Download our 2022 U.S. and French Newsletter

 

March 11, 2022

Horton Tax Services – 2022 Tax Season Communication

Dear Client,

We are pleased to launch the 2022 tax season. We are honored to serve you during this concerning time.

• We update you on our Practice and on Important Tax Matters – pages 1 & 2
• We share information about: making appointments, accessing our resources (checklists and spreadsheets), important information about our policies and exchange rate details – pages 3 – 5
• We update you on the 2021 & 2022 French and U.S. income tax laws – pages 6 – 27
• Find information about the U.S. FATCA disclosures – pages 28 – 30
• Find instructions for obtaining your U.S. income tax account information – 31 – end

 

Practice Update

We are not trying to expand our project list. To allow us to better focus on your tax matters we have stopped “marketing” and have shifted to a “referral only” system for interviewing prospective clients. Please share our contact details with important people in your life. If our services are not a good fit for those people, we’ll nevertheless be pleased to offer some ideas for how they might resolve their tax issues.

Jonathan Hadida joined our practice in March 2020 to help manage the operation. We appreciate Jonathan’s contributions serving our clients throughout the pandemic and helping our practice transition swiftly into a workspace that is capable of operating on a fully virtual basis.  Jonathan has decided to work as a tax consultant operating independently from Horton Tax Services and we wish him great success. We have an extraordinary team of professionals who are client focused, and who are continuing to develop their technical skills. We are putting into place a long-term retention and succession plan which involves existing team members. We’ll announce that plan over the coming years (Steven Horton is not retiring for at least 10 years).

 

Important Tax Matters

The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2021 tax year is April 18, 2022.

You may have read about the problems the IRS is experiencing with tax return processing, staffing, and technology deficiencies.  In our own experience, the IRS has lost, misplaced or just not processed some of our clients’ income tax returns. If you don’t have proof that the IRS has processed your tax returns, you might wish to verify that this has been done. You can do so by establishing your online account on the IRS website or by requesting hard copy transcripts from the IRS. Under either method, you’ll be able to see your 2018, 2019, and 2020 IRS income tax account information. Once you obtain access to your tax information, please review and let us know if any action is required.

We’ve included an annex “Obtaining your U.S. Tax information from the IRS” on pages 31-33.

You will find current information about the U.S. coronavirus tax relief provisions on IRS.gov. The third round of economic impact payments (EIP) (aka the “Biden stimulus payments”) were issued beginning in March 2021 and continued through the end of 2021. If you were eligible for relief but did not receive the third payment you will be able to request a “recovery rebate credit” with a special form to be included with the 2021 U.S. income tax return. Let us know the amount and dates of the third EIPs when you share your 2021 tax information.

Some taxpayers received advance payments during 2021 for the Additional Child Tax Credit (ACTC) equal to one-half of the projected credit based on the 2019 or 2020 U.S. income tax return. Only taxpayers who live in the United States for more than one-half of the 2021 tax year are eligible to claim the refundable ACTC.  If you received the advance payments and live outside the United States, you’ll need to repay the amount as part of the 2021 U.S. tax filing. You should have received the IRS letter 6419 showing the amounts of payments. Please provide this document with your tax information.

Some of our clients have been paying U.S. Net Investment Income Tax (NIIT) on their non-U.S source passive income which includes interest, dividends, capital gains and rental income. A suit has been filed challenging the IRS’ position that NIIT is due in a situation where a taxpayer has taken an income tax treaty based position that foreign taxes should offset the NIIT. The case will be heard by the United States Court of Federal Claims and is “Matthew and Katherine Kaess Christensen v. United States” (No. 20-935T).

The French tax administration has done an excellent job of implementing the complicated pay-as-you-earn tax collection system, and you can view the administration’s dashboard and control, to some degree, how taxes are collected on your online account. If you do not already have access to your online French income tax account at impots.gouv.fr, you must initiate this account at your earliest convenience.

U.S. and French income tax returns are more appropriately described as “Information returns which also require you to report income”. Information sharing agreements implemented by the governments of developed countries mean that taxpayers need to report their financial accounts to avoid the imposition of penalties (or worse). Often, the penalties for failing to disclose an account exceed the income taxes due on the corresponding income. Contact us if you discover you are out of compliance and we can help resolve and/or refer you to competent legal counsel.

 

Our Website & SmartVault

We’re pleased to introduce our updated website you can access at www.hortontaxservices.com. The password to access the tools for Existing Clients is “ratatouille”. Rest assured that we do not post confidential client information on our website.

Access our tax tools from the Existing Clients toolbar (see image below) where you’ll find our income tax return checklists and excel workbooks to help you organize your information. We continue to improve these tools and add new ones, so please check back regularly.

 

Make an Appointment

If you’d like to discuss a special tax situation, please make an appointment directly on the calendar posted on our website’s existing clients’ section (see image below). Go to “Hortontaxservices.com” and select “existing clients” at the top of the menu. If you are prompted for a password, use “ratatouille”.

 

Accessing our Checklists and other Tax Tools

Please click “US and French Tax Tools” to find our checklist.

Other worksheets and tools are available on the same page below the checklist as needed.

 

Filing Deadlines, Exchange Rates, and Our Policy for Submitting Tax Returns

Due dates for filing the U.S. and French declarations are posted on our website and will be updated when new information becomes available.

We remind you that our clients can exchange confidential tax information with our office using a trusted internet portal service www.SmartVault.com. If you want to establish a SmartVault account or would like us to resend an invitation to establish an account, please send us an email and we will get you set up.

Key exchange rates can be found on our website and are as follows:

• For converting 2021 income and deductions to be reported on the 2021 U.S. income tax return, please use 1.1820 USD/EUR.
• For the 2022 IFI, FinCEN Form 114 (explained later), and Form 8938 (if applicable) please use the year-end exchange rate of 1.1338 USD/EUR.
• To convert 2021 income and deductions to be reported on the 2021 French income tax declaration, please use 1.1827 USD/EUR (the rate provided by the Banque de France).

For U.S. income tax returns ready to submit before the IRS e-file cutoff date (last year this was mid-November 2021) we will e-file the declarations unless you advise us not to. You may opt-out of e-filing by signing and returning the last page of our checklist (available in the ‘Clients Only’ section of our website). You will be asked to review the tax return before we submit it to the IRS. We recommend that you register for a SmartVault account which will allow us to securely provide you with the tax return. Alternatively, we will e-mail you your tax return as a password-protected Adobe file. If you agree with the return, we will then submit it on your behalf upon receiving your signed authorization form. If you do not trust the integrity of these proposed methods of transmitting sensitive information, please provide us with the signed e-file opt-out form.

We offer to send U.S. income tax returns by registered mail or by FedEx if the returns cannot be e-filed. We don’t charge for this service. We maintain a permanent record of registered mail receipts and post a copy of the proof of submission to your “tax returns sent” folder on your SmartVault account.

If you would like us to mail you a copy of your income tax return, please let us know by crossing off the box at the top of the second page of the checklist. We no longer charge for this service.

 

FinCEN Form 114 (or “FBAR”)

The deadline for filing the FinCEN Form 114 is aligned with the U.S. tax return filing date of April 18, 2022, and benefits from an automatic 6-month extension. The final deadline for the 2021 FinCEN Form 114 is October 17, 2022. There is no additional two-month extended deadline for filing this form.

The Banking Secrecy Act of 1970 included a provision that requires U.S. persons to report their foreign financial accounts each year if the cumulative balances of those foreign accounts exceed $10,000 at any time during the year. The form name and the penalty provisions associated with this form have changed over the years. Since the 2013 tax year, this form is called ‘FinCEN Form 114’ and must be submitted on the Financial Crimes Enforcement Network’s website.

Our Tax Toolbox contains a guide and an Excel template that explains how to prepare and submit the form.  A person who willfully fails to report an account may be subject to a penalty equal to the greater of $100,000 or 50% of the balance in the account at the time of the violation. Willful violations may also be subject to criminal penalties.

 

Services We Provide

We prepare U.S. income tax returns, gift tax returns, and in some situations the FinCEN Form 114, and other information returns. We also prepare French income tax returns, which for some clients will now include the modified French wealth tax, Impôt sur la Fortune Immobilière (IFI). If clients choose to send their tax returns themselves, we encourage the use of a registered mail service so that you have substantive proof that the tax office received the tax return. A few euros paid to La Poste could save thousands of euros in late filing penalties.

We need to invoice for our investment in assisting with responding to tax notices. We will endeavor to provide a fee quote for our assistance with these replies before commencing work.

 

Services We Do Not Provide

We do not routinely assist with matters related to “taxe d’habitation, taxes foncières, redevance audiovisuelle” or other administrative concerns. We can provide follow-up on such matters, but we will bill for the extra time spent. This type of assistance is not included in our regular service or fee.

 

Our General Office Procedures

The IRS continues its international compliance initiative and some U.S. taxpayers will be selected for examination. Typically, these examinations focus on the foreign tax credit. Our hourly rates apply in assisting with such examinations and we will do our best to provide an estimate of the expected time for assisting with each examination.

Our fee quotes are based on the assumption that you will provide us with complete, clear information and that only routine follow-ups will be required. If we have to follow up with multiple phone calls and e-mails to obtain missing data and explanations, it will result in more time spent by us and thus a higher fee.

We generally process files on a “first-in, first-out” basis.  Upon receipt of complete information, we log your file into our database.  We will do our best to notify you if the information you have provided is insufficient to commence work.

We issue our invoices with the tax returns (or letters) and we request that clients settle their accounts in time so that we can limit the administrative time dedicated to our accounting. Clients who habitually pay late may be asked to provide a retainer fee the following year.

We do not share your information with any third party and we do not accept or pay referral fees.

Best Regards,

Steven R. Horton, CPA & Team HTS

 

2021 U.S. Income Tax Update

 

1. 2021 Tax Brackets (Income/Capital Gains and AMT)

• There are seven federal tax brackets for 2021: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

For informational purposes, please find below the income threshold for each filing status at the 37% bracket:

• Married Filing Jointly or Qualifying Widow(er): $628,300 or more
• Head of Household: $523,600 or more
• Single : $523,600 or more
• Married Filing Separately: $314,151 or more
• The tax rate on qualified dividends and long-term capital gains in 2021 remains at 0%, 15%, or 20% depending on your level of income

 

Tax Rate	Single	MFJ	HOH	MFS
0%	$0-$40,400	$0-$80,800	$0-$54,100	$0-40,400
15%	$40,401-$445,850	$80,801-$501,600	$54,101-$473,750	$40,401-$250,800
20%	+$445,851	+$501,601	+$473,751	+$250,801

 

2. Exemptions and Exclusions

• Cash donations of up to $300 made to a qualified organization before December 31, 2021, are deductible on the 2021 U.S. income tax return even if the taxpayer doesn’t claim itemized deductions. Legally married couples may take a charitable deduction of $600 in 2021 while taking the standard deduction.
• The Foreign Earned Income Exclusion has increased to $108,700.
• The exemption amount for the alternative minimum tax (AMT) has been increased to $114,600 for joint files, $73,600 for single or head of household filers, and $57,300 for married filing separately filers. The new Act also raises the exemption phase-out levels so that the AMT will apply to an income level of $1,047,200 for joint filers ($523,600 for others).

 

3. Standard/Itemized Deductions

• The standard deduction has increased to $25,100 for Married Filing Jointly taxpayers, $18,800 for Head of Household filers, and $12,550 for all other individuals. The standard deduction is indexed annually for inflation.
• The portion of medical and dental expenses which exceed 7.5% of AGI can be counted as itemized deductions for 2021.
• For mortgage interest related to debt acquired after December 31, 2017, the mortgage interest deduction is limited to acquisition debt of $750,000 ($375,000 in the case of married taxpayers filing separately).
• For acquisition indebtedness incurred before December 15, 2017, homeowners are allowed to keep the limitation of $1 million ($500,000 for married taxpayers filing separately). The additional deduction of interest on Home Equity Loans up to $100,000 is repealed however, the home equity loan can be included in the $750,000 cap (or added to the $1 million cap) if it is used to buy, build, or substantially improve a main or second home.
• The combined deduction for state and local sales, income, and property taxes is limited to $10,000 ($5,000 for married taxpayers filing separately). Foreign non-business property taxes can no longer be deducted.
• Due to the CARES act, the percentage limitation for charitable donations remains at 100% for 2021. Taxpayers are no longer entitled to deduct payments made to a college in exchange for a college athletic event ticket or seating rights at a stadium.
• Miscellaneous deductions such as unreimbursed employee expenses and tax preparation services that exceed 2% of AGI (“adjusted gross income”) are no longer deductible.

 

4. Dependents

• In 2021 the child tax credit increases to $3,600 in 2021 per qualifying child five and under and $3,000 per qualifying child 17 and under. It is fully refundable for those who lived in the United States for more than half the year. In addition, there continues to be a $500 nonrefundable credit for qualifying dependents other than qualifying children. The credit begins to be reduced to $2,000 per child if your adjusted gross income exceeds $150,000 (married filing jointly), $112,500 (head of household), or $75,000 (single). There is a second phase-out of $50 for each $1,000 of adjusted gross income over $400,000 (married filing jointly) or $200,000 (all other taxpayers).
• Under the American Rescue Plan of 2021, advance payments of up to half the 2021 Child Tax Credit were sent to eligible taxpayers. If you received advance payments, you can claim the rest of the Child Tax Credit, if eligible, when you file your 2021 tax return.
• To prevent parents from shifting their unearned income to their children to be taxed at a lower tax rate, the “kiddie” tax applies to children with unearned income (interest, dividends, capital gains, rents, royalties, etc). Under these rules, the net unearned income of a child over $2,200 is taxed at the child’s parents’ tax rate.

 

5. IRAs

• The contribution limit for Roth and traditional IRAs remains at $6,000 for 2021. For those aged 50 or over, the limit is $7,000. The contribution deadline is April 15, 2022.
• The 2021 contribution limit for SEP IRAs sit at $58,000 with a contribution deadline of April 15, 2022.
• Taxpayers who will be at least 72 years old by the end of 2021 must take their required minimum distributions, or RMDs (which count as fully taxable income) from their tax-advantaged retirement accounts (excluding Roth IRAs) by December 31, 2021. If you turned 72 in 2021, you have until April 1, 2022 to take your first distribution.

 

6. 2021 Gifting Limits

• The annual gift exclusion limit remains unchanged at $15,000. However, the federal estate and gift tax exemption increased to $11.7 million in 2021. These new limits are currently scheduled to sunset on January 1, 2023.
• Recipients of gifts from foreign corporations or partnerships may be required to report if the total amount of gifts received in the year exceeds $16,815 (or $100,000 if received from foreign individuals or estates).

 

7. Alimony

• Alimony: For divorce decrees issued after January 1, 2019, alimony will neither be deductible by the payer nor taxable to the recipient.

 

8. Small business considerations

• Small business owners of certain “pass-through” entities receive a 20% deduction against business income. A limitation applies to taxpayers with income over the threshold amounts ($164,900 for single filers, $329,800 for joint filers, with any potential deduction phased out over the next $50,000 or $100,000 of taxable income, respectively). This deduction is unfortunately not available to foreign pass-through entities.
• Net operating losses are limited to 80% of taxable income for losses arising in tax years beginning after December 31, 2017.
• Beginning in 2018, the corporate tax rate for a C corporation is reduced to 21% (down from the current maximum corporate tax rate of 35%).

 

9. Foreign Corporation Requirements (“GILTI”)

• Current year income recognition on results of foreign corporations: The Tax Cut and Jobs Act which was signed into law on December 22, 2017, requires that U.S. persons who own an interest in a foreign corporation that is controlled by U.S. persons included as taxable income their share of the current year corporate earnings under “GILTI” rules. The rules for computing the taxable income are complicated and elections might be made to diminish the taxes

 

10. US Social Security and Health Insurance

• The U.S. social tax rate for employees and employers is 6.2% on $142,800 of earnings. The Medicare withholding rate for employees and employers is 1.45%, with no ceiling. Employees are subject to an additional 0.9% withholding rate on wages over $200,000. The self-employment tax rate is 15.3% up to the social security wage base.

• The Affordable Care Act (ACA), starting in 2014, imposed a penalty on taxpayers with no health insurance coverage. Please note that this provision has been repealed under the Tax Cut and Jobs Act for tax years beginning January 1, 2019.

 

 

11. 2021 Recoverable Rebate Credits Related to the CARES Act

• The American Rescue Plan Act, enacted on March 11, 2021 provided for Economic Impact Payments (EIP3s) to be issued to eligible persons. Payments were issued from March 2021 and continued through the end of 2021.  If you did not qualify for EIP3 or received less than the full amount ($1,400 for unmarried filers, $2,800 for married filing jointly, plus $1,400 for every eligible claimed dependent) you’ll be able to request a Recovery Rebate Credit on your 2021 tax return. Please provide us details for the EIP3 payments you received during 2021.

 

12. 2021 Filing Deadlines

• Form 1040 (Individual Income Tax Returns) are due on April 18, 2022, with an automatic 2-month extension for individuals residing outside the United States to June 15^th. An additional 6-month extension can be requested through to October 17, 2022, with an additional 2-month extension through to December 15^th for individuals residing abroad.
• Form 1065 (Partnerships) and 1120-S (S Corporations) are due on March 15 with a 6-month extension available to September 15.
• Form 1041 Trust returns and Form 1120-C returns will be due April 18 however the extension available will only be for 5 ½ months (to October 1) for trust returns and 6 months for 1120-C corporate returns (to October 17).
• FinCEN Form 114 (commonly known as the “FBAR”) will be due April 18, 2022, with an automatic 6-month extension available to October 17, 2022. Specific requests for this extension are not required.

 

12. Other Important Updates for 2021

•  As of 2021, the discharge of student loan debt is no longer considered taxable income.
•  Required minimum distributions return for 2021 (after being suspended during 2020). If you were 72 at the end of 2021, you must take your RMD from your tax-advantaged retirement account by December 31, 2021. If you turned 72 in 2021, you may take your first distribution until April 1, 2022. Reminder – the penalties for not taking an RMD are 50%.

2022 U.S. Income Tax Update – Based on Current Law (subject to change)

• The below is based on the tax landscape as it stands on March 6, 2022, and is subject to congressional changes in 2022.

13. 2022 Tax Brackets (Income/Capital Gains and AMT)

• There are seven federal tax brackets for 2022: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Below is the income threshold for each filing status at the 37% bracket:
• Married Filing Jointly or Qualifying Widow(er): $647,851 or more
• Head of Household: $539,901 or more
• Single: $539,901 or more
• Married Filing Separately: $323,926 or more

• The tax rate on qualified dividends and long-term capital gains in 2022 remains at 0%, 15%, or 20% depending on your level of income

Tax Rate	Single	MFJ	HOH	MFS
0%	$0-$41,675	$0-$83,350	$0-$55,800	$0-$41,675
15%	$41,676-$459,750	$83,351-$517,200	$55,801-$488,500	$41,676-$258,600
20%	+$459,750	+$517,200	+$488,500	+$258,600

• The foreign earned income exclusion increases to $112,000.
• The exemption amount for the alternative minimum tax (AMT) has been temporarily increased to $118,100 for joint files, $75,900 for single or head of household filers, and $59,050 for married filing separately filers. The exemption phase-out levels are raised so that the AMT will apply to an income level of $1,079,800 for joint filers ($539.900 for others).

 

14. Standard/Itemized Deductions

• The standard deduction increases to $25,900 for Married Filing Joint taxpayers, $19,400 for Head of Household filers, and $12,950 for all other individuals, and is indexed for inflation. There will be no personal exemption for 2022.
• The portion of medical and dental expenses which exceed 7.5% of AGI can be counted as itemized deductions.

 

15. 2022 Gifting Limits

• The annual gift exclusion limit is increased to $16,000. The federal estate and gift tax exemption increases to $12.06 million.

 

16. Small business considerations

• Qualified Business Income Deduction provides a 20% deduction for pass-through businesses up to $170,050 of qualified business income for single taxpayers and $340,100 for married taxpayers filing jointly.

 

 

2021 French Income Tax Update

The 2022 Finance Law brings minor changes to French taxation for 2021 taxpayers, most of which are scheduled to take effect as of January 1, 2022.

 

1. Reminders on « prélèvement à la source»

The income tax withholding regime, “prélèvement à la source” or “PAS”, took effect as of January 1^st 2019.

• Withholding Prélèvement à la Source (PAS): Since January 1, 2019, taxpayers either have tax withheld (employees) or make estimated payments (others) for both personal income tax and ‘prélèvements sociaux’. The withholding applies to the same taxable basis as previously i.e. after deduction of social charges and before the standard or real expense deduction.

For self-employed individuals or those receiving income from rents or alimony and support payments, the basis for the estimated payments made in year N is the net taxable income from year N-2 for the months of January through August, and from year N-1 for September through December.

• Taxpayers can easily increase or decrease their PAS rate and estimated payments amount on impots.gouv.fr.

French taxpayers must ensure they can access the personal taxpayer site or “espace particulier” on the government website using their “numéro fiscal” and designated password in order to monitor data giving the applicable withholding rate.

Individuals becoming French taxpayers for the first time must file French form 2043 as soon as possible with their resident French tax office in order to obtain tax numbers and supply income information in order to establish a personal tax rate determined on the basis of family situation. This is to be updated with the employer for withholding purposes.  In the absence of such information, employers adopt the least advantageous PAS rate (neutral rate) based on single filing status.

• Tax credits: the amount of French qualified tax credits available to taxpayers (e.g. domestic employee, charitable donations, etc.) reported on the 2021 income tax declaration will be refunded in the fall of 2022 to the extent that they do not offset any 2021 income tax.

Similar to last year, on January 15^th 2022, the French tax administration proceeded with an advance refund of an amount of credit equal to 60% of the 2020 amount shown on the 2021 “avis d’imposition”, as a measure to help cash flow.

Any regularization will take place when the administration issues the 2022 “avis d’imposition” on 2021 income. Taxpayers with the same or higher credits from 2020 will receive an additional refund after the declarations are processed. Those who did not will remit the difference back to administration.

This will happen every year from now on. Taxpayers were offered the possibility to reduce the amount of the January 15^th, 2022, advance refund, or refuse it altogether, between September 20^th and December 10^th, 2021, on impots.gouv.fr. This option will be open every year around that time from now on.

• In the fall of 2022, taxpayers will receive an ‘avis d’imposition’ that will show the personal income and ‘prélèvements sociaux’ due on 2021 income. Taxpayers may have to pay a residual amount of tax or get a refund depending on the tax that was withheld at source during year 2021. The avis will also compute an updated ‘prélèvement à la source’ rate which will be applied for the second half of 2022.
• Taxpayers who have household employees started withholding personal income tax at source on their employees’ salary on January 1^st, 2020. The CESU computes the tax and transfers the amount withheld directly to the French tax authority. The taxpayer makes a payment to the household employee for the net amount after tax computed by the CESU.

 

2. What is “PFU”?

As of January 2018, the standard combined income and social tax rate applicable to investment income is a flat rate of 30%.  Taxpayers may still opt for a progressive rate taxation when filing the income declaration.

• “Prélèvement forfaitaire unique” (PFU) – Flat Tax on investment income 30%. For earnings occurring as of January 1, 2018, the 2018 Finance Law established a standard flat tax of 30% on investment income and capital gains.  The 30% is composed of the following:
• 8% standard flat income tax
• 2% social taxes

(This rate replaced the 21% and 24% income tax and 15.5% social tax rates previously in effect for dividends and interest respectively.)

No CSG deduction is permitted.

The PFU applies to the following types of income:

• Gross dividends (the 40% abatement no longer applies)
• Interest (including interest earned in PEL and CEL accounts opened as of January 1, 2018)
• Capital gains (see clarification below)
• Certain Assurance Vie contracts
• Director’s fees
• Certain shares of carried interest
• Withdrawals on PEA within 5 years of the investment made after January 1, 2019.

The PFU does not apply to the following categories of income:

• Rental income
• Real estate capital gains
• Exempt-interest from Livret A, Livret Développement Durable
• PEA
• Pre-1997 assurance vie contracts

 

Specific Treatment for Capital gains:

For shares acquired before January 1, 2018:

• Taxation via PFU 30% allows netting losses, however no abatement for holding period will apply.
• Option for taxation at progressive rates, with abatement for holding period.

For shares acquired as of January 1, 2018:

• Taxation via PFU 30% allows netting losses, however no abatement for holding period will apply.
• Option for taxation at progressive rates, no abatement for holding period.

Capital gains on bitcoins. Taxpayers cannot opt for the progressive rate taxation of capital gains on crypto-currencies.

Assurance Vie:

The tax payable on withdrawal of funds from life insurance contracts has been increased. The gains related to premiums paid into a life insurance contract as from September 27, 2017, are taxed at the 30% flat tax (“PFU”). The former tax rate of 23% will be payable on the withdrawal of funds relating to premiums invested before September 27, 2017 and to premiums below 150,000€ from September 27, 2017.

N.B. Taxpayers may still opt for a progressive rate taxation via the tax declaration, though it would be unusual for the progressive tax system to be more advantageous than the PFU. CSG is only deductible if opting for progressive income tax rates.

 

3. Further Changes

 

1. Filing, paying, and getting audited

• Electronic filing (e-filing) of French tax declarations is now mandatory for all taxpayers who have internet access on the French government website http://www.impots.gouv.fr. The penalty for not e-filing of 15€ applies as of the second year of non-compliance.

From 2019, taxpayers whose entire income and expenses are sent directly by third parties (employers, banks, CESU, etc.) to the French government can tacitly file their French personal income tax return.

Eligible taxpayers will receive a notice from their French tax office informing them of their eligibility. The 2021 income information their tax office has on file will be made available on their impots.gouv.fr account for them to check accuracy. If no changes are made before the filing deadline, the return will be considered filed.

First-year declarants, self-employed taxpayers, taxpayers who have foreign-sourced income or accounts, nonresidents, taxpayers subject to “impôt sur la fortune immobilière” (IFI), and taxpayers who changed address or family situation during the previous year are not eligible for this procedure.

• Electronic payment (e-payment) of all French taxes: income tax, “taxe d’habitation”, “taxe foncière”, social taxes (CSG/CRDS/“prélèvements sociaux”), wealth tax (i.e. IFI which is levied on patrimony above 1.3€M) is mandatory via monthly debit or programmed debit, for taxpayers who have internet access for all payments over 300€. The penalty for non-compliance is 0.2% of the amount due with a minimum penalty of €15.

The bank account must be a checking account or a “Livret A” savings account located in Europe i.e. in the “SEPA zone”. From 2021, nonresident taxpayers who do not have such an account will be able to pay certain taxes to the French tax administration by wire transfer regardless of the amount due.

• Tax audits: from January 1^st, 2020, the French tax authority can base tax audits on content which has been made public on the Internet. This new provision aims at identifying primarily unreported income streams and false transfers of tax residency outside France.

If authorized by the judge, the French tax administration can also get personal data from electronic communication operators and Internet service providers.

From 2017, individuals who provide the French tax authority with information on international tax frauds can be compensated if the tax evaded as a result of such fraud is above €100,000. This provision has been enacted into law in 2019. It aims at identifying primarily false transfers of tax residency abroad and undisclosed foreign financial assets.

N.B: Starting in 2021, the French social administration (URSSAF) communicates tax information for self-employed taxpayers directly to the French tax administration every year before June 30th.

 

1. How much

• The 2020 Finance Law provided for a reduction in taxes on income earned by low-income taxpayers from January 1st, 2020. The second tax bracket was reduced from 14% to 11%, and the scope of the deduction for low-income earners (décote) was broadened.

The 2022 Finance Law maintains these provisions. There are small revisions to the progressive tax brackets for 2021. They reflect a 1.4% increase. Brackets are as follows for 2021 taxable incomes in euros:

Up to 10,225                                  0%

From 10,225 to 26,070                11%

From 26,070 to 74,545                30%

From 74,545 to 160,336              41%

Over 160,336                               45%

 

• The high earner’s tax (“contribution exceptionnelle sur les hauts revenus” or CEHR) reference income brackets and flat rates are unchanged and as follow in euros:

Joint filers

Up to 500,000                              0%

From 500,001 to 1M                    3%

Over 1M                                      4%

Single filers

Up to 250,000                              0%

From 250,001 to 500,000            3%

Over 500,000                               4%

 

• At-source 2021 withholding rates on salaries and pensions paid to non-residents are as follows in euros:

Up to 15,228                                  0%

15,228 to 44,172                          12%

Over 44,172                                 20%

 

• Non-residents: French source unearned income received by nonresident taxpayers since January 1, 2018, is subject to a 30% minimum tax rate (20% previously) for net taxable income exceeding €26,070 for 2021.
• Starting in 2013, an employer’s contribution to a supplemental health insurance plan is deemed income to the employee. This applies to insurance for medical costs due to illness, maternity or accident. The threshold for deduction of the employee’s contributions is lowered accordingly.
• The additional mark-up (generally 10%) on French pension amounts received by persons having raised three or more children is taxable.
• The 10% standard deduction on salaries is capped at 12,829€ (vs. 12,652€ in 2020) and at 3,912€ for pensions (vs. 3,858€ in 2020).
• Gradual reduction and suppression of the 25% mark-up on French self-employment income (BIC, BNC, BA) reported under “régime réel”: such income was increased by 20% in 2020 if the taxpayer does not register with a “centre de gestion agrée”. The mark-up continues to be progressively reduced: 15% in 2021, 10% in 2022, and 0% in 2023.
• The deductible imputed child support (pension alimentaire) for a major child not considered to belong to the tax household is 6,042€.
• The maximum tax savings resulting from the application of the family quotient to the taxable income is 1,592€ for each half-part (first and second child). For a quarter of a part, the reduction is 796€. The limitation also now applies expressly to nonresidents.
• The 2021 threshold for the deduction for low income earners (décote) is 1,746€ for single filers and 2,889€ for joint filers. The new limits are: 790€ for single filers and 1,307€ for joint filers. The deduction is equal to the difference between the limit and 45.25% of the theoretical gross tax.
• Since 2015, the tax-exempt amount of severance paid to Executive Officers is now limited to 3 times the annual social security threshold, or 123,408€ for 2021. Previously this tax-exempt amount was determined as the higher of either half of the amount of severance received or twice the prior-year gross annual compensation within the limit of six times the annual social security limit.
• The global cap on tax deductions, credits, and reductions (“niches fiscales”, excluding expenditures for charities, domestic help, and childcare) will remain at €10,000 for 2021, with the exception of DOM-TOM (Girardin), SOFICA, and also the Loi Pinel “outre-mer” investments which are capped at €18,000. SOFICA investments will remain in effect until December 31, 2023.
• Unchanged from 2020, the specific deduction of 75% allowed for charitable contributions made to organizations for persons in need or fighting against domestic violence is limited to the first 1,000€, allowing a maximum reduction of 750€. The deductible portion of charitable contributions in 2021 to organizations for general interest is 66% of the amount contributed. The maximum reduction may not exceed 20% of taxable income.
• The ‘prime d’activité‘ managed by the Caisse d’Allocations Familiales (CAF) replaced the ‘prime pour l’emploi’ as of January 1, 2016 and applies to employees or independent contractors with revenue below €1,798 per month for 2021.
• Article 155 B Impatriation Regime: for eligible employees or directors who started their French activity effective July 6, 2016, the favorable regime is extended to 8 years (5 years previously). The regime also applies for cases in which an employee changes jobs within the same company or moves to an affiliate of the same industrial group.

The standard 30% tax-exempt impatriation bonus is now also available for seconded employees assigned by a foreign company to a French company.  This new rule applies to wages earned since January 1, 2019, by employees who began working in France from November 16, 2018.

• Life insurance contracts: for income tax purposes, amounts paid upon death occurring after July 1, 2014 are taxable at 31.25% above 700,000€, after deducting the exemption amount of 152,500€ (the income tax rate was previously 25% above 902,838€).

Taxpayers who own life insurance contracts open before January 1^st, 1983, are no longer exempt on income earned on investments made after October 10, 2019.

• Since 2016, the Protection Universelle Maladie or PUMa guarantees access to French health insurance to French residents, and imposes a special health insurance charge (CSM) on French residents who receive mainly passive income derived from their wealth, and who receive little or no earned income or pension income. This charge is called the “Cotisation Subsidiaire Maladie” (CSM). We summarize key aspects of the CMS as it applies to 2021 income as follows:
  • The CSM is collected by URSSAF and is NOT an income tax. It’s a special charge for health insurance. URSSAF may access taxpayer’s French income tax return and compute the CSM based upon reported income.
  • The CSM rate was reduced from 8% to 6.5% in 2019.
  • No CSM applies when French professional income exceeds €8,227 in 2020 (formerly the limit was €4,000). The same threshold applies to 2022.
  • A ceiling on income subject to CSM is set at 8 times PASS i.e. €329,088 in 2020. The same ceiling applies to 2022.
  • An abatement of 50% of PASS applies to the amount of unearned income i.e. €20,568 in 2020. The same abatement applies to 2022.

Please find below a table summarizing how CSM is computed.

 

1. French taxation of the acquisition and disposition of shares

• The French qualifying for Free Share (“actions gratuites”) regime is unchanged since last year. There are now the following periods to consider:
  • For sale of shares received before September 28, 2012, and held for at least 4 years (2+2), the gain follows the previous taxation at either a flat rate of 30% or at progressive rates as salary.

 

• For shares received between September 28, 2012, and August 7, 2015, the gain is taxed as salary in the year of sale.

 

• For shares received from August 8, 2015, to December 31, 2016:
  • The gain will be established per the capital gain regime for sale of shares, with application of the abatement for holding period and taxation at progressive rates and 17.2% social contributions. The 10% employee contribution does not apply.
• For shares received from January 1, 2017, to December 31, 2017:
  • For gains up to an amount of 300,000€ the gain will be established per the capital gain regime for sale of shares, with application of the abatement for holding period and taxation at progressive rates and 17.2% social contributions.
  • For gains over 300,000€, the gain will be taxed as salary at progressive rates without application of the abatement for holding period. Salary activity social contributions of 9.7% apply as well as the 10% employee contribution.
• For shares received as of January 1, 2018:
  • For gains up to an amount of 300,000€ the gain will be taxed as salary at progressive rates with an abatement of 50% for holding period and 17.2% social contributions.
  • For gains over 300,000€, the gain will be taxed as salary at progressive rates without application of the abatement for holding period. Salary activity social contributions of 9.7% (including 6.8% deductible CSG) apply as well as the 10% employee contribution.
• A flat deduction of 500,000€ is granted to executives selling their shares upon retirement as of January 1^st The shares must be held for at least one year and be sold by December 31^st, 2024. The prior conditions applicable to 2017 no longer apply.
• For U.S. citizens with U.S. source capital gains that are taxed in the U.S. as provided for in the U.S. & French income tax treaty, the U.S. gains should be reported on the French return. In earlier years the technical requirement to report the U.S. gains was often ignored since the gains did not affect the French income taxes. Note that application of the 30% PFU standard rate (discussed earlier) no longer allows for an abatement for holding period.
• There are some relief measures, based on the holding period and the category of asset:
• Gains from the sale of securities acquired before September 28, 2012 through the exercise of stock options or share awards programs are taxed under the old regime;
• Gains resulting from cashing out a PEA during the first 5 years of the contract are taxed at 19% after two years or at 22.5% if within two years (PFU is applicable in some situations starting in 2019);
• Gains taxed at progressive rates are reduced based on the holding period as follows: 50% after 2 years and 65% after 8 years for shares acquired before January 1^st, 2018;
• B. A revision to the law removed the abatement in the case of capital losses. Gross losses will be taken against gross gains, which means that they can be taken against any gains without diminishing the advantage.
• Higher reductions to the capital gains tax are allowable to encourage the creation and development of small and mid-size enterprises (PME) as follows:
  • 50% if shares held for at least one year but less than 4 years
  • 65% if shares held for at least 4 years but less than 8 years
  • 85% if shares held for at least 8 years
• For shares of new PMEs, the tax rate also decreases based on holding period and is more favorable.

 

1. Real estate

• Property taxes:
• The TV tax “redevance audiovisuelle” will remain unchanged in 2022: €138, similar to 2021.

The dwelling tax or “taxe d’habitation” on principal residence has been revised over the past two years.

An adjustment was introduced in 2018 which from 2018 to 2020 diminished the “taxe d’habitation” for certain households as a function of their income i.e. fiscal reference income or RFR. For 2018, the adjustment was 30%, for 2019 65%, and for 2020 100%. Taxpayers who are subject to the IFI were not eligible.

Taxpayers who were eligible under these provisions are exempt from “taxe d’habitation” in 2022 as well. The following thresholds apply to get the full adjustment in 2022:

1    part:   28,150€                                               3.5 parts : 63,595€

1.5 parts: 36,490€                                              4    parts : 69,850€

2    parts: 44,830€                                             4.5 parts : 76,105€

2.5 parts: 51,085€                                              5    parts : 82,630€

3    parts: 57,340€

A second adjustment was introduced in 2019 which provided for the complete elimination of the “taxe d’habitation” on principal residence for all households between 2021 and 2023. For 2021, the adjustment was 30%, for 2022 65%, and for 2023 100%. This new provision applies to taxpayers who were not in scope of the first adjustment, including those subject to IFI.

Taxpayers who were eligible under these second provisions will benefit from a reduction of 65% of their “taxe d’habitation” in 2022. The following thresholds apply to get the 65% adjustment in 2022:

1    part:   29,192€                                                3.5 parts : 65,679€

1.5 parts: 38,053€                                                4    parts : 71,934€

2    parts: 46,914€                                                4.5 parts : 78,189€

2.5 parts: 53,169€                                                5    parts : 84,444€

3    parts: 59,424€

 

Starting in 2023, “taxe d’habitation” will be due only on secondary residences used for personal purposes and on real estate properties used for business purposes. Real estate owners will have to report electronically changes in the identity of their tenants and in the use that is made of the property they rent before July 1^st every year. Taxpayers who fail to comply with this new filing requirement will incur a €150 fine per rented property.

• The “taxe sur les logements vacants” applies to uninhabited residences after one year of vacancy. This tax is 12.5% of the “valeur locative foncière brute” during the first year of taxation and 25% after.
• Real estate related tax credits and reductions:
• MaPrimeRenov or “prime de transition énergétique” has now replaced the Principal Residence Energy Transition Tax Credit – CITE (ex-sustainable development and energy conservation credit) i.e. a lump sum payment made by Anah (Agence Nationale de l’Habitat). The amount of the “prime” depends on the income level of the taxpayer and the type of work done.

 

The French government has extended the new MaPrimeRenov was extended to all French resident real estate owners, whether they live in the property or give it for rent, as of July 1^st, 2001.

• A CITE-like credit is maintained for expenses paid between January 1^st, 2021 and December 31^st, 2023, to purchase and install qualified electric vehicle charging systems as they do not fall in the scope of the “prime de transition énergétique” paid by the Anah.

This credit is not available to French non-residents. French residents can claim the credit for principal and secondary residences used personally, whether they own or rent the property.

The tax credit is equal to 75% of the expenses, capped at €300 per charging system.

• The credit for Duflot – Pinel investment is extended to December 31, 2024. However, the reduction rates will be reduced progressively for certain investments made in 2023 and 2024. Current reduction rates will keep on applying only to the most environment-friendly investments.

The Pinel program replaced the Duflot (ex-Scellier) program with a more flexible regime for real estate investments made after September 1, 2014. As was the case for the Duflot program, in order to qualify, the residence must be new, located in certain specific zones, and the owner must agree to rent the property at 20% below market prices to tenants whose revenues cannot exceed certain limits.

The following specific periods and corresponding reduction rates currently apply:

• 6 years: 12% (36,000€ maximum or 6,000€ per year)
• 9 years: 18% (54,000€ maximum or 6,000€ per year)
• 12 years: 21% (63,000€ maximum or 6,000€ per year for 9 years + 3,000€ per year for the additional 3 years)

 

The following reduction rates should apply for investments made in 2023 and 2024:

• 6 years: 5% in 2023, 9% in 2024
• 9 years: 15% in 2023, 12% in 2024
• 12 years: 5% in 2023, 14% in 2024

Two thresholds apply: the total amount considered for reduction is limited to 300,000€ per year per household, and the amount per square meter is limited to 5,500€.

 

**As opposed to the Duflot program, the Pinel program does allow the owner to rent to parents or children without losing the tax advantage of the reduction.

 

The tax reduction is subject to the “niches fiscales” cap mentioned above.

Different rates and thresholds apply to rental properties in the Territoires d’Outre-mer.

(The provision restricting the credit to 80% of the units initially applicable in case of buildings with at least 5 units no longer applies).

 

From January 1^st, 2021, investments must be made in apartment buildings (as opposed to individual apartments or houses) to be eligible for the Pinel reduction.

Nonresidents: since January 1^st, 2019, taxpayers who make a Pinel investment while they are French tax residents can keep on claiming the tax credit AFTER they transfer their tax residency out of France. A 2018 court decision has extended this reform to the credit Scellier investment.

• The “Loi Malraux ancien” deduction of expenses in the context of a restoration permit submitted before January 1, 2009 for old buildings in certain zones ended December 31, 2017. The “Loi Malraux” restoration of rental properties in run-down historic neighborhoods is extended to December 31, 2022.
• The “nouveau Malraux” for permits post-January 1, 2009 in certain sectors allows a tax credit for taxpayers committing to a 9-year rental period for certain expenses within a limit of 100,000€ representing 30% of expenses. In case of a net rental loss, this could be taken against global revenue.
• The credit for Censi-Bouvard investment is extended to December 31, 2021.
• The exemption of capital gains on sale of real estate destined for social housing is extended until December 31, 2022.
• Several changes will impact the “Outre-Mer” real estate tax credits. Some will be effective January 1^st, 2021, others January 1^st, 2022.

 

• Real estate capital gains:

• For French residents and nonresidents the rate is 19% + 17.2% CSG/CRDS/ “prélèvements sociaux”.
• Surtax of 6% on high gains: real estate gains greater than €50,000 are subject to an additional tax of 2% – 6%. This surtax (progressive based on the amount of the gain) is imposed in addition to the existing capital gains tax of 19% plus 17.2% social charges, after deduction of the exemptions for the holding period. The maximum tax including CSG/CRDS will be 42.2%.
• Real estate gains realized after September 1, 2014 are subject to a uniform tax treatment, whether from the sale of constructible lots or other real property.
  • Graduated exemption based on holding period:
    • 6% for the 6^th through 21st year
    • 4% for the 22^nd year
  • This results in a total exemption after a holding period of 22 years, compared to 30 years previously. For the “prélèvements sociaux”, the exemption based on holding period follows a different schedule resulting in total exemption after 30 years.

• Nonresidents: from January 1, 2019, nonresidents who sell their residential property in France can claim two possible exemptions:
  • A one-time tax exemption of the capital gain on the sale of any residence in France by a nonresident of up to €150,000. It applies to sales that take place up until December 31^st of the 10^th year following the transfer of tax residency from France (formerly 5^th year). This exemption includes residences that are rental properties. The seller must have lived in France for at least two years continuously.
  • Similar to the provisions applicable to French tax residents, the real estate capital gain on the sale of the principal residence in France of a former French tax resident who transferred his or her tax residency outside France is tax exempt. The sale must occur before December 31^st of the year following the year of the transfer of residency.

• Both tax exemptions are now in existence. The taxpayer will have to choose the most favorable one depending on his or her specific situation.

 

1. Retirement Regime Reform – The PER (Plan Epargne Retraite) since 2019:

Effective October 1^st 2019 and in the context of general retirement regime reform, the government launched the new “Plan éparge retraite” (PER) retirement vehicle as a result of the May 22^nd 2019 loi PACTE (Plan d’Action pour la Croissance et la Transformation de l’Entreprise).

The PER exists in individual, collective and company-based versions in order to replace the current wide range of existing plans and is proposed either by banking or insurance institutions. Final guidance has yet to be issued by the tax authorities, but we understand that the new plan is designed to:

• Facilitate building an individual retirement plan
• Harmonize the current marketplace of multiple existing plans (PERP, PERCO, article 83, Préfon, Corem, Cgos, Madelin etc.)
• Modify distribution rules making them more flexible

Voluntary contributions in year N are deductible from that year’s taxable income within the higher of the following limits:

• 10% of net professional income from N-1 within the limit of 10% of 8 x the annual social security ceiling (PASS) i.e. 32 909 € for 2020 and 2021.

OR

• 10% of PASS i.e. 4 114 € for 2020 and 2021.

The unused limit amount can be carried forward 3 years.

Taxpayers may also elect to not deduct contributions.

For the individual PER contributor, distributions of capital from the PER are not restricted to annuity payments and may be taken as a lump sum. Such distributions are subject to income tax if they have given rise to a tax deduction at contribution.

 

In this case, the new PER may be equated to standard and complementary taxable French pension schemes. On this basis, our position is that distributions to US person contributors are to be considered eligible for exemption under article 18 of the US-France tax treaty for US purposes.

 

2021-2022 Covid-related provisions

• 0% VAT is applied to Covid tests and vaccines from October 15^th, 2020 to December 31^st, 2022.
• Covid-related pay outs made to self-employed taxpayers (BIC, BNC) by the French government are exempt from both social and income taxes, and will not be taken into account when computing if the “micro regime” threshold has been passed.
• As for 2020, certain “auto-entrepreneurs” are exempt from social taxes on some of their 2021 professional income. They have to adjust the income amount they report to URSSAF to get this exemption. However, personal income tax is still due on 100% of this income which will have to be reported on the 2021 French tax return(s).

 

2022 – IFI : Impôt sur la Fortune Immobilière (replaced ISF)

 A major change for 2018 was the replacement of the ISF with a wealth tax based essentially on real estate.

The fair market value of real estate on January 1, 2022, is the basis for the wealth tax filing.  Other assets are no longer included, with the exception of shares relating specifically to real estate assets held directly or indirectly by the taxpayer. This includes the real estate component of the redeemable value of Assurance Vie contracts. Exemptions maintained for real estate assets related to professional activity and for woodlands, forests and rental agricultural (GFA) shares.

• The threshold for liability to the new IFI wealth tax remains at 1,3M€ of net assets (net of debts related to assets subject to the wealth tax) and tax is payable on assets above 800,000€. The same progressive rates apply as follows:
  • 800,000 to 1,300,000             5%
  • Over 1,300,000 up to 2,570,000 7%
  • Over 2,570,000 to 5,000,000 0%
  • Over 5,000,000 to 10,000,000 25%
  • Over 10,000,000 5%
• The “actif” for purposes of the IFI is now defined widely in relation to real estate: principal residence, other real estate property, and also encompasses shares in companies or organizations linked to real estate assets. Similarly, deductible “passif” relates specifically to the taxable assets: i.e. loans, taxe foncière. Note that OPCVM shares held via companies holding real estate assets are excluded if the taxpayer’s interest is less than 10% and the company’s total real estate interest is less than 20%.
• The reduction of the tax is limited to 75% of eligible contributions made between the 2021 IFI and the 2022 IFI filing date, within a limit of 50,000€. The ISF-PME reduction is no longer allowed. The IFI reduction may not be greater than the IFI due. If it is, the excess amount is neither reimbursable nor carried forward to a future year.
• Regarding the exoneration of 75% of the value of employer shares if a six-year holding period is respected per the “pacte Dutreil-ISF”: for the ongoing ‘pactes’ on January 1, 2021, we confirm that the six-year holding period needs to be respected even if the ISF has been reformed. The French tax authority could audit past ISF returns if the shares were sold before the end of the holding period. However, reporting obligations have been simplified: taxpayers do not have to provide a yearly statement from the company confirming that they still hold the shares anymore, only one statement is required on the last year of the holding period.
• The IFI wealth tax is capped if the total of wealth tax, income tax and ‘prélèvements sociaux’ would exceed 75% of the taxpayer’s net worldwide income realized in the prior year. Any excess wealth tax over that amount is eliminated. The income to take into account when calculating this cap includes income from foreign sources and income from assurance vie accounts.
• There is now a unified declaration process for wealth tax. All taxpayers declare their gross and net assets via the 2042. Annexes contain the detail of the assets. The tax will be collected via assessment in the fall. Taxpayers whose net assets subject to IFI are between 1.3M€ and 2.57M€ need to report the value of both gross and net assets on their French Income Tax Declaration, Form 2042C. As of last year, no payment is due with the declaration; a separate ‘Avis d’Imposition pour l’IFI 2022’ will be issued in the fall of this year.

 

 

2021 Gift and Inheritance Tax Update

• The highest bracket of the progressive rate scale for gift and inheritance for lineal descendants is 45%. Higher tax rates may apply for transfers to more distant kin.
• The exemption amount for gift/inheritance tax for lineal descendants is €100,000 (lower exemption amounts apply to more distant relationships). The exemption re-sets every 15 years, as opposed to every 10 years previously.
• Regarding the exoneration of 75% of the value of employer shares if a six-year holding period is respected per the “pacte Dutreil-transmission”, the ongoing ‘pactes’ on January 1, 2021, or those signed after January 1, 2019, are subject to a more flexible regime: the ownership threshold for eligibility to the regime is reduced, the owner of a single person company (EURL, SASU) can now enter into such a ‘pacte’, sale of the shares to a holding company is now allowed during the holding period, reporting obligations are simplified.

 

2021 Exit Tax

• Taxpayers transferring their fiscal domicile outside of France from January 1, 2015 are taxed on the unrealized capital gains of their stock (at the progressing rates conforming to the new rules regarding capital gains) if the following applies:
  • They lived in France for 6 out the 10 years preceding their departure, AND
  • They have stock in one company representing 50% of its net income; OR
  • Their total stock in all companies exceeds €800,000. Taxpayers having transferred their fiscal domicile out of France during 2013 may, however, elect to be taxed at the 19% flat tax rate in effect prior to 2013.
  • Values of OPCVMs are now included in the taxable base.
  • The exit tax can be avoided if the stock is held for 15 years (up from 8 years under the previous law).
• For transfers of domicile that occur after January 1, 2019, the holding period for the securities on which there was an unrealized capital gain is reduced to 2 years (5 years for taxpayers whose wealth subject to exit tax exceeds 2.57M€). The guarantee required by the French tax administration and the filing obligations after the transfer of domicile are simplified.

 

2021 French Sanctions on Undisclosed Non-French Bank Accounts

• The French government has further defined sanctions in regard to undisclosed foreign assets (bank accounts, assurance vie contracts, stock, trusts, real estate).
• The 2018 amended Finance law instituted a standard 80% penalty on undisclosed non-French bank accounts, life insurance contracts, and trusts, and removed other proportional penalties (formerly expressed as a percentage of the value of the assets).

 

There are now two types of sanctions:

• All back taxes on taxable amounts in such accounts are subject to a proportional 80% penalty (exclusive of other fixed penalties).
• The 80% penalty cannot be less than the fixed penalty per account: i.e. €1,500 to €20,000 (see below)
• Only the fixed penalties of €1.500 to €20.000 (see below) apply if the income or balances of the non-disclosed accounts have otherwise been declared i.e. via income tax or wealth tax declarations.
• Other proportional penalties no longer apply i.e. 5% for life insurance, 12.5% for trusts.
• The fixed penalty of €1,500 per undisclosed account per year for the previous 5 years is applicable if the account is held in a treaty country (€10,000 if the account is held in a country without an agreement on the exchange of bank information).
• The fixed penalty is €20,000 per year if the taxpayer fails to disclose a foreign trust. Besides, while the 2018 ISF reform which created IFI had reduced the scope of the yearly trust reporting solely to the real estate assets held in trust, the 2019 Finance Law reinstated the previous rule: all assets and income held in trust have to be reported on a yearly basis by the trustee starting January 1, 2019.
• Income on the undisclosed accounts must be reported on amended income tax returns. Back income taxes and social charges (prélèvements sociaux) will be assessed. The 3-year ordinary statute of limitations can be extended to up to 10 years.
• The French tax administration can characterize deposits into the accounts or withdrawals from the accounts as deemed taxable income unless the taxpayer can prove otherwise.
• A penalty of 40% for willful non-compliance will apply. This rate is calculated on the amount of back taxes due (not on the total net assets).
• Late-payment interest at the rate of 0.2% per month will apply i.e. 2.4% annually.
• The law to fight tax evasion published on December 7, 2013, reinforced applicable sanctions. The maximum penalty is raised to €2M and 7 years in prison in case of organized tax fraud involving several parties, undisclosed foreign bank accounts, false acts, structures, entities or tax domiciliation.
• Taking steps to dissimulate foreign bank assets via foreign trusts or other entities or using hidden cash to purchase tangible assets would be considered acts of organized tax fraud.
• Enhanced discovery and enforcement procedures were also included in this law.
• A law voted October 10, 2018, reformed the procedure to prosecute tax fraud before French criminal courts. The French tax authority has the obligation to inform French criminal courts of all audits resulting in an assessment of €100,000 or more in taxes, or when certain penalties apply. The court decides alone whether or not to prosecute cases. New criminal procedures also apply to tax delinquents, and penalties rose.
• Taxpayers should opt for voluntary disclosure to limit penalties.
• Starting January 1, 2020, bitcoin accounts have to be reported by individual taxpayers on their annual foreign bank accounts disclosure (Form 3916). A penalty of €750 per undisclosed account per year will be applicable (€1,500 if the account balance is higher than €50,000 at any time during the year).
• Besides the annual reporting by French tax residents of their non-French bank accounts on Form 3916, French banks can ask their clients to fill out auto-certification forms, which typically include questions on tax residency, US citizenship, and taxpayer identification numbers. These forms must be filled out and sent back to the banks. Since November 1, 2018, French banks have the legal obligation to provide the French tax authority with the list of their clients who refuse to provide the requested information.

 

ANNEX – FATCA & Form 8938 

 Not everyone is impacted by this legislation. If you AREN’T affected, your 2021 tax return will be very similar to those you have filed in earlier years. If you ARE affected by the new legislation, your 2021 U.S. income tax return will include the form which adds complexity to your tax filing commensurate with the nature and quantity of your specified foreign financial assets (Hereinafter SSFAs).

The Foreign Tax Compliance Act of 2009 (FATCA) took effect with the 2011 U.S. Individual Income Tax Return. FATCA requires that U.S. Citizens, U.S. resident aliens (Green Card Holders), and in some cases non-resident aliens, report the value of specified foreign assets on Form 8938 that is integrated with the U.S tax return. This requirement is in addition to the Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114 which continues to be required to be filed separately with the Financial Crimes Enforcement Network, as needed.

One of the requirements that came into effect for January 1, 2015, is that non-U.S. financial institutions are required to gather information on U.S. citizens (i.e. Social Security Number and address) for purposes of generating any 1099 Forms and filing these with the IRS.

Many individuals will therefore have received a request from their bank to complete a W-9 form which assists the financial institution with gathering the necessary information.  This form should be completed and returned to your bank.  If you are a U.S. citizen and you receive a W8-Ben form you should not be completing this as it is only applicable for non-U.S. citizens.

Form 8938 is required to be included as part of the 2021 income tax return preparation as the figures reported on Form 8938 are reported elsewhere on the return and are required to tie out on the return. For example, if you are required to file Form 8938 and you own a French savings account that generates interest income, the interest income needs to be included on Form 8938 as well as on the U.S. Income Tax Return Schedule B.

Penalties for failing to comply with the FATCA provisions are severe. A $10,000 penalty may be imposed for failure to file a complete and correct Form 8938 with the income tax return. An accuracy-related penalty equal to 40% of the under-reported income taxes on a transaction involving an undisclosed Specified Foreign Financial Asset (SFFA) may be assessed. Failure to comply with the disclosure requirements may also result in exposure to criminal penalties. The statute of limitations for the tax year will remain open until three years after an accurate Form 8938 is submitted.

We, therefore, ask that you determine whether you are subject to the FATCA reporting rules and if so, provide all necessary information.

 

Learning the rules will allow you to stay “within the law” and keep your professional tax preparation fees to a minimum.

 

HOW TO DETERMINE IF YOU ARE SUBJECT TO FORM 8938

Your requirement to file Form 8938 is determined according to:

1) The filing status of your 2021 U.S. income tax return;

2) Your Country of Residence;

3) The value of your SFFAs at 12/31/2021 and

4) The highest value of your SFFAs at any time during 2021.

Below, you will find a table to help you determine whether you must file the form.

Filing Status	Country of Residence	Value on 12/31/2021	Value at ANY Point in 2021
Single, Married Filing Separately, Head of Household	United States	$50,000	$75,000
Married Filing Jointly	United States	$100,000	$150,000
Single, Married Filing Separately, Head of Household	Foreign Country	$200,000	$300,000
Married Filing Jointly	Foreign Country	$400,000	$600,000

For example, if you file the 2021 U.S. income tax return using the “Head of Household” filing status and you live outside of the United States, you must file Form 8938 if the value of your SFFAs exceeded $300,000 at any time during 2021 or if the value of your SFFAs exceeded $200,000 on 12/31/2021.

The form instructions are complicated. We have posted a link on our website to Form 8938 and its instructions.

As a starting point for establishing which of your assets are SFFAs you can exclude the following:

• S. situs property including assets held by a U.S entity, U.S. partnership, U.S. trust, U.S retirement plan, etc.
• Financial accounts maintained by U.S. payers or foreign branches and subsidiaries of U.S. financial institutions.
• Foreign real estate (including principal residence, secondary residence, etc.) owned individually OR foreign real estate that is owned within a foreign entity NOT held for investment (an example would be a principal residence owned by an SCI).
• An interest in a foreign government’s social security or social insurance program.
• Tangible personal property owned individually.

 

If you own property or a beneficial interest in an asset that falls outside the preceding categories you will need to read the Form 8938 instructions to clarify whether the asset in question is an SFFA.

The following assets are clearly SFFAs:

• Assurance vie – fonds en euros
•  Assurance vie – unités de compte
• Compte épargne / compte sur livret
•  Compte épargne logement (CEL)
• Compte titres
• Contrat de capitalisation
• FCPI (held outside financial account)
• Foreign trust
• Livret A
• Livret Dévelopement Durable (LDD)
• Livret Jeune
• Loi Madelin retirement plan
• Other Foreign Pensions
• Ownership in foreign corporation (held outside financial account)
• Ownership in a foreign partnership (held outside financial account)
• Vested article 39 French Pension
• Articles 83 French Pension
• Plan d’épargne actions (PEA)
• Plan d’épargne entreprise (PEE)
• Plan d’épargne logement (PEL)
• Plan d’épargne populaire (PEP)
• Plan d’épargne retraite (PER)
• SCPI (held outside financial account)
• Vested stock options and bonus shares

Complicated rules apply to joint ownership in SFFAs. This is particularly troublesome for SFFAs that are considered to be “community property” and which may be reported nominally (by the foreign financial institution) as being the non-resident alien spouse’s account. A practical approach for disclosure will likely need to be adopted in cases where the form instructions are deficient.

Most taxpayers will know by making a quick mental calculation whether or not they are required to file Form 8938. However, for taxpayers with SFFA valuations on the edge of the limits for filing, it will be necessary to make a definitive calculation.

On our website, you’ll find a Form 8938 worksheet that allows you to tally your SFFAs. We have also included an information checklist (tab II of the spreadsheet) that will provide an inventory of documents we will need to prepare Form 8938, as necessary.  If you have any questions please give our team a call/email.

 

Annex – Obtaining your U.S. Tax information from the IRS

You may wish to establish your account on the IRS website by creating an ID.me account. If you aren’t able to establish an ID.me account (or do not wish to establish an ID.me account), you should request your U.S. income tax return transcript for the prior three years by completing and submitting form 4506-T.

We include information in this Annex describing how to obtain your IRS account information either by registering an account using ID.me or by completing and submitting form 4506-T to request your IRS transcript.

 

Setting up an account on the IRS website using ID.me

You should access the “create a new account” page on the IRS website by going to IRS.gov and typing “online account.” Then you should select the page “view your account information” as shown below. Then select “sign in to your Online Account”

We recommend that you verify your identity by video conference.  The best time to try is Sunday morning. You’ll need to have a number of documents ready to upload to ID.me’s system. It’s important that when you select the address to be used for verification that you use the address on documents issued by a US entity. The address you use for identify verification can be either a U.S. or foreign address but that address must match the address shown on the documents. ID.me will access that document from an independent data source to confirm it matches the address you indicate. Common examples of documents issued by an entity based in the United States are: U.S. forms 1099, U.S. State Drivers License, U.S. Insurance statement, recent U.S. water bill, or electric bill. If you don’t have a document issued by a U.S. entity showing an address, you won’t be able to register using ID.me

You can use a foreign mobile phone number (important for receiving security codes) even if you choose a U.S. address for identity verification.

We include additional information on pages 34-41 copied from ID.me’s website. This information may be useful in helping you prepare for the verification process.

 

Requesting a transcript of your U.S. tax return details (as processed by the IRS) by filing IRS form 4506-T

 

The following two pages include the IRS form 4506-T “Request for Transcript of Tax Return”. We’ve prefilled lines 6-9. You should complete lines 1a-3 and sign, date and submit the form. If you’ve moved in the past two years, you should first submit a change of address form 8822 and allow the IRS a month to process that form. You can access form 8822 on the IRS website at irs.gov search “form 8822”.

 

If you filed an individual return and lived in one of the jurisdictions shown below, file the form 8822 at the address below. Otherwise, read the form instructions and submit the form the address or fax number shown.

 

Florida, Louisiana, Mississippi, Texas, a foreign country, American Samoa, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or A.P.O. or F.P.O. address, mail the completed form 4506-T to the address below OR fax to the number below:

 

Internal Revenue Service
RAIVS Team
Stop 6716 AUSC
Austin, TX 73301

855-587-9604