AARO held its first seminar on filing French taxes on May 15. The seminar was organized based on numerous inquiries that AARO has received from members in France, and was intended primarily for Americans filing in the French tax system.
The two speakers were Tim Ramier, AARO member and member of the Paris and Louisiana bars, and Pierre-Thomas Taponier, member of the Paris and New York bars.
Who must report?
All French tax residents (those who live, work, and/or earn income in France) must file every year. Worldwide income must be reported on your French tax forms (as it must be on your US tax forms if you are a US person). The Franco-American tax treaty prevents double taxation of Americans who file taxes in France. The speakers point out that, even if there is tax reform in the US, the terms of tax treaty will not change anytime soon. It is much more difficult to modify such a treaty than it is to pass domestic tax reform.
What must be reported?
Every kind of income must be reported: salary, rental income, dividends, capital gains, etc. If you also file taxes in the US, the number you report on your French and US tax forms should be the same (but with currency converted). Conversion rates can be found on the IRS website. For 2016, to convert euros to dollars, you must divide by 0.94.
When must reporting be completed?
For individuals filing on paper, the deadline is Wednesday May 17. Electronic filing deadlines depend on the region in which you reside. The deadline for individuals living in Paris is June 6th. The presenters note that if you have income in excess of 28,000 euros, you are required to file online. The French government is currently in the process of phasing out paper filing.
Pierre advises becoming accustomed to filing online now in order to get used to the e-filing system before it becomes obligatory.
2042 – This is the general form. All of your basic information is indicated on here, and it directs you to other forms as necessary.
2042 C – This form is for declaration of professional income.
2044 – This form is for rental income.
2047 – Foreign Source Income. Income earned outside of France, pensions from abroad, etc. must be declared on this form. Tim and Pierre advise reporting everything, even income that is reportable but not taxable. They point out that reporting nontaxable income, such as a pension, can be useful in certain administrative cases, for example renewing a titre de séjour. In this case, it helps prove that you have income.
It is important to identify yourself as a US person, which makes you eligible for tax credit. On the online form, there is a box to check. If you can’t find it, there is a space for notes on the tax form. If you have income in a country that does not have a tax treaty with France, being double taxed is a possibility.
This form includes a field for “élimination de la double imposition,” and there is an online document that outlines instructions for each country.
3916 – Foreign Bank Account Report. This form is comparable to the FBAR, but you don’t have to record the amount in each bank account for the year. The fine for not reporting a foreign account is also lower: 1,500 euros per account that isn’t reported. You must declare any account for which you are a signatory.
There is a streamlined procedure to come into compliance for individuals who have not reported their foreign accounts in the past. It is complicated, however, and fees can be expensive. If you have foreign accounts and have not declared them in the past, Pierre advises to simply starting to declare the account(s) on your tax forms. In many cases the tax authorities will not bother comparing with your previous year’s declaration. He also recommends declaring foreign accounts sooner rather than later, since electronic exchange is becoming more and more common, and the French tax authorities will eventually realize if you have a foreign account.
If there is a problem with taxation on your US source income, you can file a “réclamation” online. In the experience of the two speakers, the Paris tax offices tend to be fair when addressing such claims.
Impôt sur la fortune (ISF) – This concerns individuals with a minimum of 1.3 million euros of assets (which excludes certain assets such as artwork.) Bank accounts, real estate, etc. are subject to ISF reporting.
One audience member asked about the “taxe d’habitation,” wondering how it is determined. Tim and Pierre responded that unfortunately the calculations are not very clear. However, the tax authorities do provide some information on your statement.
The Withholding Reform
This tax reform, which has been underway for a while, was expected it to be applied in 2018, but will likely be further delayed until January 2019 by the new French president.
The withholding reform consists of having individuals pay taxes on an ongoing, monthly basis for the current year, rather than for the year after. Some tax payers have already opted to do this, but once applied, it will be across the board.
Tax return filing will not disappear with the reform. Everyone will still be required to file, but this will be used to correct the tax rates if need be.