Income Tax Treaty between the United States and France

 

United States-France Tax Treaty

France International Tax Compliance Rules

Quick Summary.  Located in Western Europe, France borders Belgium, Luxembourg, Germany, Switzerland, Monaco, Italy, Andorra and Spain.  France has a unitary semi-presidential republic and is comprised of 18 integral regions with a capital at Paris.

The Constitution of the Fifth Republic, approved in 1958, provides for a bicameral legislature comprised of the National Assembly (Assemblée nationale) and a Senate.  The executive branch is lead by a president, who is head of state, and an appointed prime minster.

France is characterized by a civil legal system based primarily upon written, codified statutes.

Effective 2019, France provides for a tax on certain digital services.

Also effective in 2019, France has moved towards a withholding tax regime based on a pay-as-you-earn (PAYE) system.  The Finance Act Bill for 2019 also moves the taxation of non-residents towards the taxation of residents by eliminating certain withholding provision and implementing the PAYE system.

France is a member of the European Union (EU), the G7, G20, Organisation for Economic Co-operation and Development (OECD), and the World Trade Organization (WTO).

U.S.-France Tax Treaty.

Currency.  Euro (EUR).

Common Legal Entities.  Joint stock company (SA/SAS), limited liability company (SARL), commercial partnership (SNC), and branch of a foreign company.

Tax AuthoritiesFrench Tax Administration.

Tax Treaties. France is party to more than 100 tax treaties and has signed the OECD multilateral instrument (MLI).

Corporate Income Tax Rate.  28-31%. Reduced to 25% by 2022.

Individual Tax Rate0-45%.

Corporate Capital Gains Tax Rate28%.

Individual Capital Gains Tax Rate19-30%.

Corporate residency.  A company is a resident if it incorporated in France. Foreign companies can be residents if they are managed and controlled in France.

Individual residencyAn individual domiciled in France is considered a resident. Additionally, individuals are considered domiciled in France if their principal residence, main place of business or professional activity or center of financial interests is located in France.

Withholding Tax.  Does not apply to residents.

            Dividends.  28%.

            Interest.  0%.

            Royalties. 28%.

            Commissions. 28%.

Transfer Pricing. French entities control by entities outside of France are taxable in France on profits transferred to an entity located abroad through an increase or decrease in purchase or sales prices.

Rates on interest paid by French corporate taxpayers to related parties are at arm’s length if they do not exceed an index corresponding to the average annual floating rate applied by banks to two-year loans granted to businesses.

CFC Rules. Apply to French owned or controlled foreign subsidiaries when the local taxation is less than 50% of the French rate. If applied, the company is taxed on its pro rata share of the income received from the CFC or the company is deemed to have received distributed income from the CFC if the CFC is a subsidiary. EU companies are outside the scope of the CFC rules.

Companies located in a noncooperative country may be subject to a 75% withholding tax.

Hybrid Treatment. France can disallow the deduction of a payment that is not taxed or that is deducted in another country or France can tax income resulting from a payment that is deducted or not taxed in the other country.

France implemented the ATAD 2 directive as of January 1, 2020.

Inheritance/estate tax5-45%, after a rebate up to EUR 100,000 per child.

Net wealth tax. Progressive range from 0.5-1.5%. Wealth tax applies if net worth of real estate exceeds EUR 1.3 million per household.


OVERVIEW OF TAXATION IN FRANCE

France imposes four major categories of income taxes: corporation income taxes, individual income taxes, social levies, and payroll taxes. French tax law, like that of the United States, generally takes an expansive view of income including most economic benefits and capital gains. Timing and amounts of taxable income are generally determined by reference to commercial accounting rules. Although individuals resident in France are subject to tax on their worldwide income, corporations, wherever resident, are only subject to tax on income arising in France.


Individuals

Individuals resident in France are taxed on their worldwide income at progressive rates.  An individual’s tax rate is determined by reference to the total income of the individual’s tax household. French law defines a tax household as an individual, his or her spouse or registered domestic partner, and their children and other dependents.


Corporations

France has a territorial system of corporate income taxation. Corporations, wherever resident, are subject to tax only on income derived from French sources. Certain partnerships may elect entity-level taxation as corporations in lieu of current attribution of their income to partners. A parent company and its at least 95-percent owned subsidiaries may elect taxation as a single corporate entity. Certain special purpose “headquarters companies” and “logistics center companies” are subject to a simplified tax regime. At the election of the companies involved, corporate reorganizations may be accomplished without current tax effect.


Other Taxes

Inheritance, gift, and wealth taxes

Inheritance tax is levied at the time of death on the worldwide assets of a French resident or upon the assets of a nonresident situated within France. Tax rates vary and depend upon the identity of the recipient and the value of the property acquired. Gift tax is generally levied upon the transfer by gift of property exceeding a threshold amount. Wealth tax (the Impôt de solidarité sur la fortune (ISF)) is imposed annually upon individuals resident or owning property in France at progressive rates based upon the worldwide net worth of resident individuals or the French-situated net worth of nonresident individuals in excess of certain amounts. Financial assets of nonresident individuals are exempt from wealth tax.

Social security and payroll taxes

France imposes several taxes for the purpose of financing its social security scheme. The widespread social security contribution (“CSG”) is withheld from employment income and payable upon self-employment income. CSG is payable upon property income, including capital gains. The contribution for the reimbursement of the social debt (“CRDS”) is generally payable upon all income, subject to certain allowances. The social levy is payable upon certain property income. Certain types of social security taxes are deductible for income tax purposes. Payroll taxes are imposed upon wages paid in France by enterprises not liable for VAT on at least 90 percent of their prior year turnover. Certain small businesses are exempt from payroll tax.

Indirect taxes

France imposes a value-added tax upon all increases in value throughout the French production and distribution chains of property, including real property, and services.

Goods and services for export outside the EU are wholly exempt from value-added tax. Excise duties are levied upon certain consumer goods. Registration duties are imposed upon certain transfers of real property or corporate stock, and upon contributions of capital to corporations. Environmental taxes are imposed upon certain polluting activities. Local taxes are typically imposed upon the ownership of real property and business personal property.

Tax Treaty Network – International Tax Attorneys

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