I could use some financial advice, to prevent all my business activity being treated as French taxable income. I created a French branch office (succursale, not filiale) of my U.S. startup (an LLC taxed as an S-Corp), and my wife and I came on 4-year renewable visas, with no intent to ever return to the U.S. where we are citizens.
I’m a TNS (travailleur non-salarié) director of the branch office. All consulting I do is while in France, and I’m fine with that revenue being taxed by France. I’m also preparing to launch a database hosting service soon that worldwide customers will sign up for and manage from my website. A U.S. CPA / French expert-comptable told me that since I manage my business from France, all revenue for the business will be treated as French taxable revenue, subject to both French business tax and then French personal income tax on my withdrawals. What can I do, short of spending part of each year in the U.S., to count a (hopefully large) percentage of revenue from the service as U.S. revenue? My business advisor owns 5% of the company, and is a U.S. citizen living in the U.S., if I can leverage that somehow without stepping outside of the rules.
Any advice, or referral to an expert, would be appreciated.
A good start would be to read the Franco/American tax treaty.
The basic system is that unless you renounce your US citizenship, you have to keep filing US tax returns each year and paying US tax. Being fiscally resident in France you also have to pay French tax on your worldwide income, but the amount of US tax paid is deductible from the amount of French tax to pay.
However, reading the Franco / American treaty will reveal to you that certain classes of income received in the US by US citizens who are resident in France, are exempt from French tax altogether. Thus you may be able to adjust your affairs and make certain choices which could benefit you.
By the way: If you have thoughts about seeking advice from a French tax office – DON’T ! French tax offices are notorious for giving different advice about the same thing.
Frequently, and quite unlike the IRS, they are insufficiently skilled to be able to give the correct answer to questions posed.
The best way to deal with a French tax office regarding Franco/American matters is to have sufficient knowledge, backed up with written evidence, so that you can genteelly tell them what they need to do.
Hi Robert. While I think you gave excellent advice, and I’m sure it will benefit those who come to this post because of the title, it didn’t address my particular situation. I’m trying to figure out how to cause my business revenue to not all be considered French revenue when I manage my business completely from France. You’re right about differing opinions. I’ve tried reading what I think are applicable parts of the Franco-American tax treaty and the U.S. Treasury Department’s technical explanation of the treaty, and I’m still unclear. Paragraph 2 of Article 7 says the amount of profits attributed to one of the countries is what the business would make if only doing business in that country, which doesn’t really help for a worldwide online presence. Paragraph 6 says it’s based on the assets or activities done in that country, which is where I might be in trouble, since I do all the activities from France (although my website is in the U.S. and the servers I’ll use for my service are in 4 countries not including the U.S. or France). I wonder if there’s some way to get an authoritative answer from either the U.S. treasury or the French tax authority.
By ‘activity’ I think that they are talking about where your customers are, not where you are. This is sort of confirmed by your quote of Para 2 Article 7. This is basically stating that it’s the business done in a particular country that is important for tax purposes in that country. I havent read any of the treaty, but I would surmise that this has been included specifically for companies that operate in more than one jurisdiction. Of course, I’m not legally trained so I may be wrong.
I’m not quite sure as to ‘whose eyes’ you are referring to in the above quote, but surmise that you are probably thinking of French eyes.
I think you will find that whether or not the revenue can be classified as French Revenue will be irrelevant to the French Tax Authority, as they will be looking at your Worldwide Revenue because you are Tax Resident in France. French law entitles them to tax all of your worldwide revenue other than that specifically exempted by treaty provisions (article 24 for example). However, even exempted revenue must still be declared to the French taxman so that they can correctly calculate your RFR (Revenue Fiscal de Reference).
The important point for the French taxman is that you are Fiscally Resident in France. Where your income comes from is irrelevant to them. Taking steps to shall we say ‘shield’ part of your income from the eyes of the French tax authority would be viewed very dimly indeed, and is not a course of action that is recommended.
However, bearing in mind that Uncle Sam is going to tax you as well, then in order to avoid double taxation, the amount of US tax paid can be deducted from the amount of French tax due. As the US filing takes place earlier in the year than the French, the deduction is made in the relevant active year so you don’t have to wait until the following year to obtain the reduction. So you won’t be overly taxed — just fairly taxed.
You may be thinking that French taxes are excessively high compared to the US, but then I ask you to consider the benefits that you will receive as a resident of France in return. Healthcare for example. I mean you won’t need to keep paying the exorbitant fees for US health insurance, and yet will have unlimited access to one of the best healthcare systems worldwide. Additionally, should you be unfortunate enough to be struck down with an Affliction Longue Duree (ALD) such as Diabetes, Heart disease, or Cancer, then ALL your related medical bills will be paid 100% by the French State.
All in all, I reckon that paying the French Tax due is a fair exchange for the healthcare, the cheaper wine, and the far lower likelihood of being shot while going about your lawful daily activities.
Additionally, I think you will find that the structure of tax banding and application here in France is far fairer to the taxpayer than the recently changed system that now prevails in the US.
Personally, I rather like having my tax bill go up, as it means that my income has also gone up. 
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I agree. I recognize and appreciate the value received, individually and societally, of the French tax system. My wife and I are grateful to be here. 