International tax treaties signed by France modify the rules for declaring foreign currency income for both tax residents and non-residents. They determine taxing rights, applicable rates, exemptions, and methods to avoid double taxation. Foreign income must be declared in its gross amount in the original currency.
Who Is Affected?
International treaties apply to:
- Tax residents in France receiving foreign-source income.
- Non-residents receiving French-source income.
Tax residents must declare all foreign income, even if exempt from tax in France under a treaty. Non-residents are subject to withholding tax on French-source income, but treaties may reduce or eliminate this withholding.
How to Declare Foreign Currency Income?
Foreign currency income is declared using the standard income tax return (online or paper). Foreign income must be reported in its gross amount in the original currency. For foreign financial contracts (life insurance, capitalization contracts), the declaration must include:
- Contract references.
- Deposit or redemption transactions.
- Surrender value as of January 1 of the tax year.
How to Benefit from Treaty Advantages?
To benefit from treaty provisions, a French tax residency certificate (Form 730-FR-ANG) may be required. This certificate is available online on the tax authority’s website. International treaties override French domestic tax rules, meaning treaty provisions prevail in case of conflict.
What to Do in Case of Double Taxation?
Double taxation treaties allow foreign taxes paid to be credited against French taxes due, via a tax credit. This credit is limited to the amount set by the applicable treaty and cannot exceed the French tax corresponding to that income. To claim it, you must:
- Explicitly request it in your tax return.
- Provide documentation proving foreign tax payment.
What Happens in Case of Conflict Between Domestic Law and Treaties?
If there is a conflict between French domestic law and international treaties, treaty provisions prevail. This means:
- If a treaty grants exclusive taxing rights to a foreign state, France cannot tax that income, even if domestic law allows it.
- If a treaty provides a reduced rate for dividends, the French withholding tax must apply the treaty rate, even if it is lower than the domestic rate.
What If Income Is Not Explicitly Covered by a Treaty?
If income is not explicitly covered by a treaty, both states may tax it under their own laws without treaty limitations. It is essential to verify whether a treaty covers specific income to avoid double taxation.
Which Incomes Are Affected by International Treaties?
International treaties directly impact the taxation of:
- Dividends
- Interest
- Royalties
received by non-residents or residents with foreign income. For example:
- Dividends distributed by French companies to non-residents are normally subject to withholding tax, but treaties may reduce this rate or provide full exemption.
- Treaties also define whether certain income (e.g., "undistributed income") falls under dividends or interest.