Democrats Abroad work to stop FATCA blowback on US expats

Since coming into law in July 2014, the Foreign Account Tax Compliance Act has caused banks around the world to close accounts for their American clients.
Despite this major hurdle, France Home Finance is able to obtain French mortgages and French bank accounts for Americans in France.

From the Democrats Abroad post December 14, 2015:

FATCA requires foreign financial institutions to report the financial accounts of US citizens to the IRS annually. Foreign financial institutions which fail to meet their FATC filing obligations face a penalty of 30 percent withholding on US source income. A penalty of this nature could jeopardize the viability of all business foreign financial institutions conduct with US-based counterparts. No financial institution that does business with US counterparts can afford to ignore the risk of getting their FATCA compliance wrong when the penalty is this high. Thus we are seeing some banks across the world refusing to handle any accounts for US citizens.

Democrats Abroad has updates on three fronts:

1) Generating Senate support for the “Same Country Safe Harbor” - DA worked through the summer to generate signatures from the House of Representatives on a letter to the US Treasury and IRS urging them implement the Same Country Safe Harbor solution. They are now working on generating enough signatures from the Senate.

2) FATCA Lawsuit - after the loss in federal court on Crawford et al v United States, challenging the constitutionality of FATCA, prospects look slim to keep the case alive.

3) The Worldwide program for the exchange of financial account information starts January 1, 2016 - FATCA was the model and inspiration for the Organisation for Economic Cooperation and Development (OECD) to create a worldwide program of financial account transparency and disclosure. It is known as the Common Reporting Standards (CRS) and over 90 countries have signed up to report the financial accounts of non-national account holders to the tax authority in the account holder’s country of tax residence. CRS differs from FATCA in some important ways, most especially in relation to the severity of penalties for compliance failure.

Read the full article HERE

Buying a Piece of France - Tax and Legal Need to Know, November 2015

Leigh-Alexandra Basha, international solicitor specilized in France, explains the latest tax, legal and accounting evolutions in French real estate :

Leigh-Alexandra Basha and Jean-Marc Tirard, McDermott Will & Emery, November, 2015

A convergence of multiple factors make this the perfect time for US persons yearning to own a piece of France to take the plunge. The exodus of wealthy French families escaping record French tax rates causing a property glut, and the strong US dollar against the euro, make today’s French real estate market an attractive opportunity for those who always dreamed of buying a pied à terre in France.

Although the US purchaser may have confidently lined up an English-speaking notaire, found a capable real estate agent and signed a promesse de vente, a US purchaser would be wise to seek tax, legal and accounting advice to fully understand the implications and requirements of their choices and avoid any nasty surprises.

There are many titling options that depend on the US individual’s personal situation: married, single, living in the United States or abroad, and so on. These options include individually titled, titled in a French entity (such as a société civile immobilière (SCI)), titled in a US entity (such as a limited liability company (LLC)) and titled in a trust. No one way is better than another, but it is important to address the implications and pros and cons in both France and the United States for each option.

Individually titled
Taking title directly is simplest. It causes minimal reporting burdens and generally provides favorable tax treatment. Before 17 August 2015, US citizens were exposed to the French civil law concept of forced heirship, under which testators were not free to leave their interest in French real property to the person of their choice, but instead had to leave it to certain family members. For example, a male US citizen who was married in a non-community property jurisdiction with two children was required under French law to leave two-thirds of his villa in Provence to his two children, and only one-third to his wife; or the life interest known as the usufruit to his wife, and the remainder interest, or nue-propriété, to his children. French inheritance tax, with an exemption of €100,000 per child and graduated rates of up to 45 per cent, also exposed the French property owner to tax he or she would rather avoid.

After 17 August 2015, European Succession Regulation No. 650/2012 (the Regulation), sometimes referred to as “Brussels IV”, came into effect. The Regulation provides that a testator can choose the law of his or her nationality to govern his or her worldwide succession, including that of assets located in an EU Member State. Where an individual has several nationalities, he or she may choose the law of any of the countries to which those nationalities relate. This means US citizens can choose US law (more specifically the state law to which they have the closest connection) to govern their worldwide succession, including their ownership of French real property. The choice of law must be made expressly in a declaration taking the form of a disposition of property upon death, such as a will.

Because nearly all US states enable testators to freely dispose of their property, US citizens should elect the law of their nationality in their will to avoid French forced heirship rules without having to use structures such as a company.

Titling in a French société civile immobilière
There may be several reasons for taking title in an SCI other than the avoidance of French forced heirship. Similar to the ownership by families of US property in a partnership, holding title through an SCI may be beneficial if there are multiple owners who want continuity of management and a degree of confidentiality.

An SCI does not, however, provide limited liability for its owners and for US tax purposes is treated as a foreign general partnership. This means US owners will typically have additional reporting requirements, including filing a Form 8865, Return of US Persons With Respect to Certain Foreign Partnerships, and reporting their shares on a Form 8983, Statement of Specified Foreign Financial Assets, if they meet certain filing thresholds. Failure to file these informational forms can trigger substantial penalties.

Titling in a US limited liability company
In order to avoid the foreign reporting requirements associated with ownership of shares in an SCI, or because of prohibitions by their employers from owing foreign entities, some US citizens consider taking title to French real property in a US LLC. Some French tax inspectors recently took the view that US LLCs, which are treated as “transparent” entities for US tax purposes, should be treated as “opaque”, ie, taxable in their own right for French tax purposes, irrespective of their US tax treatment. The argument is that French limited liability companies, eg, SARLs, are always subject to corporation tax.

As long as the LLCs are also transparent for tax purposes, however, no French corporation tax is due, even if French real estate property is rented out. On the other hand, if LLCs are treated as opaque, they are then subject to French corporation tax. Even in the absence of rental income, when the French property is used free of charge, corporation tax is due on the notional income. The characterization of an LLC as opaque is currently at issue as a result of a recent court case. Until the law becomes settled, it may not be advisable to hold French real estate in an LLC.

Titling in a trust
Although the use of a trust as a dispositive and testamentary substitute is commonplace in the United States, and its benefits are numerous (eg, continuity of asset management upon incapacity, avoidance of probate, confidentiality, protections for minors or other beneficiaries, long-term tax advantages, etc) US citizens should proceed cautiously before considering titling their French real property in their trust as there are extensive French reporting and tax implications.

As of 1 January 2012, assets or rights held in trusts having some connection with France are deemed to be part of the original settlor’s estate and taxable in his or her hands. After the original settlor’s death, French assets are taxable in the hands of the beneficiaries thereafter deemed to be settlors, irrespective of whether the trust is revocable or irrevocable. Trustees are also subject to extensive reporting requirements.

When the settlor of a trust, or one of its beneficiaries (existing or contingent), is resident in France, or if the trust fund contains French assets, the trustee must disclose to the French tax authorities the formation of the trust, any variations to its terms and its termination (event-based reporting), and the market value of the trust assets each year (annual reporting). Annual reporting may or may not include the payment of a specific tax at a rate of 1.5 per cent of the trust assets. The penalty for failing to comply with the reporting requirements gives rise to a fine of €20,000, or 12.5 per cent of the value of the trust fund, whichever is the greater.

Even if the US person sets up a US trust with a US trustee, and the French real estate is only a minor portion of the trust assets, it will still be subject to French reporting rules.The trustees must identify all beneficiaries (existing or future) of the trust, and gather the somewhat burdensome information needed to comply with the extensive French reporting requirements.

Titling in an “offshore” entity
It is generally not advisable to use an offshore company because it entails both strict reporting requirements and punitive taxation.

In addition to choosing how to take title to the French property, a US purchaser should consider other tax issues, including coordinating French and US income tax on the rental income if it is rented, French and US capital gains tax (CGT) if it is sold, French wealth tax if certain thresholds are met, and French inheritance tax and US estate tax if the US citizen dies owning the property.

The French wealth tax
French law imposes the impôt sur la fortune (ISF) wealth tax on French residents on a worldwide basis (with some exceptions), and on non-residents owning French property. As such, individuals are required to declare the net value of their assets, and are subject to taxation on the value of these assets, if the net value of the assets equals or exceeds €1.3 million as of 1 January of that calendar year. The wealth tax rates currently range from 0.5 per cent to 1.5 per cent. French wealth tax is not deductible against US tax for US persons.

US persons not resident in France must pay the French ISF on the net value of their French property if it exceeds €1.3 million. Debts (eg, a mortgage) are taken into account for determining the net value.

Income tax
Under article 6 of the US-France Income Tax Treaty (the Treaty) and the Protocol amending the Treaty, rental income from French real property is sourced to France and taxed there first (at a top rate of 45 per cent). US persons are subject to worldwide income taxation so must also report it on their US Form 1040 Individual Income Tax Return, but may receive a foreign tax credit for the taxes paid to France, subject to some limitations.

Capital gains tax
Under the Treaty, the sale of French real property at a gain will give rise to French CGT at a top rate of 19 per cent. This was previously 33.3 per cent for non-EU residents, a rate that was struck down by an EU ruling in 2014. Investment property held for more than 22 years can be sold tax-free. US persons must also declare the sale of French real property on their US income tax return for the year of sale, and will be subject to US capital gains tax (both federal and state) and possibly the 3.8 per cent net investment income tax. As with income tax, US persons may be permitted a foreign tax credit for any French tax due. In the case of both income tax and CGT, US taxpayers will essentially pay the greater of the tax in France and the United States.

Inheritance or estate tax
French inheritance taxes are due for all transfers at the time of death, regardless of whether they result from a legal succession, a will or a gift owing to death. Subject to territoriality rules, tax must be paid in France if the deceased was a French resident, the heirs are French residents or the assets are located in France.The taxable estate is, in principle, determined in accordance with French civil law rules. The debts of the decedent, including any mortgage, are then deducted from the estate assets. Inheritance tax is calculated on the net portion passing to each heir or legatee.The net share received by each heir will be:
• less a tax allowance, the amount of which depends on the degree of kinship of the beneficiary to the deceased; and
• subject to a rate based on a scale depending on the degree of kinship of the beneficiary to the deceased.

As an example, the highest rate of tax for assets passing to a direct descendant is 45 per cent and, to an unrelated party, 60 per cent. The exemptions are €100,000 for each child; €31,865 for a grandchild; and €1,594 for an unrelated party. Of course, the US person is also subject to US estate tax on a worldwide basis. The US person will be allowed a credit against US tax for any French inheritance tax paid on French real property. If the US person’s worldwide estate is less than the US person’s remaining applicable exclusion amount of US$5.43 million, however, the availability of the credit will be moot.

Foreign Account Bank Reports: FinCEN Form 114
Invariably, a US person owning French property will need a bank account denominated in euros to pay expenses and receive rent, if applicable. The US person needs to be aware of the Foreign Account Bank Reports (FBAR) filing requirement. A US person must report his or her interest in a foreign financial account on both an FBAR and a Form 8938 if certain filing thresholds are met. An FBAR is required to be filed by every “US person ... which ... has a financial interest in,
or signature authority over, any foreign financial accounts with an aggregate value exceeding US$10,000 at any time during the calendar year.” The penalties for willful failure to file the FBAR can exceed 50 per cent of the account.

Given some of the recent changes, both tax-related and non-tax-related, this is an opportune moment to fulfill that dream of owning a property in France. US persons just need to remain cautious about their reporting and filing requirements in both France and the United States and not assume they are separate; they will need a coordinated plan to address how to title the property, how to dispose of it on their death, and how to satisfy their reporting obligations. Once this is all organized, they can fully enjoy their pied à terre.

This article was first published in Who’s Who Legal: Private Client November, 2015.

For more information, please contact:
Leigh-Alexandra Basha, Partner
McDermott Will & Emery LLP

Paris Real Estate Outlook 2015

Now more than ever is the time to invest in Parisian real estate! We are in the midst of the perfect storm of a weak euro, low French interest rates and stable yet undervalued property prices (for the moment.)

From its low point last year to now, the dollar has strengthened by at least 23% against the euro. The last time the dollar traded this high against the euro was in 2003.
Euro to US Dollar rates in April 2014 went from 1.38 to today’s 1.08 and many analysts are predicting it’s on the way to a 1 for 1 exchange.
The Euro to British Pounds rate went from .82 to .73, also a major swing in favour of pound sterling buyers.

Twenty year fixed rate French mortgages went from 4.20% annually last year to 2.55% - an enormous drop.

While the 2014 French Notaire’s Parisian real estate price report stated an overall drop in price of 2.1%, we didn’t see much reduction in price for the typical apartments that our clients tend to select (well located, lots of light, logical layout, etc.) for the smaller studio and one bedroom apartments. However we did see lots of price negotiation in the larger apartments. The last few weeks have seen a change due to the weak euro and low interest rates. Now even the larger apartments are selling much faster and more often at selling price. All this said, we strongly feel that Paris apartments remain undervalued compared to New York and London. We predict that there will be a price increase to come in the months ahead.

Contact us today with your project and learn how to take advantage of these unusually favorable market conditions!

Oct 2014 - Breaking News on Euro to US$ and UK£ Currency Exchange

Save Money, Plan Ahead - foreign currency exchange expert at Moneycorp, Carole Jaskarzec, sees the Dollar strengthening significantly.

October, 2014

We have revised our 12 month EUR to USD forecasts substantially lower to 1.10 in 12 months (the lowest forecast amongst 91 contributors in the Bloomberg Composite).

If you are a non Eurozone client (ex. US or UK) buying a property in France, your purchasing power is increasing and your down payment is worth more - either allowing you to decrease your loan to value or increase your overall budget.

• We expect the upcoming divergence in euro area and US growth/monetary stances to be unprecedented.
• Euro monetary & fiscal stimuli have proven insufficient to stimulate growth or inflation.
• Tensions with Russia has further affected euro zone activity.
• ECB needs to increase monetary stimulus – include substantial sovereign bond purchases.
• We anticipate tje US Federal Reserve to raise rates in June 2015, with risks tilted towards March. The Fed may even be forced to hike faster than markets are pricing.

Our revised EUR to USD forecasts add upward pressure on all our global USD FX views…


• We have revised our forecast lower, now 1.5700 in 12 months.
• GBP should trade more in line with positive fundamentals now event risk of Scottish Referendum is out the way.
• Signs that UK expansion was broadening as a result of investment and net exports – the significant deterioration in the euro economic outlook has turned that to a downside risk.
• We expect monetary policy to remain in focus and the prospects for earlier rate rises.
• We believe the first BoE rate hike to be in November – 25bp per quarter in the year following. The market is currently only pricing in 80% chance of a hike at the Feb meeting. As markets adjust to our view we expect GBP to benefit (mostly vs EUR).

• GBP should appreciate significantly versus the EUR as the Bank of England  moves towards tightening and the UK economy continues to outperform.
• For reasons mentioned above we foresee significant downside in EUR– now looking for GBP to EUR to reach 1.3500 in 6 months.

Revised Forecasts
                    1 m   3 m  6 m  1 y
GBP USD 1.63 1.61 1.58 1.57
GBP EUR 1.28 1.31 1.35 1.43
EUR USD 1.27 1.22 1.17 1.10

Why is it so useful?

If you are a non Eurozone client (ex. US or UK) buying a property in France, your purchasing power is increasing and your down payment is worth more - either allowing you to decrease your loan to value or increase your overall budget.

Remember that in certain situations, a mortgage can be a useful to hedge against currency exchange and allow you to choose the moment to convert currencies.

Contact us Today Save Money on Currency Exchange

France Home Finance will ensure you receive expert advice on rate and timing and most importantly save you money on the margin charged on your transfer. We are almost always able to beat what your bank will charge you!

Inheritance law in France : Major change for you in 2015

Starting August 17th, 2015, only one law will apply for all your assets, whether movable or immovable, personal or real property : the law of your country of residence.

This article offers a quick view on how it will change our habits in estate planning for foreigners living in France or owning real estate in France.

By Pierre-Alain CONIL, Bilingual French Notaire,  LL.M. Boston College Law School, PhD student and notary graduate at MOREL d’ARLEUX, HUREL, BILLECOCQ, notary law firm in Paris 6th, 15, rue des Saints Pères.

Current situation : the French réserve héréditaire

Foreigners living in France or owning a property in France learn often very early that the French quality lifestyle has a downside : being submitted to the French inheritance Law and its forced heirship system.

Basically, that means that part or all of your estate will be devolved to your heirs according to French standards. To synthesise:
- if you haven’t drafted a will : your estate goes to your closest relatives, most often your wife for a life interest and your children for the remainder.
- If you have drafted a will : it will be enforced only if you do not disinherit your children and leave them at least their forced share of your estate (1/2, 1/3, 1/4, depending on how many children you have).

To put it in another way, your estate plan that uses either a will or a trust (legal instrument that is not recognized in France by the way) to transfer everything to your spouse, leaving the children to wait for his/her death, will be seen as unlawful and will not be respected.

I know for a fact how difficult this is to accept for my foreign clients.

But I have great news for you : this is about to change.

A new European regulation starting August 2015
A new European regulation about inheritance law has been passed by the European Parliament in July 4th 2012 in order to change those rules and will start producing its effect in France on August 17th, 2015.

What will it change for foreigners? In one word : everything.

One law to govern them all

Up until August 2015, one’s estate is actually divided between movable property, devolved according to the law of the decedent’s county of residence, and immovable property, subject to the law of the country where the property is located, which often leads to applying two or more inheritance laws.

But this is about to end : starting August 17th, 2015, only one law will apply for all your assets, whether movable or immovable, personal or real property : the law of your country of residence.

Needless to say, using a sole and unique law will greatly simplify how international estates are handled.

Choosing the law applicable to your estate
Another interesting change is brought by this new regulation: not only will you have only one law applicable to your estate, but you will also be able to pick it up.

Thus, if the law that is meant to apply, ie the law of your country of residence, doesn’t please you, you will be free to replace it by the law of your country of citizenship.

Therefore, if you live in France but would rather have your properties transmitted to your heirs according to you own national inheritance law, that’s now pretty easy to do : you just have to draft a will saying so.

And if you own or buy a property in France while still living in another country and want this law to apply instead of the French one, there is no need anymore to use a civil corporation (SCI Société Civile Immobilière) to transform an immovable property into movable assets (the shares of the corporation) : all you need to do is…actually nothing. The law of you country of residence will anyway be used to govern the distribution of your French property.

New estate planning solutions

To summarize, this new regulation changes everything we know about international estate planning in France. Old habits are about to be outmoded and new techniques will favourably replace them.
Isn’t it a good time to consult your notaire for advice ?


» December, 2015: Democrats work to stop FATCA blowback

» November, 2015: Buying a Piece of France - Tax and Legal Need to Know, November 2015

» April, 2015: Paris Real Estate Outlook 2015

» October, 2014: Breaking News on Euro USD

» October, 2014: Inheritance law in France : Major change for you in 2015

» March, 2014: France Home Finance on TV

» February, 2014: French Property Tax Update 2014

» February, 2014: French Housing Market 2014

» April, 2011: France’s Economy is Looking Up

» April, 2011: Exchange Rate Forecast

» April, 2011: Outlook for European Inflation

» April, 2011: Why France is still Drawing Expats

» March, 2011: Euro Exchange Rate Outlook

» March, 2011: France World Tourism Leader

» March, 2011: Update on French Mortgages

» March, 2011: Rising French Property Values

» February, 2011: Role of the Notaire

» February, 2011: European Economic Outlook for 2011

» February, 2011: Key French Tax Deadlines for 2011

» January, 2011: The Complete Mortgage Process

» November, 2010: French Property Taxes

» November, 2010: The Benefits of Hiring a Mortgage Broker

» October, 2010: Qualifying for a French Mortgage

» September, 2010: Primary Costs Involved With a French Mortgage

» September, 2010: Fixed or Variable Mortgage Rate?

» August, 2010: French Leasebacks

» August, 2010: Compulsory French Life Insurance

» July, 2010: Commercial Real Estate Sector Must Meet Sustainable Criteria

» July, 2010: Major Decrease in U.S. Property Sales

» June, 2010: Global Real Estate Recovery

» June, 2010: Second Homes for Wealthy French Real Estate Investors

» May, 2010: Increase in Confidence of French Real Estate Market

» December, 2009: Key French tax deadlines for 2010

» October, 2009: France - the most visited country in the world in 2008

» August, 2009: Visit France Home Finance in our new location