The meeting with Andrew Hodder of WITAM and François Jubin, WISEAM was aimed at an audience living in France, making French investments. Several AARO members regretted not being able to attend the meeting and we hope this summary will help you.
After a brief re-introduction of who they were and a short reminder of what our reporting and tax obligations to the US are, Andrew got straight to the crux of the matter - How can you save and invest in France if you are an American?
If you are young, just starting out, you have the state-sponsored accounts, available to all French resident tax payers from the major banks: Livret A, LDD (Livret de développement durable), LEP (Livret d'Epargne Populaire), Livret Jeune, CEL (Compte d'Epargne Logement), and PEL (Plan d'Eparnge Logement).
Some of these accounts have certain criteria, such as age limit (Livret Jeune, from 12-25 years old) or income (LEP, only 2 per household and limited to low annual income earners - up to €19K.) The maximum allowed in a Livret A is €22950, but each member of the family can have one. An LDD is limited to €12000, and you must be an adult to have this account. The CEL (up to €15300) and PEL (up to €61200 with a 4 year minimum before you can take money out, and, if you keep it longer than 10 years, it becomes a regular savings account with regular tax implications on the income) are savings meant for real estate purchases, but they can be used as regular savings vehicles, should you choose not to take a loan. They earn very low interest and the counterpart is a home loan at very low rates.
Although these accounts earn very little interest, they have tax advantages in France -- the income is not included in the income tax calculation. The accounts must be declared on your FBAR if the total of all your accounts (checking and savings) is over $10K. However, if you are not earning over the Foreign Earned Income Exclusion and this is all you have in savings, even after declaring the interest income, you probably will not be taxed in the US. It's a way to start. If you have other investment income, such as investments in the US, then the interest income from these accounts will enter your taxable income and be taxed. As there is no income tax paid in France, there is no tax credit in the US.
An individual can save over €100K this way. If you are, perhaps, older, have filled the accounts listed above and are ready for more income-generating investments then this is the point at which WITAM’s services start. You can invest in a PERP (a retirement savings plan), a PEA / PME ETI (Plan d'Epargne en Actions and, more specifically, in Petites et Moyennes Entreprises or Entreprises de Taille Intermédiaire), Assurance-Vie (Life insurance, not in the US sense) and or a Compte Titres (brokerage account). All of these can be provided by WITAM, who will also advise on and manage the investments.
The PERP was not discussed. It has certain tax advantages in France, but requires regular payments in from a French salary. It is also limited to 10% of that salary.
A PEA is interesting. By combining the PEA and PEA/PME ETI, you can invest up to 2 times €225000. There are certain tax advantages in France linked to how long you hold on to the account. You are limited to EU stocks. The recommendation is to invest in individual stocks rather than funds because the PFIC (Passive Foreign Investment Company) reporting to the US is difficult to do. With individual stocks, you can report your dividends, your gains and your losses easily. If there is no income tax in France on these accounts, then there is no tax credit in the US. If you do not have enough taxable income to be taxed in the US, that's fine; if you do have taxable income in the US, it will be raised by this income and therefore taxed.
A compte-titres does not have the French tax advantages of a PEA. On the other hand, you are not limited to just EU stocks. It is fully taxed in France and you can claim a tax credit in the US for taxes paid in France on this income.
Assurance-Vie. WITAM has persuaded a handful of assurers with which it already has a strong relationship to accept US Persons. All these are Luxembourg based entities, who will provide you with a French approved policy, but the Luxembourg environment provides additional comfort over the French market as your funds will be placed in a custody bank and you can in certain circumstances choose your own investment manager rather than having to leave the funds on the assurer’s balance sheet, exposed to its and to the whims of its in-house investment management team. (You may approach your own bank or insurance company, they may not even want to take you on once they find out you are American). The French tax efficiency of these policies means that that until drawdown there will be no tax to deduct from your US declaration. WITAM will advise you on the underlying portfolio in which to invest based on the amount of your funds, your view of risk and the practical difficulties of us reporting. Policies (and portfolios) are likely to be of 3 types:
- If you have between €100K and €249K, WITAM will suggest a portfolio of 4-5 funds. These will give a diversification of investment risk which is practical to manage, as you (with the constant guidance of WITAM) will be the author of all further changes in your investment. These funds will be PFICs, but you will opt for US tax reporting on a mark to market basis. This has the advantage of removing any complex segregation of income and capital gains, but the disadvantage that all increase in value will be taxed by the US as income.
- If you have between €250K and €499K, WITAM will suggest a portfolio of 6-8 funds. But you could replace some or all of these funds with an already established PEA of (WITAM advised) individual stocks. These will give a greater diversification of investment risk, will still remain be practical to manage, as you continue to be the author of all further changes in your investment. But in addition, the existence of individual stocks will allow some of the increase in value to be recorded as capital gain. Otherwise dividends from the stocks and the mark to market value of the PFICS will be recorded as income.
- Finally, if you have more than €500K to invest WITAM will recommend that you sign a discretionary investment mandate with WISEAM who will create a truly customized portfolio with the appropriate mix of stocks and bonds to offer the required balance between your view of risk and the complexities of US reporting.
WITAM/WISEAM will, where appropriate, ensure that providers issue 1099-type reporting so you or your tax preparer can file your US tax declaration correctly.