After working and living in the United States for several years, you might be contemplating a well-deserved retirement in France.
Our first recommendation would be to get a feel for the area you’re considering by renting for a few months. Also, talk to people who moved there (Facebook groups are an excellent source for such contacts and information). Then, you’ll need to sort out a lot of administrative details, including banking, etc., in addition to adapting to a life that will be very different than what you’ve been accustomed to here in the States.
As far as financial planning is concerned, there are four key issues that you’ll want to prepare for, some years or months before you move.
1. Will your current broker or financial advisor still be willing or qualified to work with you?
Due to the complexities of U.S., French, and European compliance and regulations, most US-based investment professionals will no longer work with you once you move to France. Among those who might be willing, very few are qualified and competent in cross-border investment management issues.
At the same time, keeping these accounts in the U.S. will frequently be your best course of action due to potential tax consequences, a wider array of investment options in the U.S., and higher costs of investing in France. So, take the time to check with your current advisor and plan to interview new ones ahead of time.
2. Is your current investment strategy appropriate for someone moving to France?
To start with, living in France and drawing income from your investment portfolio to fund your retirement has important currency implications that require adjustments years before your move. If your investments are primarily in U.S. dollars and the Euro appreciates by 20% as you approach retirement, you just got a 20% cut in your standard of living!
At the same time, there are restrictions on the type of U.S. securities that you can invest in once you become a French resident. Some of these restrictions do not apply if you work with a US-based advisor. It is also highly recommended to avoid buying shares in French investment funds due to their treatment under U.S. tax laws.
3. How will France tax your investment accounts?
The taxation of your investment accounts will depend on whether you have a tax residence in France or not. Non-residents are taxable only on French-source rental income, French-source capital gains from the sale of real estate, and other special categories, such as the sale of art and antiques. Consequently, non-residents are not taxed on their U.S. investment accounts.
French tax residents must report worldwide income, including from U.S. sources. The good news is that American taxpayers benefit from a somewhat favored treatment, thanks to a comprehensive U.S.-France tax treaty that considers the U.S. rule that Americans (and green card holders) are required to pay tax on U.S. income even when they live overseas. To offset this, the tax treaty allows U.S.-source income to escape direct French tax but can potentially increase the tax rate on other income to a higher bracket.
4. Will your current state tax your investment accounts?
If you’re moving to France and become a French tax resident, you will want to avoid paying U.S. state income tax on top. This concept, called “breaking” the state residency rules, will require that you take definitive actions specific to your state. These vary but may include closing or moving your bank accounts or canceling your vehicle registration.Some states (California, New York…) are notoriously tricky and make it burdensome, particularly if you keep property and plan to live in it a few months of the year. It might be easier to move to a no income tax state before moving to France to make a clean break.
These four issues are not comprehensive but essential to review in preparation for your move.
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