The role of Double Tax Treaties

A taxpayer remains a fiscal resident of the country from which he or she comes until such time as it can be shown that he or she is a fiscal resident of another (see previous sections in chapter 3). 

The right of the new country to tax the person is usually specified under a double tax treaty (also known as a ‘convention’) stating agreements over what can be taxed, in what circumstances, and how.

A taxpayer’s situation may be complex but the treaties deal with many permutations and should always be able to define their country of tax residence and a country’s right to tax them or not. 

When a person moves to a new country, the first right of seeing in which country the taxpayer will be considered to be fiscally resident falls to the country to which the taxpayer has moved, ie. France.

If French tax law applies to you, you should be aware that income that is tax-free in another country may not be so in France (a country’s own tax laws only apply to itself). 

Also, for some kinds of income, both the country you came from and France are able to assess the income, but in such situations the treaties provide ways to avoid double taxation.

Foreign people moving to France should be aware that, depending on the date on which they became French fiscal residents, they may have to pay French tax before receiving any refund of overpaid foreign tax.

This is mainly a cash flow issue but forewarned is forearmed.

• You can find France’s tax treaties listed by country, alphabetically at: impots.gouv.fr/les-conventions-internationales.

UK-France treaty 

The current UK-France tax treaty (tinyurl.com/uk-fr-dbltt) signed in London in 2008 and in effect in France since 2010, still stands regardless of Brexit as it is not governed by EU regulations. 

Among its effects for people who move to France from the UK are that UK rental income and UK government pensions (for former state sector workers) are taxable only in the UK. 

France ‘takes these into account’ but provides a tax credit (against French tax) equal to the amount of the theoretical French tax. The ‘taking into account’ may, however, cause other incomes to rise into higher brackets, avoiding a person benefiting from two countries’ tax allowances/zero-rate bands.

Income to be declared, but not taxed, such as from UK rentals or government pensions, has to be inserted in specific boxes in the French declaration so as to be recognised as such. 

Most Britons who move to France no longer have UK tax returns to complete, unless they have eg. UK rental income, in which case it should be reported via the UK Self-Assessment process. 

Note that under France’s ‘tax at source’ system, instalments are taken out of your bank account on a monthly or quarterly basis towards tax on known regular income streams from abroad that France can tax. 

However, as mentioned above, this does not include UK rental income or government pensions. 

US-France treaty 

The US-France treaty came into force in 1996 and there have been two updates since then, in 2004 and 2009.

It has some similarities and some differences with the UK-France treaty. For example, most kinds of US pensions are only taxable in the US, not just ‘government’ ones. 

US citizens must note, however, that while the US-France tax treaty helps avoid double taxation, the US federal government claims the right to continue to assess its citizens for US tax wherever they live, so many Americans continue to have US tax-filing responsibilities in France. 

A note on state taxes is also necessary: Many US states have state (as opposed to federal) income taxes and some US states may still consider you a tax resident after you move abroad unless you clearly end your state ties - so it may be worth checking your former state’s rules before you leave.

US citizens abroad also continue to have US reporting requirements related to their overseas (eg. French) bank accounts (called a FBAR report). 

Usually, US tax returns must be filed by April 15 of the year after the tax (calendar) year, but US citizens resident abroad are allowed a two-month extension, so to June 15. 

Note, however, you are exempt from filing if your income for the tax year was below certain low income levels, which depend on whether you are aged below or above 65. The levels are increased for a ‘qualifying surviving spouse’, which applies in the two years after the death of a spouse. 

So, if a US citizen lives in France, they still normally must file a US federal tax return (Form 1040) reporting worldwide income, including US incomes but also incomes such as French salary or self-employed income, French pensions, investment income (interest, dividends, capital gains…), French rental income etc. 

While this can be time consuming, in reality many Americans in France pay little or no actual US income tax due to factors such as:

• Double tax treaty rules as to which country has the first right to tax a certain income, with the other offering a tax credit to off-set foreign tax paid. See here for IRS information on foreign tax credits (these provide US tax credits against tax paid to France on the same income).

• The foreign earned income exclusion (under certain conditions, French work income can be tax-exempt up to $130,000) and foreign housing expenses exclusion/deduction

Under the US-France treaty, French pensions are generally taxable only in France, whereas most French investment income is taxable in France and US citizens must also report this income to the IRS, but double taxation can often be reduced through US foreign tax credits for French tax paid.

With regard to US income, this is declarable on the French income tax return, but in many cases is not actually assessed for tax or the social charges but merely ‘taken into account’ so the tax office has a picture of your overall incomes. 

Income not taxed by France can in some cases push other French-taxable income into higher tax bands, avoiding people benefitting from more than one country’s tax-free allowances. 

Income to be declared, but not taxed, such as from US rentals or pensions, has to be inserted in specific boxes in the French declaration so as to be recognised as such. 

Examples of common US income types:

• US pension, US rental income and most forms of US dividends and interest received by US citizens living in France: taxable only by US; no French tax or social charges, France takes it into account but annuls any theoretical French tax/charges with a tax credit equal to this French tax/charges

Note that under France’s ‘tax at source’ system, instalments are taken out of your bank account on a monthly or quarterly basis towards tax on known regular income streams from abroad that France can tax. 

However, as mentioned above, some common forms of US income do not fall into this category.