The recent French legislative elections in July 2024 have created an interesting political landscape, with no clear majority in the National Assembly. While this situation may lead to some uncertainty regarding future tax policies, it is important for American expatriates considering a move to France to understand the current situation and potential implications.
Current tax situation for Americans in France
Under the existing France-US tax treaty, many Americans benefit from tax credits that effectively eliminate their French income tax and social contributions on certain types of income originating from the United States (i.e. trading profits, dividends, interest, gains …) in accordance with Article 24 1. a) and b) of the of the tax treaty (in its French version). This favorable arrangement remains in place and is unlikely to change in the near future.
Potential areas of change
It is worth being aware of potential areas that could be affected:
- income from professional activities in France
- investment income from French sources
- income from investments outside the U.S.
For these income categories, tax treaty credits should not be applicable and there is a possibility of some adjustments to income tax rates, particularly for high-income earners. However, these changes, if implemented, would likely be part of a broader reform affecting all residents, not just American expatriates.
U.S. citizens already established in France may need to adapt their tax planning, in particular by reviewing the conditions under which they carry out their professional activities between France and the U.S., as well as the composition of their securities portfolio. It may be appropriate to examine the asset allocation of their portfolios, the types of investments they hold, and the location of these investments (in France, the U.S. or elsewhere).
Wealth tax considerations
There has been some discussion about potentially reintroducing a broader wealth tax. However, it is important to note that even if such a measure were to be implemented, it would likely include provisions to protect new residents if the wealth tax were to be reintroduced under the conditions that existed prior to the 2018 reform that reserved the wealth tax for real estate assets only.
Typically, new residents would benefit from a five-year tax exemption period on foreign assets and properties, providing ample time to reorganize assets if necessary. The purchase of a principal residence in France or investments in France using a bank loan can be a solution to stay below the wealth tax threshold, currently set at 1.3 million euros (NB: financing solutions also exist for US citizens).
Reassuring outlook
In the current context of negotiations to form a new government in France, the political situation remains highly uncertain. Given the current political fragmentation, with no party holding a clear majority in the National Assembly, achieving such a consensus could prove difficult.
Indeed, the main parties – Renaissance (party founded by Emmanuel Macron), the National Rally (far-right party), the New Popular Front (coalition of the main left-wing parties), and The Republicans (right-wing party) – have divergent fiscal and economic programs:
| New Popular Front (NFP) | Renaissance (Ensemble) | The Republicans | National Rally (RN) |
| Income tax reform: increase from 5 to 14 brackets, more progressive
Reinstatement of the wealth tax with a climate component
Elimination of the flat tax on capital income
Increase in taxation on large inheritances |
No tax increases
Tax relief on gift and inheritance taxes
Elimination of notary fees for the purchase of the first primary residence
|
Lower production taxes and social security contributions for businesses
Reduce payroll taxes to increase net salaries
Increase in family quotient ceilings
Lower taxes on gifts |
Tax relief for families and young people
Increase in tax benefits for donations to grandchildren
Full tax allowance starting from the second child
Transform the real estate wealth tax into a financial wealth tax, excluding the principal residence from the tax base
|
NB: selection of certain measures from each party’s program
This fragmentation complicates the formation of a stable coalition and the implementation of major fiscal reforms, as any significant change to the tax system would require parliamentary approval. Moreover, with a high debt-to-GDP ratio and growing budgetary pressures, there is little room for maneuver.
This political reality acts as a natural brake on radical tax changes, offering a degree of stability and predictability for American expatriates. As of now, no significant changes to the tax situation for Americans wishing to settle in France are expected.
Moving forward
For Americans planning to move to France or those already residing here, there is no need for immediate concern. The existing tax treaty between France and the US continues to provide substantial protections and benefits.
However, as with any international move, it is always wise to:
- stay informed about political and legislative developments
- consult with tax experts specializing in international taxation for personalized advice
- consider flexible financial planning to adapt to potential future changes
In conclusion, while the political landscape in France is evolving, the fundamental attractiveness of France for American expatriates remains strong.
