10 common tax traps for foreigners in France
It's not always easy getting to grips with another country's tax system, and there are several common traps that it is easy for foreigners in France to fall into.
France's tax system has a couple of unique aspects that reliably baffle foreigners while tax information for foreign residents is not always easy to come by.
Here's a look at the most common tax traps for foreigners who are either living in France or who have some kind of financial activity or investment here;
Misunderstanding whether or not you are a tax resident
This concept is confusing for many people, as 'tax residency' and residency for immigration purposes are not the same thing.
Tax residency can be an automatic status based on simply being in a country for a certain period of time.
Residency for immigration purposes is different and is not automatically granted - if you are not an EU citizen (ie you're British, American, Canadian etc) then you will need either a visa or a carte de séjour residency card in order to be legally resident in France.
According to the French government, you are a tax resident if you meet ANY of the following conditions;
- Live in France
- Working or earning any kind of income in France
- Have the centre of your economic interests in France
The government's definition of living in France is that France is your 'main place of residence' and it defines this as 'you stay there more than six months of the year' - so second-home owners should bear this in mind when planning how long to stay in France.
If you are seeking to avoid filing taxes in France, limiting yourself to under six months a year is not the only thing to consider. You also need to think about whether you are working in France, or whether you have your 'main investments' in France.
READ MORE: EXPLAINED: The rules on tax residency in France
Failing to report rental income
Many falsely believe that if their permanent residence is outside France, they do not need to contact French tax authorities. But the law states that if you're earning money from your French property - which can include renting it out on Airbnb - then you will have to start making annual tax declarations (this falls under the 'earned income in France' category above).
There are some quite generous tax breaks for landlords in France, meaning that you might end up not having to pay very much, but you still need to hand over tax declarations.
READ MORE: Five things to know about renting out your French property
You will need to tell the tax authorities in your home country about this income as well, but double taxation deals between France and most other countries mean that you won't be taxed twice on the same income, you simply need to tell two sets of tax authorities about it.
As the building owner, you will continue to pay taxe foncière even if it's rented out.
There are additional rules to be aware of when renting with Airbnb.
Failing to file a yearly income tax declaration
Everyone who lives in France must file an annual income tax declaration (déclaration des revenues) - even if they have no income in France.
This frequently catches out pensioners living on a pension from another country, who mistakenly believe that if they have no income in France they do not need to file the annual declaration. If you have no French income then you almost certainly won't be liable for taxes here - but you still have to complete the annual declaration.
The declaration also applies to salaried employees - most employees have their taxes deducted at source so some people, not unnaturally, believe that they don't have to do the declaration. This is not the case, however;
Forgetting to file taxes in France can have serious ramifications, including hefty fines if you failed to declare revenue streams. But if you did not know you needed to file and have never done so, do not fret. You can file retroactively for the previous three years but you will first need to get a 'fiscal number' (numéro fiscal).
READ MORE: EXPLAINED: How to get a 'numéro fiscal' and create a French tax account
Still, turning in a late income tax declaration can lead to fines. Most people who are late will be sent a letter known as a mise en demeure, which has to be signed for upon delivery. This letter will instruct you to submit your tax return as soon as possible and state the potential penalties incurred, should you fail to do so.
The deadline to have your declaration completed is late May/early June depending on where you live and whether you are filing on paper or online.
Failing to declare foreign bank accounts
When filling out the aforementioned tax declaration the basic rule of thumb is that you have to declare all income - French and non-French.
It is important to note that declaring your income does not necessarily mean you will have to pay tax on it, thanks to dual tax treaties that save you from paying tax twice on the same income, but you still have to declare it.
You also need to declare all non-French bank accounts, even if they are dormant or only have a few pennies/cents in them.
READ MORE: Reader question: Do I need to declare my non-French bank accounts?
As for internet bank accounts (eg Revolut, Wise, Bunq), the situation is a little tricky. In general you will have to declare these, as most companies are based outside France.
The easiest way to know if you need to declare the account is to check the account's IBAN (International Bank Account Number). If it starts with FR then it's counted as a French account and you do not need to declare it. If it starts with different initials eg GB for the UK or BE for Belgium, then it's a non-French account and you must declare it.
The bank accounts section of the tax declaration is easy to miss because it comes in the bit about stocks, shares and investment plans which you may assume does not relate to you.
Failure to declare non-French accounts can lead to hefty fines.
Failing to file a property tax declaration
In 2023, French tax authorities created an additional requirement for anyone who owns a property in France - they must fill in a one-off Déclaration d'occupation, stating whether their property is their main residence or a second home.
If you filled this out already last year, and none of the information contained in the form has changed, then you do not have to fill it out again.
However, if you bought a house this year, if your situation has changed or for whatever reason you did not complete the declaration last year, then you will need to fill out the déclaration d'occupation this year.
The déclaration d'occupation is entirely separate from the annual déclaration des revenues. The property tax declaration must be completed by everyone who owns property in France, including second-home owners who are not tax residents of France.
Failing to declare a swimming pool or extension
Another one for property owners - you also need to tell the tax office about any major changes you make. As with all failures to provide information to the tax office, you risk a fine if you do not declare things like a swimming pool, patio or home extension.
In France, the property owners' tax (taxe foncière) is linked to home value, so any "permanent" changes that increase property value must be declared. For pools that cannot be easily moved without demolition (including above-ground), property owners must declare the installation within 90 days of construction.
The rule of thumb is that if you cannot pack up the deck or pool at the end of the season, then it could be considered as part of your property taxes for increasing the value of your home.
French tax authorities have been cracking down on failures to report swimming pools. They have even begun using artificial intelligence and Google Maps to detect any anomalies.
READ MORE: Reader Question: Do I have to pay taxes on my French swimming pool?
Failing to declare foreign trusts
In the United States and some other countries, setting up a trust is common practice - people might use them to reduce estate taxes, avoid the time and fees associated with probate court, as well giving more flexibility and control over your assets to determine when payments are given (perhaps for minor children or disabled adult children).
Trusts are a common legal instrument for inheritance in the US - but in France they are less common and in fact are viewed with suspicion by tax authorities, which can cause problems for Americans in France who have a trust.
If you are a tax resident in France, then your foreign trust(s) must be declared yearly as part of your annual tax declaration.
Each year, you must fill out the "FORMULAIRE N°2181-TRUST2" which asks for the market value, as well as any accrued income, of the trust as of January 1st of that year. You will also have to name other people listed in the trust - whether they are 'moral' or 'physical' people. You will be required to give extensive information, including their dates of birth and addresses.
You must also fill out an additional "event" declaration if a trust is created, modified or terminated. This must be done within one month of the event. This tax form is also available on the government tax site: FORMULAIRE N°2181-TRUST1.
As of 2023, the maximum penalties for omission or incomplete reporting when it comes to trusts stood at €20,000.
Once a trust pays out there are a few different scenarios on how you might be taxed on your trust in France, depending on which tax regime French fiscal authorities place it under: income, inheritance/ gift, and/or wealth tax.
READ MORE: What Americans in France need to know about trusts
Forgetting to file US taxes
While this does not apply to most foreigners in France, Americans and US green card holders must file US taxes yearly due to America's citizenship-based taxation.
Moving to France does not take you out of the reach of the IRS and you must continue to file in the US until you either die or renounce your US citizenship.
READ MORE: Tax tips from Americans in France
Investing options for Americans: Assurance Vie and PFICs
Because Americans are still under the purview of the IRS, they also need to be aware of several IRS policies that pertain to France and French products.
Americans in France need to be aware that the IRS considers the common French 'Assurance Vie' package to be a Passive Foreign Investment Company (PFIC). These are pooled investments registered outside of the United States – for example a mutual fund, an exchange-traded fund (ETF), a hedge fund, or some insurance products (like the Assurance Vie).
While the Assurance Vie is a great tool for being tax efficient for non-Americans, and can offer alternatives to the regimented, traditional French inheritance process, for Americans living in France it can lead to lengthy and complicated dealings with the IRS.
READ MORE: 'Death by a thousand cuts': Tax warning for Americans in France
Not realising that you are 'wealthy'
You might think that if you are rich you would know about it, but France's wealth tax can apply to foreigners who would not view themselves as being especially rich.
The 'wealth tax' is a real estate tax and applies to assets worth €1.3 million or more. This clearly won't apply to most people, but if you own property in a city like London or New York that has seen spiralling property values in recent years then you may find yourself liable for the higher rate of 'wealth tax' in France.
READ ALSO How France's wealth tax works
Whether you pay it or not also depends on how long you have lived in France.
Getting help
So what happens if you read this article and realise with horror that you have not fulfilled your tax obligations in France?
Firstly, don't panic - despite their scary reputation French tax offices can actually be surprisingly helpful. The key thing, however, is to approach them before they approach you.
Top tips for dealing with the French tax office
Most people find that if you contact the tax office and explain that you have made a mistake, they will usually help you to put things right. If you try to avoid the problem and they contact you, however, you could be liable for fines, late payments and worse.
If your financial affairs are complicated it is worth getting expert advice from someone who is qualified in both France and your home country.
How to find professional help with French taxes
But for individuals who have relatively straightforward affairs the first step is to visit your local tax office - you can walk in without an appointment and the big secret about tax office employees is that they generally are among the friendliest and most helpful bureaucrats in France.
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France's tax system has a couple of unique aspects that reliably baffle foreigners while tax information for foreign residents is not always easy to come by.
Here's a look at the most common tax traps for foreigners who are either living in France or who have some kind of financial activity or investment here;
Misunderstanding whether or not you are a tax resident
This concept is confusing for many people, as 'tax residency' and residency for immigration purposes are not the same thing.
Tax residency can be an automatic status based on simply being in a country for a certain period of time.
Residency for immigration purposes is different and is not automatically granted - if you are not an EU citizen (ie you're British, American, Canadian etc) then you will need either a visa or a carte de séjour residency card in order to be legally resident in France.
According to the French government, you are a tax resident if you meet ANY of the following conditions;
- Live in France
- Working or earning any kind of income in France
- Have the centre of your economic interests in France
The government's definition of living in France is that France is your 'main place of residence' and it defines this as 'you stay there more than six months of the year' - so second-home owners should bear this in mind when planning how long to stay in France.
If you are seeking to avoid filing taxes in France, limiting yourself to under six months a year is not the only thing to consider. You also need to think about whether you are working in France, or whether you have your 'main investments' in France.
READ MORE: EXPLAINED: The rules on tax residency in France
Failing to report rental income
Many falsely believe that if their permanent residence is outside France, they do not need to contact French tax authorities. But the law states that if you're earning money from your French property - which can include renting it out on Airbnb - then you will have to start making annual tax declarations (this falls under the 'earned income in France' category above).
There are some quite generous tax breaks for landlords in France, meaning that you might end up not having to pay very much, but you still need to hand over tax declarations.
READ MORE: Five things to know about renting out your French property
You will need to tell the tax authorities in your home country about this income as well, but double taxation deals between France and most other countries mean that you won't be taxed twice on the same income, you simply need to tell two sets of tax authorities about it.
As the building owner, you will continue to pay taxe foncière even if it's rented out.
There are additional rules to be aware of when renting with Airbnb.
Failing to file a yearly income tax declaration
Everyone who lives in France must file an annual income tax declaration (déclaration des revenues) - even if they have no income in France.
This frequently catches out pensioners living on a pension from another country, who mistakenly believe that if they have no income in France they do not need to file the annual declaration. If you have no French income then you almost certainly won't be liable for taxes here - but you still have to complete the annual declaration.
The declaration also applies to salaried employees - most employees have their taxes deducted at source so some people, not unnaturally, believe that they don't have to do the declaration. This is not the case, however;
Forgetting to file taxes in France can have serious ramifications, including hefty fines if you failed to declare revenue streams. But if you did not know you needed to file and have never done so, do not fret. You can file retroactively for the previous three years but you will first need to get a 'fiscal number' (numéro fiscal).
READ MORE: EXPLAINED: How to get a 'numéro fiscal' and create a French tax account
Still, turning in a late income tax declaration can lead to fines. Most people who are late will be sent a letter known as a mise en demeure, which has to be signed for upon delivery. This letter will instruct you to submit your tax return as soon as possible and state the potential penalties incurred, should you fail to do so.
The deadline to have your declaration completed is late May/early June depending on where you live and whether you are filing on paper or online.
Failing to declare foreign bank accounts
When filling out the aforementioned tax declaration the basic rule of thumb is that you have to declare all income - French and non-French.
It is important to note that declaring your income does not necessarily mean you will have to pay tax on it, thanks to dual tax treaties that save you from paying tax twice on the same income, but you still have to declare it.
You also need to declare all non-French bank accounts, even if they are dormant or only have a few pennies/cents in them.
READ MORE: Reader question: Do I need to declare my non-French bank accounts?
As for internet bank accounts (eg Revolut, Wise, Bunq), the situation is a little tricky. In general you will have to declare these, as most companies are based outside France.
The easiest way to know if you need to declare the account is to check the account's IBAN (International Bank Account Number). If it starts with FR then it's counted as a French account and you do not need to declare it. If it starts with different initials eg GB for the UK or BE for Belgium, then it's a non-French account and you must declare it.
The bank accounts section of the tax declaration is easy to miss because it comes in the bit about stocks, shares and investment plans which you may assume does not relate to you.
Failure to declare non-French accounts can lead to hefty fines.
Failing to file a property tax declaration
In 2023, French tax authorities created an additional requirement for anyone who owns a property in France - they must fill in a one-off Déclaration d'occupation, stating whether their property is their main residence or a second home.
If you filled this out already last year, and none of the information contained in the form has changed, then you do not have to fill it out again.
However, if you bought a house this year, if your situation has changed or for whatever reason you did not complete the declaration last year, then you will need to fill out the déclaration d'occupation this year.
The déclaration d'occupation is entirely separate from the annual déclaration des revenues. The property tax declaration must be completed by everyone who owns property in France, including second-home owners who are not tax residents of France.
Failing to declare a swimming pool or extension
Another one for property owners - you also need to tell the tax office about any major changes you make. As with all failures to provide information to the tax office, you risk a fine if you do not declare things like a swimming pool, patio or home extension.
In France, the property owners' tax (taxe foncière) is linked to home value, so any "permanent" changes that increase property value must be declared. For pools that cannot be easily moved without demolition (including above-ground), property owners must declare the installation within 90 days of construction.
The rule of thumb is that if you cannot pack up the deck or pool at the end of the season, then it could be considered as part of your property taxes for increasing the value of your home.
French tax authorities have been cracking down on failures to report swimming pools. They have even begun using artificial intelligence and Google Maps to detect any anomalies.
READ MORE: Reader Question: Do I have to pay taxes on my French swimming pool?
Failing to declare foreign trusts
In the United States and some other countries, setting up a trust is common practice - people might use them to reduce estate taxes, avoid the time and fees associated with probate court, as well giving more flexibility and control over your assets to determine when payments are given (perhaps for minor children or disabled adult children).
Trusts are a common legal instrument for inheritance in the US - but in France they are less common and in fact are viewed with suspicion by tax authorities, which can cause problems for Americans in France who have a trust.
If you are a tax resident in France, then your foreign trust(s) must be declared yearly as part of your annual tax declaration.
Each year, you must fill out the "FORMULAIRE N°2181-TRUST2" which asks for the market value, as well as any accrued income, of the trust as of January 1st of that year. You will also have to name other people listed in the trust - whether they are 'moral' or 'physical' people. You will be required to give extensive information, including their dates of birth and addresses.
You must also fill out an additional "event" declaration if a trust is created, modified or terminated. This must be done within one month of the event. This tax form is also available on the government tax site: FORMULAIRE N°2181-TRUST1.
As of 2023, the maximum penalties for omission or incomplete reporting when it comes to trusts stood at €20,000.
Once a trust pays out there are a few different scenarios on how you might be taxed on your trust in France, depending on which tax regime French fiscal authorities place it under: income, inheritance/ gift, and/or wealth tax.
READ MORE: What Americans in France need to know about trusts
Forgetting to file US taxes
While this does not apply to most foreigners in France, Americans and US green card holders must file US taxes yearly due to America's citizenship-based taxation.
Moving to France does not take you out of the reach of the IRS and you must continue to file in the US until you either die or renounce your US citizenship.
READ MORE: Tax tips from Americans in France
Investing options for Americans: Assurance Vie and PFICs
Because Americans are still under the purview of the IRS, they also need to be aware of several IRS policies that pertain to France and French products.
Americans in France need to be aware that the IRS considers the common French 'Assurance Vie' package to be a Passive Foreign Investment Company (PFIC). These are pooled investments registered outside of the United States – for example a mutual fund, an exchange-traded fund (ETF), a hedge fund, or some insurance products (like the Assurance Vie).
While the Assurance Vie is a great tool for being tax efficient for non-Americans, and can offer alternatives to the regimented, traditional French inheritance process, for Americans living in France it can lead to lengthy and complicated dealings with the IRS.
READ MORE: 'Death by a thousand cuts': Tax warning for Americans in France
Not realising that you are 'wealthy'
You might think that if you are rich you would know about it, but France's wealth tax can apply to foreigners who would not view themselves as being especially rich.
The 'wealth tax' is a real estate tax and applies to assets worth €1.3 million or more. This clearly won't apply to most people, but if you own property in a city like London or New York that has seen spiralling property values in recent years then you may find yourself liable for the higher rate of 'wealth tax' in France.
READ ALSO How France's wealth tax works
Whether you pay it or not also depends on how long you have lived in France.
Getting help
So what happens if you read this article and realise with horror that you have not fulfilled your tax obligations in France?
Firstly, don't panic - despite their scary reputation French tax offices can actually be surprisingly helpful. The key thing, however, is to approach them before they approach you.
Top tips for dealing with the French tax office
Most people find that if you contact the tax office and explain that you have made a mistake, they will usually help you to put things right. If you try to avoid the problem and they contact you, however, you could be liable for fines, late payments and worse.
If your financial affairs are complicated it is worth getting expert advice from someone who is qualified in both France and your home country.
How to find professional help with French taxes
But for individuals who have relatively straightforward affairs the first step is to visit your local tax office - you can walk in without an appointment and the big secret about tax office employees is that they generally are among the friendliest and most helpful bureaucrats in France.
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