A familiar concept in UK law, a ‘trust’ is a legal agreement between its creator (the settlor), individuals who manage it (the trustees) and the beneficiary of the trust. A UK trust can be set up for many reasons and examples include when someone’s too young to handle their affairs or when someone cannot handle their affairs because they are incapacitated.
French law does not have a corresponding legal equivalent and as a result the government is concerned that assets and income held in trusts by French tax residents might escape French taxes (particularly wealth, inheritance and income taxes). As a result, in 2011 it issued tax declarative rules on foreign trusts – these were again reviewed in 2013.
These rules mean that French tax residents (ie. anyone who is subject to French tax by virtue of living in France) who are connected to a trust (be they settlors, trustees, beneficiaries, even discretionary beneficiaries) are obliged to respect the French trust declarative tax obligations.
Briefly, those concerned need to file trust declarations within a month of the creation, modification or termination of any trust they are connected to. They are also obliged to submit an annual declaration reporting the market value of the property and rights held in the trust. This declaration must be filed each year by no later than June 15 to the non-residents tax centre in Noisy-le-Grand.
Trust income earned by a French tax resident is subject to French income tax – impôt sur le revenu – and so must be reported in a resident’s annual income tax return.
Significant fines can be levied for the non declaration of a trust/s or for not making a complete and accurate disclosure of the assets held in trust or income earned from trusts. In the event of a tax inspection, the tax authorities are entitled to go back 10 years, from the year of inspection, to review assets and income not reported and which were held within a trust.
This question was answered by Olaf Muscat Baron who is a Fellow of the Chartered Association of Accountants UK, a French expert comptable and an International tax advisor. He is the principal accountant of Fiscaly, an accountancy firm based in the Dordogne.
See www.fiscaly.fr or call 09 81 09 00 15