this on NorairesFrance website:
“People who return to France after having resided abroad for the past 5 years are, during the 5 years following their return, taxable for the IFI only on their property which is located in France.”
Does this mean that if we move (vs “return to”) from the US to France, and buy a house in France, while keeping our house in the US, we would have five years where our US house would be exempt from the IFI in France ?
Hi OandS, that’s how I would read it.
Thanks for your quick response. I found this confirmed at another UK website. The first five years of residency in France have ‘wealth tax holiday’ where only real estate in France is taxed.
I also learned that there is a 30% reduction for value of main residence at
the website: https://thegoodlifefrance.com/useful-guide-to-french-wealth-tax/ “It should be noted that the main residence benefits from a 30% reduction on its value.” This definitely makes the wealth tax seem less of an issue as it is only assessed on real estate valued over 1.3 M Euros. I think this would mean that a main home up to about 1.8 M Euros would not be taxed.
Question: If a parent in the US gives a sizeable gift to a child in France, say to help him buy a house there, is that gift taxable to the child in France ? How about in Spain ?
I believe that inheritance tax would not applied to the child if the parents are residents of the US and their assets as well are in the US. So is there a difference with gift tax ?
I also understand that for inheritance tax:
“A beneficiary (like the child above) is considered domiciled in France if they are resident in France and have be resident in France for at least six of the the last ten years preceding the death. The six years need not be continuous. This is meant to exclude liability to inheritance tax in France those who may have been temporary residents in France, but are ordinarily non-resident ( in France for temporary assignment etc … .” (from french-property.com)
It would probably be better to consult with a French tax professional on this one. I can give my best guess but that’s really all it is. This article is mostly about funding retirement from US-based retirement accounts and I haven’t done research into gifts or their taxation I’m afraid. I hope you’re able to find the answer you need!
Do you know if France taxes alimony received by Americans? And rent money received? And do you use an American accountant to help with your taxes or a French one? I would not feel comfortable doing my own taxes in France even though I’ve always done them in the US.
I don’t know much about the taxation of alimony, but it does seem that it is mentioned in Article 24 of the treaty as having the same tax treatment as dividends, interest, royalties, capital gains, etc. discussed in this post. The tax treatment of income from real property is in Article 6 and I’ll let you read that one as it differs from the tax treatment of what’s discussed here.
Hi Jenn — you can see the treatment of US-sourced real estate in Article 6 and then refer the available credit in Article 24, Paragraph 1, i(a). It is not one of the excepted categories. I’ve been warned, however, that certain complicated holding structures for US tax optimization may trigger unintended consequences in French law.
Note however that CGs from sale of US-based property is only credited for the US tax paid, and the French rate is initially higher. However, the French rules allow for a complete phase out of taxes for property-based CG after 30 years (and the tax dips below the US before then, depending on the exclusions and bracket). They do not allow depreciation on unfurnished properties but do on furnished/short term, but have no mechanism for recapture.
I use a French firm for the taxes, one that is familiar with expats. There are a number of specialists throughout the country. I use a separate firm for US taxes, but one that is used for foreign tax reporting and credits. .
So let me see if I have this right…
As a single person, each year I can do:
– ~$13k Roth conversion (standard deduction)
– ~$40k in dividends and capital gains
Then I will pay $0 tax in both US and France, and ~$1k for the CSM healthcare in France which covers things like cancer and parkinson’s at 100%.
And if I learn a little French, after 5 years I can get dual citizenship?
Ok I’m going to need you to erase this post, I don’t want people flooding in and ruining this for me.
Yep! I don’t think you have to worry too much, there’s enough noise out there about France (“It’s too expensive,” “These tax rules are too complicated,” etc.) that I don’t think the flood will start any time soon! Meanwhile for those who want comparable prices to Portugal there’s the “empty diagonal” of France, the beautiful southwest, the Dordogne, Normandy, Brittany, and lots of other spots.
I’m a little confused by your case-study example and want to clarify. You mention that the hypothetical couple will convert 40k from tIRA to Roth IRA, resulting in 20k in gains taxable as income. My understanding is that when you convert from tIRA to Roth IRA, the entire amount is treated as taxable regardless of how much of it is from gains or contributions. In this case, you would have 40k taxable as income from the conversion, and 20k treated as long gains from the taxable withdrawal. For a married couple, this would mean the long gains would be taxed at 0% and the conversion income would be $15,900 above the standard deduction (40k – 25.1k), so they would owe between 10% of that $15,900 ($1,590). Am I interpreting that correctly?
So in this case, does the the exemption for the CSM only apply to gains/dividends from a taxable account, and not from an IRA? If it applies to all, in your case study they would also owe the CSM on the amount above 41,136€.
Hey D, you’re right to be confused by my example as it’s absolutely wrong. I wrote the example a few different ways when I was revising the post and in the end I left it in an incorrect state. I intended to rework it with a mix of taxable and non-taxable and blew it. I’ll revise in the next few days. Thank you very much for keeping me honest.
Thanks D, I’ve sorted out the numbers a bit more. I basically reworked the example to convert only the amount of the MFJ standard deduction and to make up the difference from years 6 onward with reduced sales from the taxable account. Thank you again for the help in refining the example!
As I understand it, pension income is excluded from CSM, and thus IRA/401(k)/anything the treaty mutually agrees as a “pension” is excluded. No CSM due (in this example).
Incredibly helpful info – thank you! Not core to what you’re writing about, but would love any info or suggestions about where to look to learn how this would be taxed: the sale of a US apt sold by an american couple after becoming french residents (either as person’s only owned real estate world wide or potentially after buying an apt in france). Major thanks.
Hi – thank you! This is incredibly helpful info – life changing actually (we’re about 2 years away 🙂
We’re trying to figure out taxes on selling our primary residence in the US if we wait to do that until after we’re longterm residents in France (think we’ll love it, but feels safer to wait and be sure; need the residency to qualify for french healthcare vs waiting to become residents until after we sell). I know this isn’t the point of your article, but super grateful for any info or suggestions.
What I’m understanding regarding sale of real property is that there is a credit against french taxes in the amount of the US real property capital gains paid, which given the primary residence capital gains exclusion in the US (250,000 or 500,000), would be zero- ie in this case, it’s not a 100% credit against taxes owed in France. I think that means we’d then owe in France 20% on the US capital gains + also possibly 17.2% for Contribution pour le Remboursement de la Dette Sociale (not sure if that applies).
The apartment in the US is our primary US residence and I think there is an exclusion on capital gains in France for a primary residence, but also assuming once we are French residents, even if we don’t own any other real estate including in France, a US apt couldn’t be considered as our primary residence as we live in France.
(Sidenote – is it your understanding that there is no US credit against US taxes owed for amounts paid in healthy care taxes in france on capital gains in stocks etc. as it is not an income tax?)
Any thoughts greatly appreciated – and thank you for the amazing info!
I believe there is a provision for principal residences sold after a move, but I think the property needs to be put up for sale before the move. You should verify with a notaire, accountant/comptable or similar professional. Note under French law, the very high capital gains on property has a reduction mechanism for length of time held. It applies at different rates on both the base income tax and the social charges. After 30 years, it goes to zero.
Thanks very much – I really appreciate it.
Thank you for the very helpful information.
We are a retired couple living in Nevada, USA. Our income is from taxable dividends and capital gains. We do not receive social security in the USA and do not have any IRA accounts.
We consider to move to Europe and France is one of the possible destinations. I am a German citizen, my wife is a US citizen. If I understood your article correctly we would not need to pay a lot of taxes if we for example receive 20K in dividends and realize capital gains for another 10K.
However I am not sure about the relatively high social security taxes in France. Do they apply for retirees that do not work in France as well?
It is a bit difficult to give a determination based on the info you’ve provided but I’ll try.
For your wife, as a US citizen, it seems that any dividends and capital gains realized in her name will have the tax treatment described in this post.
You mention that you have no social security in the US but also that you’re worried about high social security taxes in France, so I am assuming any social security income is coming from another country than the US or France. In this case it likely wouldn’t be covered under the US-France tax treaty and would be subject to whatever agreements exist between that country and France.
You, as a non-US citizen, would benefit from the treaty only if you are and will remain a US person for purposes of taxation: That is to say, if you are a US person for tax purposes (such as being a permanent resident), will remain so, and that income will go on being taxed by the US, you will be protected by the treaty for that portion of your income. Any change in your status to make you a non-US Person will result in losing any favorable tax treatment for that income.
So, long story short: Your wife definitely benefits from the treaty, while your benefits depend much more upon your situation vis-a-vis taxation in the US.
Thank you so much for your fast and detailed reply.
I should have stated my question regarding social security more clearly.
What I meant were the social security contributions employees in France have to pay in addition to income tax, not the taxes on social security retirement income.
I am a permanent US resident and for tax purposes therefore a “resident alien”. If I would leave the USA I would become a “non resident alien”. However as a spouse of a US citizen I can choose to continue to file taxes as “resident alien” when filing “married filing jointly”. I assume that in this case we would still be protected by the US-France tax treaty. I will study the IRS explanation on the treaty to get a better understanding and contact an expat tax advisor if necessary.
Thanks again, I enjoy reading your articles.
Social charges (CSG/CRDS) are included under the definition of “full French tax credit” under the treaty terms. You can find further explanation, in French, on the impots.gouv.fr (I can’t find my link right now). These are part of the taxation of capital gains on real property, for example.
One thing to watch for is that the full credit for French taxes paid on Dividends is reserved for US Citizens (other wise it is credit only for US taxes paid))))))). Note your status as an EU-citizen gives you other special exemptions as well, under French tax law, including health care and the elimination of social charges in some context.
Thank you for the information.
Dear Mr. Vagabond,
Thank you for a very informative article! One question: What’s an “S-1 pension?”
I ask because I believe I have one. I worked in France for a year, back when they paid in FF. Maybe a decade ago I checked with the organization that manages my pension, and it was still there, and they still had a record for me. I’m not quit eligible to collect it yet (I think that starts at 62?), but at some point I calculated that I’d be receiving upwards of €100/year. HOWEVER, if this means I don’t have to pay the 6.5% PUMA charge, well, that’s significant.
I’ve never heard of “S-1,” and a quick search revealed mostly some sort of UK form for pension equivalence. I’m a US citizen.
But anyway, from what you know of these things, does it sound like my gigantic French pension gets me out of PUMA? (I will of course find a tax advisor if I get really serious about this; I’m just testing the waters for now.)
An S1 form is a portable form proving the receipt of a qualifying retirement pension in the EU. The amount of your pension doesn’t matter, but only the issuer of your pension could tell you whether it would qualify you for an S1. You should be able to contact them and ask.
… with that said, I believe you must pay into the French system for 10-15 years to claim any pension (depending on the pension). I suspect the “100€ a year” amount is only theoretical and that you would need to add 9 more years of payments into the system (in France or in another EU member) to qualify to receive anything.
Ah, I’ll have to ask about that. Well, now I know what to ask when I call them!
I did a bit of searching, and I found a reference to a 15 year minimum for the public service (“services civils ou militaires”). Maybe that’s what you’re thinking of? That said, a 15 year blanket minimum, or some other minimum is certainly not out of the question. It hadn’t occurred to me to ask this, so this is most helpful.
Thank you! This is very helpful and has put France on our radar as a possible retirement spot. I am wondering about Roth conversions and the amounts you used in your example? Would higher amounts make any difference in taxation status? My wife and I (US citizens) may convert up to $175K annually while also tapping a taxable account that would generate around $37,500 in capital gains annually (and no other income). Would these sums make a difference in our French taxation status? If I understood your article correctly, we would only have US taxes and zero tax liability in France. Thanks!
You summarized it pretty well yourself– I sort of contrived an example to create a zero-tax-on-both-sides scenario, but if you convert more it should still result in no French taxes… but you may have to look out for the CSM of 6.5% on the capital gains in the taxable account that would surely be triggered in this scenario. You can essentially convert all you want, realize all the capital gains you want, and still only pay taxes to the US, you just want to watch out for the CSM on “non-pension” income.
But as long as the annual capital gains realized are below the 41,136€ exemption for a married couple, we would be okay? That is, the first 41,136€ in capital gains are exempt (for a married couple), correct? Thanks again for the great article and your quick and thoughtful responses!
Indeed, you are right, sorry, I should not be replying so quickly as it has its downsides!
Hi, I went through several comments but I didn’t see anything related to rental/business income from the US.
Currently bringing in about 110k a year in rental profits. My real estate brokerage is bringing in about 300k a year along with a real estate sales team that nets another 100k after splits and expenses. A trucking business that is bringing in another 200k. All of these businesses are run remotely, and with minimal time consumed due to GMs in place.
Looking to partially retire in France over the next 5 years, I will still have to work daily online and come back to the states quarterly to make sure the income is still coming in smoothly.
Will I have to declare and pay taxes on 700k+ to France?
I’m hoping that since I write a huge tax check to the IRS that I wouldn’t have to pay it in France.
My accountant is looking into the situation as well.
In your case, not only would you need to pay ordinary income tax on that income in France (at rates higher than the US), you’d potentially have some further serious complications if you become a tax resident in France. If you are considered an employee of any of these US-based businesses, they would be legally required to have a presence in France and pay both the employer taxes and the social charges for you. This can be very expensive– on the order of 50% of gross receipts. If your real estate benefits from certain types of preferential tax treatment, that too might be unwound in France.
This post focuses on passive-style investments (as defined in section 401(a), as well as taxable brokerage accounts and Social Security) because those are the ones that have massively preferential treatment under the treaty. Your situation is sadly sort of the polar opposite, and one that could be very costly in France. I’d recommend speaking to someone in France who is extremely conversant in the US-France tax treaty. A normal accountant on either side probably doesn’t have the depth of experience to weigh in with authority.
I see. Thanks for the insight. I will probably have to find a specialized accountant to navigate this sort of thing.
I appreciate the article. How does the French treaty treat VA Disability payments? They are tax free in the US but does France consider these payments taxable?
Since the Treaty doesn’t seem to specifically address disability payments of any kind, it appears likely that VA Disability payments would be taxed in France as ordinary income.
Have you been able to maintain your accounts (401(k), ROTH IRA,etc…) in the US while living in France? Have you been using a virtual mailbox or similar?
I maintain all my accounts from abroad, and never log in using a VPN. I use my wife’s family’s address as the mailing address.
Something I’m very confused is if a U.S. Citizen (in my case I’m a dual French/U.S. Citizen) can still use his U.S. based investment accounts for buying/selling purposes and use his money to retire abroad? My plan is to go back to Europe, most likely France, once I consider I’m financially independent. But I’m worried that I may not be able to use my accounts once I’m abroad and that my U.S. brokers (Vanguard, Fidelity, T.Rowe) eventually close them out and force me to sell for no longer being a U.S. resident.
How do you manage that and continue to have your accounts open? Do you see any restrictions on buying U.S. ETFs while living in Europe?
Yes, a US citizen can continue to hold and draw down on US investment accounts while living in France. There is nothing preventing your brokerage from serving you just because you live abroad. Some may choose not to bother with you, but plenty of people are perfectly forthright with their brokerages about their foreign addresses and face no issues.
However (there’s always a however), generally speaking it is not permitted to purchase US ETFs while resident in the EU due to PRIIPS rules/the fact that basically no US ETFs have a Key Information Document (KID). You can freely trade individual stocks without worry, though. On the whole, it’s much easier to manage this if you’re FIRE and drawing down, rather than performing any sort of active trading. It makes rebalancing a little dicey if you hold US ETFs, too.
And, of course, there are those who simply keep their US accounts registered to a US address of a family member or friend (best), or a mailbox service (slightly less good), which is perfectly allowed as well.
I receive dividends and capital gains from American ETFs in taxable accounts. I saw in the article above that those would be subject to a 6.5% CSM (Cotisation Subsidaire Maladie) tax in France.
Do you know if I can get a tax credit (or at least a deduction) on my US return for the CSM paid to France?
Thank you for a well researched and thoughtfully explained post. Realizing that it’s been a couple of years since you posted this, I have a follow-up question if I may…
Re. “…a person deriving all their income from US retirement accounts, or from capital gains or dividends from taxable US-based accounts, can be entirely exempt from taxation in France” and the referenced CSM exemption on 20,568€ / person, is interest income from Money Market and CD accounts treated the same way and subject to the CSM exemption rule, meaning if you earn more than 20,568€ / person or 41,136€ /married couple, the amount above it will be subject to CSM 6.5% charge?
Thanks so much.
Hi Kai, yes, interest income from those account types would be subject to the same French tax credits, CSM exemption limits, and charges if you exceed them.
Hello! Thank you for the quick reply! Kindly allow me to ask a follow-up question: For the amount of the interest income exceeding the CSM exemption limit, we’d then pay 6.5% charge on the amount, correct? Would that amount be eligible for claiming foreign tax credit on the U.S. tax return?
Yes, it’d be 6.5%, and no, it wouldn’t be claimable as a tax credit as I understand it because it’s a service charge/membership, not a tax.
Incredible Article FrugalV!
You have got two new super fans!
Thanks for the great post! As the UK also recognize US roth, would the same/similar scenario play out if a US citizen moves there?
Also have to ask for you are so knowledgeable and being in Spain may have heard from US expats living in Portugal under the Non-Habitual Resident scheme. Under NHR, have read the Roth Conversion Ladder is still possible exempted from Portugal tax as long as it’s classify as a ‘distribution’, not a ‘pension’. Any insight here?
Also have you heard any tax filing successes with challenging the NHR assumed 28% tax on US equity capital gains, which some read being foreign-sourced should be tax-exempt/zero tax?
The same wouldn’t be true in the UK as it isn’t simply the recognition of the Roth that has this effect, but the fact that the tax treaty leaves taxation on all pension accounts to the US, and grants a full tax credit for US taxable accounts, essentially reducing the French tax on those items to zero or near-zero.
I’m not able to help on the NHR questions.
Good to know – thanks!
Thank you for the great article.
Where I believe that France recaptures this lack of tax is on “departure”. It’d be great to see an analysis of exit and estate taxes for US citizens living in France.
Can you provide any documentation of what you’re suggesting? US-held assets don’t “depart” France and aren’t subject to French estate taxes either. Only French-held assets are subject to French inheritance tax.
I’d love that to be the case, but https://www.french-property.com/guides/france/finance-taxation/inheritance/taxes
The default, as a resident, is that you’re taxable on your worldwide income and assets. The tax treaty nicely covers income. Is there something for inheritance?
Does this answer any of your concerns?
Let me take a step back and say I shouldn’t have answered so hastily- but I presumed you were talking about the tax treatment of your inheritors, not of you as the one doing the inheriting. Yes, if you are tax resident in France and inherit, you will pay French inheritance taxes on worldwide inheritances. However, if your inheritors are in the US, as well as the majority of the assets, France cannot and does not tax those assets or inheritors. France can only control the taxation of the people and assets in its territory.
Thank you for the link and explanation. I’m going to have to read it a few more times before it has any chance of making sense! I don’t yet see where the exemption from French tax on assets held outside France is.
I will be a US and French citizen. If only French assets are taxable in France on my death, that is another massive tax break. I’d be embarrassed if money that I inherit wasn’t taxed by France – that and CSM isn’t a lot to pay, in my case and opinion. Thanks again for this excellent article and discussion.