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Invest in France: a guide for expats

Updated: Sep 14, 2022

Many expatriate residents in France who are comfortable with their financial situation place a high priority on tax and estate preparation on their list of priorities. If you are considering investing in France, it is in your best interest to educate yourself about the current state of the French economy.


Many expatriate residents in France who are comfortable with their financial situation place a high priority on tax and estate preparation on their list of priorities. The Napoleonic code, which serves as the foundation of succession law in France, results in a fiscal inheritance environment that is foreign to the vast majority of people.


We place a high value on the ability to bequeath our estate to anyone we want, which is why we were disappointed to learn that this freedom of choice is severely restricted in France. To make matters even worse, spouses do not have a particularly prominent position in the portio legitima under French law. Real estate and financial matters are the primary concerns; nevertheless, it should come as a comfort to realize that there are solutions to each of these problems that may assist in reducing your anxiety. This article focuses on the maintenance and growth of money, and it describes the enormous advantages that may be obtained from the life insurance policy sold in France under the brand name Assurance Vie.


Three important taxes


Even an expatriate who is just moderately successful may find their unprotected cash in danger in France as a result of three significant levies. If you do not take efforts to avoid it, income tax, inheritance tax, and wealth tax may make significant cuts to your net worth. These taxes are all vying for a piece of your money, and if you do not take action to prevent it, they will succeed.


Over many decades, the ever-innovative and financially astute French have developed and perfected a product that is capable of safeguarding a person's earned fortune while also encouraging its growth for the benefit of the investor's descendants in the far future. This product, which is essentially an investment contained inside a life insurance policy, has been so successful that there is now more than €1.4 trillion worth of assets held under Assurance Vie policies. Over 22 million individuals and couples have used this tool to either make one-time investments or save money on a more consistent basis.


Tax concessions


It is not necessary to go any farther than the tax breaks that this product provides to comprehend why it has been so successful. If the assets are kept inside the policy and no withdrawals are made, the money is exempt from both the income tax and the capital gains tax that is levied in France. Even in the case when a certain amount is taken out, only the portion that represents the increase is then liable to income tax. If your portfolio of assets kept under the policy has increased by 50%, for instance, only this proportion of the withdrawal would be taxable; the remaining 50% would be tax-free. This is because only the percentage that has grown would be subject to taxation. A graduated rate of income tax is applied to the gain, and the rate at which it is applied varies according to the length of time that the policy has been in effect.


The tax rate is nominally 35% for a policy that is less than four years old, 15% for policies that are between four and eight years old, and 7.5% for all plans that are beyond eight years old. Although this may seem unfair for the first four years, you have the option of having the gain added to your taxable income and declaring it on your yearly tax return. This will make the gain subject to taxation at the rate that is in effect at the time you make the election. If you have a little amount of money coming in each month, this is beneficial to you.


There is a yearly tax-free allowance of either €4,600 (for a single individual) or €9,200 (for a married couple) that may be used if you wait at least eight years to withdraw the money from your investment account (married couple). This exemption is solely related to the policy's capital gain, and as a result, depending on the growth that was attained over the investment term, reasonably substantial withdrawals may be made free of any income tax obligations. When an investor purchases an Assurance Vie insurance in France, a peculiarity in the French tax system might work to the investor's favor in a significant way.


The tax clock is the mechanism that determines which taxpayers are eligible for the most advantageous tax regime after an initial qualifying period of eight years. Even if just a very modest sum is first invested, the clock begins to run the moment the policy is put into effect; this continues to be the case. If, for example, €100,000 were invested on day one and another €200,000 was put in a year later, the whole fund would still be subject to the lowest tax rates eight years later, although testing this system to its limits would not be the wisest course of action.


Additional advantages of the policies


The advantages provided by Assurance Vie insurance are not limited to only reducing or eliminating one's exposure to income tax or capital gains tax. Although the French succession tax is quite similar to the inheritance tax that is levied in the United Kingdom, its operation is significantly different. A succession tax is levied on the beneficiary(ies) of an estate in France, whereas an inheritance tax is levied on the estate of the deceased person in the United Kingdom. Any tax that is owed is then deducted by the notaire from the proceeds of the will. Inheritance tax is levied in the United Kingdom.


However, the earnings from an Assurance Vie policy take precedence over succession law and taxation. This might include giving preference to the surviving spouse over children from a prior marriage provided the appropriate precautions are taken. Any number of beneficiaries may be eligible to receive up to €152,500 tax-free, and they will be required to pay just 20% tax on any further sums they receive. Although the effect of this has been lessened as a result of changes to the tax code concerning wives and children, it is still advantageous for them.


Bequeathing assets to beneficiaries who are not related to the testator, such as acquaintances or stepchildren, who would typically be subject to a tax rate of sixty percent, presents further opportunities for significant tax savings. This generous tax break does not come without conditions, though. The policy must be established and financed before the policyholder reaches the age of 70 to qualify for the tax break. After this age, the total amount of tax advantage that may be claimed by all of the beneficiaries combined is limited to €30,500.


Wealth tax


In terms of the wealth tax, the value of Assurance Vie insurance is often included in the calculations for the wealth tax; however, there are situations in which Assurance Vie may assist reduce the wealth tax burden. If you have recently moved to France from the United Kingdom or are planning to do so shortly, you can use one of these products to take advantage of a recent change in the double taxation treaty that exists between the United Kingdom and France. Some Assurance Vie providers are headquartered in countries other than France, but they still offer policies that comply with all applicable regulations.


This is because the updated version of the treaty stipulates that any assets kept outside of France are excluded from responsibility to French Wealth during the first five years of a person's stay in France after signing the treaty. Another benefit of working with offshore providers is that some of them are also able to provide French mortgages against the policies, which may help reduce your wealth tax burden even more. This is just one of the many advantages of working with offshore providers.


How your capital will grow


When it comes to how the capital that is invested within your policy expands, the majority of companies that offer Assurance Vie have a very varied portfolio of available options. These options include investments such as equities, commodities, ETFs, managed funds, structured products, and other fixed interest products. In most situations, there is a very large range of risks on offer, so that both the cautious and the highly adventurous can find a suitable solution. Furthermore, there are now funds that will guarantee to preserve and protect a minimum of 80% of your initial capital and accrued gain. This allows both the cautious and the highly adventurous to find a solution that is appropriate for them.


A further kind of investment that is favored by French providers is known as Fonds en Euro. This investment option is low-risk and is mostly comprised of bonds issued by European governments. However, as a result of the ongoing crisis in the Eurozone and the fact that they are the only investment available under an Assurance Vie in which social expenses are removed yearly rather than when the money is withdrawn, the prospective returns may not be as appealing as those offered by the other choices.


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