Investing in bonds in France. How are American investors taxed?

As a U.S. taxpayer, you may be taxed at three levels:

• Federal Tax
• The state tax
• The local tax that can affect some cities like New York

The Franco-American tax treaty* applies to the capital received. This treaty only concerns federal income taxes for individuals and corporations. The federal states are not bound by this treaty. Some states, such as Texas, do not levy income tax.

I. Taxation of interest received in connection with bond issues

According to article 11 of the agreement, no withholding tax is levied on the interest, which is therefore only taxable in the state of residence of the beneficial owner.

However, interest on securities with a profit-sharing clause of the debtor or of an associated enterprise, within the meaning of Article 9** of the Convention, may be taxed in the source State at a rate not exceeding 15%.

II. Taxation of dividends

Dividends are taxable in the source state and in the state of residence, but taxation in the source state is in principle limited to 15% for individuals.

So, if you are a US tax resident and you receive dividends from a French source, you will be deducted at source in France, this deduction being a foreign tax credit that can be applied against the US federal tax (which will be applied at a rate of 15 or 20%). Don't forget that you may also be taxed by the federal state, which will not necessarily take into account the tax paid in France.

To benefit from the reduced rate in France, you must use form 5000.

III. Determination of the tax due by a resident***.

• Normal gross income: income of any kind and from any source (mainly salaries and wages, pensions, property income, income from movable assets, profits from independent industrial and commercial activities, handicrafts, agricultural or non-commercial).
• Deduction from gross income: normal and necessary expenses related to the activity, certain pension and health contributions, losses incurred in the course of a professional activity... (as a rule, the expenses of an employee are not taken into account at this level).
• Deductible personal expenses: state income, real estate and personal property taxes, certain health care expenses, employee business expenses, medical expenses, charitable donations (limits and conditions apply).

IV. Federal Tax Schedule in 2020

V. Obligations under the FACTA regulations

The Foreign Account Tax Compliance Act (FATCA) is an American extraterritorial tax law passed in 2010 and effective since July 1, 2014. This regulation, whose objective is to fight tax evasion, requires non-US financial institutions (banks, life insurance companies, Undertakings for Collective Investment in Transferable Securities - UCITS - etc.) to identify and report US taxpayers to the US tax authorities (IRS- Internal Revenue Service) . It should be noted, however, that Raizers, as a Participatory Finance Platform, is not a French institution within the meaning of these regulations.

FATCA requires certain taxpayers with foreign accounts or financial assets with a total value of at least $50,000 to report information about those assets and accounts directly on a specific form called Form 8938. This form must be attached to their annual tax return.

INVEST

* FRENCH-AMERICAN AGREEMENT OF AUGUST 31, 1994 MODIFIED BY THE ENDORSEMENTS OF DECEMBER 8, 2004 AND JANUARY 13, 2009: https://www.impots.gouv.fr/portail/files/media/10_conventions/etats-unis/etats-unis_convention-avec-les-etats-unis-impot-sur-le-revenu-impot-sur-la-fortune_fd_1835.pdf

** Article 9: Associated enterprises where :

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State

*** Direction Générale des Finances Publiques, the information contained in these examples is for illustrative purposes only and is not intended to substitute for official documentation from the U.S. tax authorities.