This article by Cedric Bernier of Harrison Brook takes a look at what you should know about when investing in France. If you have any questions or would like to learn more about cross-border financial advice for Americans living in France, feel free to reach out to them.
If you are an American living in France, you might have encountered a few roadblocks while trying to invest in your future. There are a few major reasons why American “persons” (as the financial lingo goes) need careful planning while investing as French residents. In this article, we will review your options so that you can understand what you should do, or more importantly, what you should avoid in your investment choices.
Rules and Regulations Restricting US-Connected Expats in France
It is important to know that the regulation adopted in the US called the Foreign Account Tax Compliance Act (FATCA) restricts many Americans from opening bank or investment accounts with foreign financial institutions. It requires all foreign financial institutions to identify accounts held by American customers and report them to the IRS. This restricts the number of firms wanting to service Americans. (This is a perennial topic here at TAIP. See what banks you can use here. -Ed.)
Tax Issues
Another problem is that the IRS penalizes Americans who hold foreign funds. It discourages Americans from investing in European ETFs or mutual funds since there are special reporting requirements and higher taxes. Americans are taxed on their worldwide income so it is crucial to have a tax-efficient investment portfolio while living in France. Americans are left with few options and mostly invest in individual stocks or bonds.
It is also important to use the US/France tax treaty to benefit your situation. Some US investments will be taxed only in the US at a favorable rate. Most fixed-income investments have higher rates of returns in the US compared to France. It is usually preferable for Americans to invest in US dollars.
The only exception is when investing in a French (PER) or US Pension (IRA, 401k). Under the tax treaty, the French pension is only taxed in France and the US Pension is only taxed in the US. That means that you can hold any foreign funds inside the pension without worrying about the taxation of the investment. One mistake we see often is the French Assurance Vie. It is taxed yearly in the US and only taxed-deferred in France.
Keeping an Account in the US
We have been noticing a wave of US investment firms restricting accounts of Americans living in France. I personally worked for Wells Fargo Advisors in the US for many years and we were one of the first ones to close accounts for all American expats. While you may have your own reasons for maintaining a US address for personal or business reasons, if that’s not the case for you, we recommend using a firm that will allow you to use your French address. This will give you peace of mind that your account will not be closed. You might also wish to avoid paying US state taxes.
So What are My Options?
- Investing in individual stocks and bonds. If you don’t have the experience doing it you might need the assistance of a Financial Advisor in order to create a diversified portfolio.
- Investing in a US ETFs portfolio. This can be achieved by working with a cross-border Financial Advisor.
- Investing in European funds and platforms. This will most likely be more costly and taxed at a higher rate. We would not recommend it.
- Keep funds in a savings account (Livret A). The interest rate is below inflation and there are limitations on how much you can deposit.
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