For many entrepreneurs, the idea of setting up their business in the United States represents a dream. This initiative not only enhances their international reputation but also opens the door to numerous opportunities, such as expansion into the South American market and easier access to Europe. In this article, we invite you to explore the tax agreement in force between France and the United States, a key element in helping you bring your entrepreneurial projects to fruition.
Since 1994, a bilateral agreement has linked France and the United States with the aim of preventing double taxation while helping combat tax fraud, mainly concerning income tax and wealth tax.
It should be noted that the United States operates under a federal system in which taxation depends not only on income, but also on the residential address and the company's registered office.
In addition, three types of taxes are in force in the United States:
It is essential to note that the U.S. tax system is based on actual costs, offering numerous tax benefits. These benefits include:
- Depreciation of the acquisition cost over a period of 27.5 years.
- The possibility of immediately deducting expenses related to work.
- The deduction of one round-trip airfare to France per year.
Taxation in the United States is progressive, with rates ranging from 10% to 39.5%. In addition, capital gains are subject to a 15% tax in the United States.
Income taxation: the tax treaty in detail
- Federal tax, also known as "Federal Tax," with rates ranging from 10% to 39.6%.
- Local taxes, grouped under the term "Local Tax."
- State taxes, referred to as "State Tax," whose rates vary depending on the state of residence.
The French-American tax treaty is limited to federal taxes applicable to individuals' and businesses' income, thereby excluding the states from its scope. It should be noted that some of these states refuse to recognize the treaty, thereby creating a situation of double taxation.
Taxation in the United States under the French-American tax treaty
If you wish to do business in the United States, you may purchase real estate or make investments. A thorough understanding of the tax treaty between France and the USA is essential. You will have to pay
- local property taxes,
- income tax paid to the U.S. tax authorities (IRS).
Taxation in France under the tax treaty
A French citizen residing in the United States remains subject to French tax regulations. For example, income from real estate located in the United States is taken into account when calculating income tax in France. However, to avoid double taxation, income generated in the United States is exempt from income tax in France through the granting of a tax credit. The amount of this tax credit is equivalent to the French tax on U.S. income. It applies to social contributions, such as CSG/CRDS, as well as capital gains. It is essential to note that all assets invested in the United States must be duly declared in France.
Taxation of company executives under the treaty
Taxation of business profits
When considering establishing a business in the United States, selecting the location of the registered office is of crucial importance. This is because, under the French-American tax treaty, business profits are subject to tax only in the state where the company is established. It should be noted that the company's address is directly associated with the tax rate.
Income from self-employed professions
Income generated from liberal professions or by self-employed individuals is subject to the same tax regulations as business profits. Its taxation depends on the tax framework of the professional's state of residence. In the United States, liberal professions may encompass various fields, such as science, literature, and the arts.
