Here for the Long Haul - Investment Options for Americans Overseas
Published: 26 September 2016
On May 18, London & Capital presented an information meeting on investment options we Americans have when we live abroad. Daniel Freedman, head of the US Family Office at London & Capital, moderated the event. Tony McGloughlin, director at London & Capital in the US Family Office, was on the panel, as specialist in the investments. From AARO, Tim Ramier, Ramier Law Office and chairman of the AARO tax committee, and Mojgan Ghanipour, C.P.A. and partner at MG Partners were also on the panel, specialists in estate and tax planning. Behind the scenes, Joseph Cohen organized the event at the Intercontinental Marceau.
The meeting started off with the assumption that we did not need an introduction to FATCA, nor our FBAR and tax reporting obligations to the US. There was a very informative comparative table summarizing tax obligations in France and in the US: maximum income tax rate, capital gains tax rates, taxes on interest and dividends, social “contributions”, and wealth tax.
Daniel presented a case study, not one that represented us individually, but rather one that gathered together most of the complicated issues we face. Most of us do not face all these issues: an American woman, who already had a successful career in the US (retirement accounts and equity investments in addition to a fully paid up apartment in NYC), married to a Frenchman (not currently working), living in France since 2000, with two children, an apartment in Paris (bought for €900000 and now worth €2 million), an assurance vie contract…
With that scenario, there were several questions: what happens if they sell the apartment they live in? (US tax on gain of over $250,000 for the US taxpayer); how is the assurance vie handled for US taxes? Is it a good investment for us? (If you are American, you’re better off investing in the US with a brokerage account there. Assurance vie contracts, the multi-support ones, are PFICs and better to avoid them.) That brought up the question of getting a brokerage account. Of course, London & Capital have a solution for that, so while brokerages are dropping us, others are maintaining our connection to the US. This applies even if the American has no US address to claim.
French taxes were also discussed, including the ISF, which the case study family would definitely have to pay. Trusts, inheritance issues. (In France, US citizens can choose to have the estate settled under a US state’s regime rather than the French one.) The inheritance the American wife in the study will get will not be taxed in the US because it falls under the threshold, and it will not be taxed in France because the estate will have fulfilled the US tax obligations of reporting to the IRS and the treaty exempts it, then, from French taxes.
The case study allowed discussion of most of our issues. Daniel, the moderator, made sure that the questions were answered briefly and to the point. Personal circumstances were discussed privately with the panel members when the seminar was over.
AARO and AAWE plan to hold more events with London & Capital, less of an overview and more focused on specific case studies.
Banking Committee Update - Fall 2015
Published: 30 November 2015
Please note that AARO cannot endorse any of these banks.
Based on the information and feedback AARO's Banking Committee has gathered, banks are still unequal in their treatment of U.S.-person customers. Most banks are requesting us to send in W-9 forms. BNP seems to be the most consistent, allowing us to have most types of accounts. One person noted that Caisse d'Epargne allowed them to have checking accounts, livrets, and even assurance vie. There has been positive feedback about HSBC and Crédit Agricole, as well.
Société Générale recently allowed one person to open a checking account and a Livret A, but would not sell him an assurance vie or allow him to open any kind of investment account.
One person reported that her account manager at Crédit du Nord said her accounts would be closed; while another U.S. customer at the same branch said all her account manager wanted was the W-9 form.
Please note that in France, the banks do not have to report the Livret A, LDD, and some other state-sponsored limited savings accounts. You can find the list of these accounts in the annex of the IGA. More productive investments, however, are more difficult to get.
In the United States:
Fidelity: In 2013, Fidelity dictated that overseas account holders could sell assets and withdraw money but not buy new assets or make deposits. Core accounts continued to earn 0.01% interest. Following a policy change this summer, Fidelity changed an AARO member’s core account into a "cash balance" account that will no longer earn that small interest. Otherwise, nothing else changes.
TDAmeritrade: Reports from late 2013 and early 2014 indicated that TDAmeritrade was still allowing U.S. customers with foreign addresses to open accounts.
Fifth Third Bank has allowed U.S. citizens with only a foreign address to open accounts. You must be present in the U.S. and go to the branch office to open the account with a proof of residence (at your foreign address) and your U.S. passport. The application form you sign at the end is the equivalent of a W-9.
In Denmark, one U.S. client opened an account with Danske Bank (a major bank), and the individual has not been contacted concerning FATCA compliance at all.
FATCA Update and French Inheritance Law
Published: 19 December 2013
Inheritance in France and recent developments on FATCA
AARO tax specialists Tim Ramier and John Fredenberger presented a review of the recent Inter-Governmental Agreement on FATCA signed on November 14 between France and the United States followed by an overview of inheritance and how it is managed in France and the US.
Over 60 attendees came to the Forum 104on December 9 for this meeting − an excellent turn-out. The documents that were cited during the meeting will be posted on the AARO website for members to download.
John Fredenberger, our tax specialist who has been following FATCA closely ever since it was first introduced in the HIRE Act in 2010, gave us a rather positive outlook on this Inter-Governmental Agreement (IGA). He began his talk with some background: how FATCA started and has evolved over the past three years.
FATCA, the Foreign Account Tax Compliance Act, was signed into law by President Obama in 2010 as part of the HIRE (Hiring Incentives to Restore Employment) Act. The immediate impact on individual taxpayers was a new requirement that US citizens (and other US persons) with foreign accounts (non-US accounts) would attach a statement with that account information to their tax returns if the aggregate (combined) balance of those foreign accounts was over $50,000.
After protests from overseas organizations, the US Treasury recognized that the $50,000 threshold was too low for non-resident US citizens, so they raised the threshold for bona-fide residents living outside the US to $200,000 for individuals filing separately, and $400,000 for married persons filing jointly.
This "statement" became Form 8938 in November of 2010. Today, if a US person has foreign accounts that, combined, are equal to or above the threshold amounts, he must attach Form 8938 to his yearly tax return. This new form does not replace the annual FBAR (Foreign Bank Account Report) Form TD F 90-22.1 which US Persons must file with the US Treasury Department by the end of June every year.
That was the new requirement for taxpayers but FATCA also included new rules for foreign financial institutions (FFIs). In order to verify that US persons were correctly reporting their foreign accounts, the IRS decided to extend their domestic document matching program which has been in effect in the US since 1974. In the US, American financial institutions are required to send account and income information to both the taxpayer and to the IRS. The IRS then matches what the taxpayer declares on his return with what the bank reports. In the 1990s, the IRS suspected that US persons were circumventing the document matching program by investing in US markets through financial institutions abroad that were not subject to US reporting requirements. This led the IRS to launch a program that certified financial institutions as "Qualified Intermediaries" (QI) and required them to issue W9 forms to their US customers.
FATCA is a further extension of this. It requires foreign financial institutions (FFIs) to actively seek out and identify their customers who are US persons and to report their account information to the IRS. The penalties for non-compliant FFIs are significant - a withholding tax of 30% on their operations in the US market. This new compliance burden has meant that some FFIs are choosing to simply exclude all customers who may be US persons.
The uproar over the expense of identifying such customers, and the burdensome reporting to a foreign authority, which in many cases may be against other country's laws, has led to the negotiation of Inter-Governmental Agreements (IGAs). There is some confusion about what these agreements actually are: treaties or competent authority agreements? There are two standard IGAs: under the Model I a country's FFIs report directly to the IRS while under a Model II they report to their government's tax authorities which, in turn, report to the IRS.
The French IGA
The French IGA was signed on November 14, 2013 between Pierre Moscovici, the French Finance Minister, and Charles Rivkin, the US Ambassador. It is a Model II agreement which will take effect "when their necessary internal procedures for entry into force have been completed".
Under the French IGA, reporting to the IRS will be phased in over three years:
For reportable (see below) accounts existing in 2014 French FFIs will report the name, address, US Social Security number, account number and balance on December 31 of that year.
For reportable accounts existing in 2015 (reported in 2016), FFIs will report the same information and the interest, dividends and other income credited to the account.
For reportable accounts existing in 2016 (reported in 2017), the FFIs will report the same information as above and include the gross proceeds credited to the account from the sale of capital assets.
What accounts are not reported?
Any accounts prior to 2014.
Accounts existing prior to June 2014 with a year-end balance of under $50,000.
Any of the following account types: Livret A and Livret Bleu; Livret de Développement Durable (LDD); Livret d'Epargne Populaire (LEP); Livret Jeune; Plan d'Epargne Logement (PEL) and Compte d'Epargne Logement (CEL); Plan d'Epargne Populaire (PEP); Accords de Participation; Plan d'Epargne Entreprise (PEE) and Plan d'Epargne Inter-Entreprise (PEI); Plan d'Epargne pour la Retraite Collective (PERCO and PERCOI; and blocked "comptes courant". Also, certain retirement contracts and schemes, such as the MADELIN, MADELIN AGRICOLE, PERP, PERE, and PREFON and those found in Articles 39, 82, and 83 of the code des impôts.
Which accounts will be reported?
Any account not cited above that has more than $50,000 but less than $1,000,000 (low-value accounts) will be reported with limited due diligence requirements. The FFIs will run an electronic search only for possible US person account holders.
Accounts over $1,000,000. The FFI have greater due diligence requirements.
What is unresolved?
We still don't know how the reciprocity part of the IGA will be handled. Will the US be reporting to France the US accounts held by US citizens who reside in France? If so, will this reporting include IRAs, 401Ks or Trusts?
Assurance-Vie: Is it included in the excluded retirement contracts, or is it simply another reportable investment account?
Joint accounts held by Americans with non-US citizens (family or spouses, for example).
And is this IGA a treaty subject to ratification in the US?
Tim Ramier presented inheritance issues for US citizens in France. The key, no matter where you live, is to organize and plan, while you are alive.
Both the US and France are interested in our estates, even if we are residents in France. For both countries your estate is based on your worldwide assets. Furthermore, if the estate (the "succession") is handled in France, there is still an obligation to report to the US. Which country handles it depends on your residence status. Be aware that France determines residency on more than just presence in the country. If you have attachments in France (children in school, for example) you can still be considered a French resident even if you maintain your tax residence in the US, or elsewhere.
In the US you get to decide via a will. Probate is handled on the state level, not the Federal level. Generally, the surviving spouse is tax exempt and can inherit the total amount. The US is not interested in who inherits and will tax the estate before distribution. For 2013, only estates over $5,250,000 are taxable. The lifetime distribution of gifts is added back to the estate to determine the total.
In France, there are forced heirs by law. The share of the surviving spouse or civil union partner is tax exempt and the amount you can leave by will is determined by the number of children. If there is one child, you can will up to 50% of your estate; two children, they will inherit 2/3 of your estate; and three or more children take 3/4 of your estate. Each child has a €100,000 deduction and then pays tax on a progressive scale according to how much taxable estate is left. Other heirs (brothers and sisters, parents, nieces and nephews) have fewer tax exemptions and higher tax rates. Unrelated heirs pay 60% in tax and have only a €1,500 deduction.
In France, the concept of the estate is different; the "succession" is an automatic transfer of ownership at the moment of death. In France it is a notaire who manages the succession. In the US, on the other hand, the estate is an entity that exists from the moment of death until the settlement. The estate is managed by an executor or administrator, approved and empowered by a probate court, in accordance with your will or by petition to the court if intestate (no will).
In France the family will receive a death certificate from the mairie (mayor's office). The notaire will create the deed of heirship and will take care of all the official declarations to banks and the government.
In France, the heirs or legatees have 6 months to file an inheritance tax return and pay any taxes. In the US, taxes are due after 9 months, but there are extensions. When inheriting from a US resident estate, Tim recommended filing form 706 with the IRS, even if there is no US tax due, to avoid confusion in France.
What you inherit from someone resident and a US citizen in the US this falls under the US-France Estate Tax Treaty and the estate is not subject to double taxation. So if you fulfill the tax requirement in the US (even if nothing is due) you have fulfilled the requirements under the tax treaty and by virtue of the treaty provisions no tax on such gifts and legacies is payable to France. This treaty overrides local French tax law.
Take inventory of your worldwide assets.
Create an estate file including what you own, what accounts you have, who to contact. (A worksheet for this file will be made available to members on the AARO website.)
Create a will – for France and the US
Create a Health Care Proxy and a living will in case you are incapacitated or have a terminal illness and you need to name someone who will make healthcare decisions for you. (Note: a living will, as Americans think of it, does not exist in France. In France there is the "Mandat de protection futur" wherein you can name a person to make financial and healthcare decisions in case of verified incapacity. It must be set up by a notaire.) You can also do French and American Powers of Attorney or Procuration to appoint someone to act on your behalf.
Here are the full-length videos of these two presentations.
FATCA with J. Fredenberger and T. Ramier:
Inheritance in France with T. Ramier and J. Fredenberger:
European Parliament Committee Hearing on FATCA
Published: 29 May 2013
The fight against tax evasion - FATCA as a step towards international automatic exchange of information?
Summary prepared jointly by Ellen Lebelle and Victoria Férauge
We attended this public hearing on May 28th at the European Parliament in Brussels. Before the meeting started, we were fortunate to have an opportunity to speak with Sophie in't Veld, the MEP from The Netherlands. She had read the letter that AARO's president and FAWCO's U.S. Liaison Lucy Laederich had sent to her ('t Veld letter) and we were able to discuss those and other points with her. To be clear, she is a supporter of the fight against tax evasion, but insists that initiatives to combat it must be debated in a public, transparent, democratic way.