Everything You Need to Know About the Tax Agreement Between France and the United States
Setting up a business in the USA is a dream for many entrepreneurs. This approach offers an excellent international image and numerous opportunities, such as access to the South American market and easier access to Europe. Today, to help you with your plans, we invite you to discover
the tax agreement between France and the United States.
Tax Agreement: Income Taxes
France and the United States have been bound since 1994 by a convention intended to prevent double taxation. The agreement also helps reduce tax evasion relating to income tax and wealth tax.
It should be noted that the United States operates under a federal system. Taxes do not depend solely on income; they are affected by your place of residence and
the address of your company’s registered office.
You should know that there are 3 types of
taxes in the USA.
- Federal tax, or “Federal Tax,” with a rate ranging from 10% to 39.6%
- Local government tax, or “Local Tax”
- State tax, or “State Tax,” which depends on the state in which you live
Some U.S. states choose not to impose state tax. These include Florida, Texas, and Alaska. This particularity gives them a status similar to a
tax haven.
Good to know
The Franco-American tax convention only covers federal taxes on the income of individuals and companies. The states are not bound by this convention. Some choose not to recognize the convention, which results in double taxation.
Taxation in the USA Under the Franco-American Tax Convention
If you wish to
do business in the United States, you may purchase real estate or make investments. A good understanding of the tax agreement between France and the USA is essential. Here is everything you need to know about
taxation in the United States. You will have to pay:
- local property taxes,
- income tax to the U.S. tax authorities (IRS).
You should know that the United States bases taxation on actual expenses. Tax benefits are therefore numerous! These include:
- depreciation of the purchase price over 27.5 years,
- immediate deduction of renovation work,
- deduction of one round-trip ticket to France per year.
Taxation in the United States is progressive. It ranges from 10% to 39.5%. Capital gains are taxed at 15% in the USA.
Taxation in France in Accordance with the Tax Convention
A French citizen residing in the United States remains subject to
taxation in France. For example, U.S. rental income is taken into account when calculating income tax. However, to prevent double taxation, U.S. income is exempt from income tax in France through a tax credit. The amount of this tax credit is equal to the French tax on U.S. income. The tax credit applies to social security contributions (CSG/CRDS) and capital gains. It is important to remember that assets invested in the USA must be declared in France.
The Case of Students and Researchers
French students who wish to
go to the United States may qualify for an exemption. This applies if:
- they study at an accredited university or educational institution,
- they complete an internship as part of a training program,
- they study after receiving a scholarship.
Teachers and researchers also benefit from specific measures if they move to the United States to teach or conduct research. These measures apply for two years.
Good to know
As part of a temporary stay intended to gain professional experience, an exemption applies for a consecutive period of 12 months, provided that the income does not exceed $8,000.
Taxation of Company Directors
Taxation of Company Profits
If you wish to
open a business in the United States, it is important to choose the registered office address carefully. Under the Franco-American tax convention, company profits are taxable only in the state where the company is established. It should be noted that the company’s address is directly linked to the tax rate.
Income from Self-Employment
Income from a liberal profession or earned as a self-employed person is subject to the same taxation as company profits. It depends on the tax rules of the state in which the professional resides. In the United States, liberal professions may cover various scientific, literary, or artistic fields.
Understanding the Concept of ETBUS
If you wish to establish your company in the United States, you will not automatically be subject to U.S. taxation. The Federal income tax applies only if you conduct business activity in the USA. You are then “Engaged in a Trade or Business in the US,” in other words, “ETBUS.”
- If you are not “ETBUS,” you do not pay any taxes in the USA.
- If you are “ETBUS,” either Partnership taxation applies and the partners pay the tax individually (rather than the company), or Corporation taxation applies and the company is taxed.
Partnership Taxation and Corporation Taxation
Companies established in the USA can choose between Partnership taxation and Corporation taxation. The former is more advantageous from a tax perspective if the company distributes its profits to the various partners. If this is not the case, Corporation taxation is more advantageous because it is taxed at 21% and eliminates double taxation on undistributed income. It is possible to change tax regimes every 5 years if the company’s activity evolves.
So-called passive income, such as dividends or interest, is subject to a 30% withholding tax. This rate may be reduced or even equal to 0%, depending on the applicable tax convention.
How to Set Up a Business in the United States?
Do you wish to
do business in the United States? Would you like support? You can rely on Merritt’s expertise. Since 1998, the group has supported people who wish to
set up their business in the USA. As a true “Registered Agent,” our group is licensed and handles the creation and ongoing management of companies registered in Florida, USA.
Florida is an ideal destination for the registered office of your future company. Open to both Europe and South America, this U.S. state is economically dynamic. It is one of the states that has chosen not to impose state tax, or State Tax.
U.S. taxation is difficult to master. If you are planning to establish your company in the United States, the Merritt group will provide you with its expertise in legal and tax advice. Teams made up of legal and accounting professionals will support you at every stage of your project and play a full role in the success of your professional endeavors.
