This is my first post here, and I’ve tried searching the old posts for the answer but did not see the same question.
I am trying to find clear information regarding the French reporting requirements and tax implications of U.S. dividends for a tax resident of France for three different account types: IRA, Brokerage, and Roth IRA.
For example, according to the following (generic) profile:
U.S. citizen/French tax resident
Working for a French company (also French-based), French salary (no U.S. salary)
Receiving U.S. dividends into three different types of accounts: (NOT retired and NOT withdrawing)
Brokerage (containing stock investments)
IRA (containing US-based funds)
Roth IRA (employee retirement savings account, also containing US-based funds)
I have read a few dozen articles from websites (tax accountants, government, expat forums, etc.) and have found information saying that according to Article 24 of the US-France Tax Treaty (in conjunction with other articles), these amounts:
Must be reported on the French tax return
Whereby a French tax is calculated (usually 30%)
France then gives U.S. citizens a deemed credit equal to the French tax that was calculated
The result is that no French tax must be paid (essentially canceling out the tax owed with the “deemed credit”)
This is because these types of income are only taxed in America, and to avoid double taxation
However, I’ve also read that these incomes could be taxed at a reduced rate of 15% by France. (?)
On the U.S. side, none of these incomes are taxable (yet) as they aren’t being withdrawn, and it doesn’t make sense to me that they would be taxed in France, as this would create a double taxation situation.
Could anyone please help shed some light on this? I am sure I’m missing something!
There is 30% flat rate tax for interest, though isn’t brokerage stocks and shares, so we’re declaring dividends? Not sure of the treatment for dividends. Also possibly capital gains.
If it’s taxable in the US and France and double taxation relief is given there are two ways - which method will be specified in the treaty.
It must be taken into account for global income, it is added to your income, your tax is calculated on that total income and you get a rebate on the portion of tax due on the US income.
However if they are exempt from France tax the relief is on the actual amount of tax paid??
Either way, your global income is increased, pushing more of your France taxable income into higher tax brackets. So you pay more tax anyway.
However perhaps the ‘employee retirement savings account’ might be a pension - so might be a different treatment? Do you get tax relief on you contributions or does your employer get tax relief on any contributions it pays in?
And for the other two, as well as a pension, sounds like as a fund / investment, if there’s nothing withdrawn then there’s no income to tax, particularly if it’s not currently being taxed by the US.
I’m not too much use I’m afraid - the usual advice is to go and ask the tax authorities after prepping - if you advance the argument there is nothing to declare currently they will either agree or tell you where to declare it.
It certainly sounds different to interest, which we declare when we get it, not when we withdraw it. And I did read some France tax bulletin which discussed the timing of ‘liquidation’ of capital - probably for capital gains and houses, but can’t remember - it might be useful to research that.
On page 5 of the instructions to the CERFA2047-NOT: ÉTATS-UNIS div. 17,6%, int. 17,6%
Dividendes : les dividendes de source américaine perçus par un résident de France ouvrent droit à un crédit
d’impôt égal à l’impôt américain, dans la limite de
15% du montant brut des dividendes. Toutefois, certains dividendes de source américaine perçus par des
personnes résidentes de France possédant la citoyenneté américaine ouvrent droit, dans les conditions
prévues par l’article 24 § 1-b-i) de la convention fiscale
franco-américaine du 31 août 1994, à un crédit d’impôt
égal au montant de l’impôt français correspondant à
ces revenus, et non au crédit d’impôt égal à l’impôt
américain plafonné à 15%.
Actually, I already have a professional French tax agency working on my taxes, but I have a doubt about their decision not to declare any dividends (the reason being that the dividends were reinvested in the account—not by my action, but automatically by the investment bank that holds the account). My tax accountant says I only need to declare them only once the dividends are paid out to me and not reinvested. Everything I have been able to find on the subject has said to declare dividends as WW income; however, I don’t want to declare them by error and subject myself to unwarranted French taxes.
Whilst there may be tax exemptions internally within some countries for reporting the income from certain tax favoured investments (eg income arising within UK ISAs - non reportable within the UK for UK residents) I have never, ever heard of dividends not being reportable due to their being reinvested. I have never seen any double tax treaty that would authorise that treatment. From the extract further up this thread, it would appear the US/France treaty taxes them at their gross value, the only wrinkle being the actual rate of US tax creditable in France for French residents. I simply would refuse to accept the treatment suggested by your French accountant if I were you. It may represent ‘local practice’ but it ain’t correct. Furthermore the automatic exchange of information protocols between treaty partner countries are extremely efficient nowadays and it’s perfectly possible the US will exchange info on your dividends automatically with France.
Here is an excerpt from an email I received back in May from my local contact at the fisc as to how to treat them:II°) "American dividends
Pursuant to Article 10 of the Franco-American convention, dividends paid by an American company to a resident of France are taxable in France.
However, these dividends are also taxable in the United States, but if the beneficial owner is a resident of France, the tax thus established cannot exceed:
a) 5 percent of the gross amount of dividends if the beneficial owner is a company which holds:
i) directly or indirectly at least 10 percent of the capital of the company paying the dividends when the company is a resident of France;
(ii) directly at least 10 percent of the voting rights in the company paying the dividends when the company is a resident of the United States;
(b) 15 percent of the gross amount of dividends in all other cases.
Dividends from American sources received by a resident of France give rise to a tax credit equal to the American tax, up to 15% of the gross amount of the dividends. However, certain dividends from American sources received by persons residing in France with American citizenship give rise to a credit, under the conditions provided for in Article 24 § 1-bi) of the Franco-American tax convention of August 31, 1994. tax equal to the amount of French tax corresponding to this income, and not to the tax credit equal to the American tax capped at 15%
To declare them, you must complete boxes 2 and 6 of the foreign income annex declaration model 2047 and report them on line 2DC “ dividends ” of the 2042 declaration."
funnily enough… I had a mad panic when making this year’s Declaration…
My Bank talks directly with the French Tax Folk so should not be any problems.
anyway, I receive the form from my Bank, with all the details of what to Declare and Where…
but I realised there was another small acount which was not being mentioned anywhere…
I visited my Bank and asked the question…
Do I have to declare anything to do with this account…?? and the answer came back… NO not unless you actually receive the money.
It’s been automatically reinvested… blah blah blah…
So… that’s that. BUT… this is a French Bank and a French Bank Account…
Frankly, in your shoes, I really would talk this through with the French Tax Officials… tell them what your French Tax Agency says about your US investment … and ask "it this really true that I don’t declare this money … " ??
They won’t tax you unless it is legally necessary… and that’s surely what you are trying to find out… ???
My answer above was incomplete. I should have clarified I was referring to dividends from directly held US shares eg in a brokerage account. They are taxable in France, irrespective of reinvestment, subject to specific rules on the level of the credit of US tax against the French liability.
My understanding is that dividends from IRA accounts are only taxable when there is an actual distribution (eg withdrawal) to the account holder. Furthermore the distribution is actually only taxed in the US, and France gives a credit equal to the French Tax., eliminating the double taxation. Perhaps this is what the OPs tax accountant has in mind.
I don’t know how Roth IRA distributions are taxed.
IRA’s are pensions and don’t need to be declared unless you withdraw income from them.
For the brokerage account for France it’s just an account with assets on… I’d advise clients with similar assets like a UK ISA to move to accumulation unit funds or ETFs that use derivatives instead of direct investment in the index.
In terms of the tax treatment of the gains made from the dividend it would be treated as capital gain and 30% GGT. (Unless you are on an impatriate regime then it would be less) However this is the part id focus your advice on as i have seen these accounts declared as capitalization contracts and with no withdrawals (the dividends are reinvested or roll up in cash) then no declaration until there is a withdrawal. I actually don’t think this is 100% correct but seems to be accepted.
My areas of expertise isn’t the US although I have a broad understanding. As I am sure you have encountered already there are interpretations of the rules.
The US and France double taxation agreement just refers to information sharing but I have seen credits given against US earned income to the level of the French tax so again circumstances that are contradictory.
As always super complicated for anyone with US connections.