T-Day for French Expats

It’s T-day. Not Thanksgiving, but Tax Day…at least in the U.S. We Americans don’t get a chance to forget this date, as much as we might like to (!), even if living outside the U.S., because as U.S. citizens, we are still obligated to file a tax return regardless if there is tax to pay or not.

Too many of us forget this little fact and go about our merry way thinking we’re off the hook because we live way over here…but nooo…we do not have this privilege. And guess what? As an American citizen, we have the ‘privilege’ of being taxed on our worldwide income, regardless of where we reside. Isn’t that ‘sweet?’

Fortunately, we are granted an automatic extension to file until June 15th, but that doesn’t exempt us from paying interest on tax that was due by April 15th. If we need an additional extension, we can apply for it by filing Form 4868 to extend the return till October 15th…but the interest will still apply.

Tax is a BIG issue for expats, particularly those moving to such a high tax society as France. There is the “Substantial Presence Test” — it all has to do with where you will be considered tax resident, which has nothing to do with your visa that allows you to be in France more than 90 consecutive days. To be tax resident, you must be physically present in one country or the other on at least 183 days. The U.S. defines it very “unsimply”:

To be tax resident in the U.S., you must be physically present in the U.S 31 days during the current year, and 183 days during the 3-year period that includes the current year and the two years immediately before that, counting all the days you were present in the current year, and 1/3 of the days you were present in the first year before the current year, and 1/6 of the days you were present in the second year before the current year.

Did you get that? I didn’t.

Next question: Are you a tax resident of France?

Here’s where it gets even more complicated. France doesn’t even go to the trouble of mentioning the number of days spent in the country! The rules are ‘clarified’ in Article 4B of the French tax code (the Code Général des impôts or CGI) and residency is defined using another series of tests…all based on where ‘home’ is. Any property considered a ‘residence’ and available for your use, therefore not rented out, can define you as a French resident. Even if you spend 183 days outside of France, but you have a business in France, you can be considered a tax resident of France. The bottom line is that it’s all about where you have your ‘habitual abode’ — not where you spend most of your days, but where you consider ‘home.’

So, while there is a tax treaty between France and the U.S., the lines are still very blurred. Understanding our tax obligations on both sides of the pond can be very confusing…even for the professionals, much less for us neophytes. I learned this the hard way this past two years as I managed to get audited by both countries, independently for different reasons.

A tax audit can make an expert out of any amateur. I learned that:

1. No one, even the finest tax attorneys, really knows how to fully interpret the tax codes, particularly how to minimize the tax on both sides of the tax coin for an earner of income in both countries…because when it boils down to it, it’s the auditor who decides your fate!

2. You can do anything you want until you get audited, and then you can do nothing.

3. Both countries want your money and neither is willing to give it up, once they have it, even if it’s not rightfully theirs.

4. There are huge discrepancies and irregularities in the tax code that overlap so that you really do end up paying tax on both sides, even if the treaty is designed to prevent it.

5. There is no point in not reporting EVERYTHING to EVERYONE because it’s worse if you get caught for not reporting, although you will get accused of it even if you did report everything (they will go as far as they can go in accusing you of wrong-doing in order to assess more penalties and interest).

6. What is more expensive than the tax itself are the professional fees you will pay to your accountants and attorneys for advice and assistance to prove your innocence…and unlike with a law suit, the governments don’t award the winner a reimbursement of their legal and professional fees — it will have cost you a fortune just to save a few pennies or prove there was no reason to have been audited to begin with.

7. A tax audit can ruin your life (temporarily), even if there isn’t a penny to pay, just for the time, effort and anxiety expended for no good reason other than to comply with the official demands.

Do I sound cynical? After what I have experienced dealing with the FISC and the IRS, it’s no wonder! They should be sent to the guillotines for how they treat their citizens who have worked hard, paid their taxes and strived to make a better life for themselves.

The French FISC is tougher than the U.S. IRS because the legal system in France is based on what it is allowed, rather than forbidden. This means that you must ‘follow the rules’ and anything outside of that is unlawful. There are no loopholes and no forgiveness — you are guilty until proven innocent. In the U.S., because the laws are based on what is forbidden, you have freedom to do what you want outside of those laws, so there are many loopholes and you are innocent until proven guilty.

The tax deadlines in France are a lot more complicated than in the U.S.:

* April 30th is the deadline for submitting 2014 French Tax declaration of S.C.I. (French “Société Civile Immobilière”), leaseback a furnished rentals.
* May 15th is the deadline for submitting the 2015 French 3% tax for a foreign company
* May 20th is the deadline for a French resident to submit income tax returns and the 2015 wealth tax declaration (for taxable assets between 1,300,000€ and 2,570,000€).
* June 16th is the deadline for a non-resident to submit the 2014 income tax general returns.
* July 15th is the deadline for submitting the 2015 wealth tax declaration for European residents (and its payment).
* September 1st is the deadline for submitting the 2015 wealth tax declaration for all other non residents (and its payment).
* September 15th is the deadline to pay your 2014 French income tax.
* October 15th is the deadline to pay your 2015 land tax (“taxe fonciere”).
* November 15th is the deadline to pay your 2015 habitation tax.
* December 15th is the deadline to pay your 2015 CFE (professional tax).

Oh my! But don’t worry your pretty little head over all this. Succumb to a professional to guide you through it — perhaps costly, but worth it. Don’t move to France more than 183 days a year until you know what your tax obligation is. And don’t leave France 183 days a year thinking this is going to fix your tax obligation, because it might not! And guess what? Your bottom line might not be all that different in either country, depending on the type of tax — so it’s a good idea to have a professional analyze your situation to determine which country is best to consider ‘home.’

Further resources:

irs.gov/Businesses/International-Businesses/France-Tax-Treaty-Documents

ambafrance-us.org/spip.php?article703

A la prochaine,

Adrian Leeds

The Adrian Leeds Group

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P.S. Yesterday at Parler Paris Après Midi high-profile business executive and author, Roy Camblin, gave us the depressing news on “Individual Financial Survival in a Toxic Economy!” Read all about it!

P.P.S. I’m headed to Nice tomorrow morning for a long weekend in the south of France. Plan your getaway for a few days in the sunny south — you can now rent my bright, comfortable and luxurious “Le Matisse” for a minimum of just 3 nights! For more information visit Le Matisse or email [email protected]