Are US Individual Retirement Accounts (IRA) distributions taxable in France?
This is dependant on whether you are classified as a French resident for tax purposes. A simple rule for residency is if you spend more than 183 days during the year in France, you become a tax resident.
As a French resident, you are taxed on your worldwide income. Therefore, if you have received distributions from your US IRA, they will need to be declared on your French tax return.
However, due to the double taxation treaty (DTA) between France and the US, it, fortunately, means US IRA distributions are not taxed twice.
What US IRA distributions are taxable in France?
Distributions are withdrawals from your IRA – which can come in the form of an ad-hoc or monthly receipts. Any distributions from a US IRA scheme will need to be declared in France.
The rate they are taxed at depends on your marginal rate of tax. The more income withdrawn, the higher the level of tax paid. It can therefore be beneficial to draw income over time rather than in one lump sum draw-down.
How does the double taxation treaty work?
Double Taxation Agreements (DTA’s) are treaties between two countries to help avoid the double taxation of income deriving from one country whilst being received in another.
The double taxation agreement between the US and France states:
‘pensions and other payments made under the social security legislation of a
Contracting State to a resident of the other Contracting State shall be taxable only in the
first-mentioned State’.
This means that if the pension income is derived from the US, the income will only be taxable in the US and double taxation is avoided.
Why do I have to declare US IRA distributions in France if it’s not taxable?
French tax residents need to declare their worldwide income. This is done by including the income on a French tax return at the end of each tax year.
However, instead of offsetting the US tax paid on a French tax return (which would be different to the French tax due), individuals receive a tax credit equal to the amount of French tax on the US pension income. You do not pay tax twice on the income.
In essence, the French tax due on the US IRA distribution is cancelled due to the tax treaty. Considering the high income tax rates in France, this can be quite beneficial for French residents receiving US IRA income.
What can I do if my US IRA account is being closed now that I am a French resident?
As mentioned on our blog regarding IRA account closures, a lot of US IRA providers are forcing the closure of accounts for non-US residents.
If you are in this situation and your provider is closing your account, or will not allow you to withdraw money as a non-US resident, please do not hesitate to get in touch with us here at Harrison Brook. We work with IRA providers who allow non-US residents to hold accounts.
This will enable you to avoid a penalty on account closure, as well as convenient access to withdraw your pension when you want.
