Ecovis in the Czech Republic

Taxes for US expats in France: What US citizens should know about their tax obligations

For US citizens living in France or receiving income from French sources, managing their tax obligations can be complex. The Ecovis experts explain the cross-border tax rules.

The unique tax regulations and the bilateral tax treaty between France and the United States mean that expatriates and those with French income must remain vigilant to avoid compliance issues.

We focus on declarative and strategic tax services. We support you in fulfilling your tax obligations.

Nicolas Savoy, lawyer, ECOVIS CF Société d’Avocats, Paris, France

Taxation of French income

US citizens, regardless of their place of residence, are required to file a tax return with the Internal Revenue Service (IRS) in the USA. However, French tax laws impose separate obligations on income sourced in France. The France-US tax treaty outlines how income is taxed in both countries, mitigating the risk of double taxation but necessitating careful, accurate reporting.

Failing to meet these obligations can result in significant penalties and unexpected tax liabilities. Professional assistance is crucial to ensure that you adhere to all local and international tax requirements efficiently and compliantly.

For further information please contact:

Nicolas Savoy, lawyer, ECOVIS CF Société d’Avocats, Paris, France
Email: nsavoy@cf-avocats.fr

German exit tax: Investment assets now included

If a natural person who is subject to unlimited tax liability in Germany gives up his or her domestic residence or habitual abode in Germany, he or she is subject to German exit tax under the Foreign Tax Act. Under the new rules, this now also includes investment assets. The Ecovis experts explain the details.

Exit tax currently applies to taxpayers who hold at least 1% of the shares in a domestic or foreign corporation (e.g. GmbH or Limited) in their private assets. If the shareholder emigrates, German fiscal authorities presume that the shares have been sold, often resulting in a high tax burden. Since there is no liquidity from an actual sale, payment of the income tax due can be inconvenient (dry income). Exit tax also applies when residency according to Art. 4 of the OECD Model Tax Convention is transferred from Germany to another country on the basis of a double taxation agreement.

Get support from internationally experienced tax advisors if you plan to give up your residence in Germany.

Sabine Scholz, Tax consultant, ECOVIS BLB Steuerberatungsgesellschaft mbH, Munich, Germany

German exit tax expansion

The Annual Tax Act 2024 has now extended the rules for exit tax on investment units under the German Investment Tax Act. This includes, in particular, fund units or units in special investment funds.

The exit tax now also applies to investment assets if

• at least 1% of the issued investment units were held directly or indirectly within the last five years prior to the emigration, or
• at the time of emigration, the acquisition costs of the investment units held directly or indirectly in an investment fund amounted to at least EUR 500,000.

For shares in special investment funds, there is no minimum threshold for the investment participation or for the acquisition costs.

Investment funds as part of business assets are not subject to exit taxation. The new regulation applies to all departures after 31 December 2024. Losses will not be taken into account in the context of exit tax.

What those affected should consider

Individuals planning to move to Germany (possibly for a limited period of time) should be informed about the issues relating to German exit taxation. As a preventive measure, assets can, for example, (in advance) be reallocated to harmless asset classes (e.g. real estate, free float shares under 1% participation in capital).

For further information please contact:

Sabine Scholz, Tax consultant, ECOVIS BLB Steuerberatungsgesellschaft mbH, Munich, Germany
Email: Sabine.Scholz@ecovis.com

Relevant aspects of cases in real estate for foreigners in Mexico: Real Estate in Mexican Beaches.

In Mexico, foreigners[1] are prohibited from acquiring direct ownership over land and water, so they solely can use and take advantage of real estate[2] located in the restricted zone of 100 and 50 kilometers along the Mexican borders and along the beaches, respectively.[3]

Nonetheless, in order to use, take advantage of and possess (without ownership rights) real estate on Mexican beaches, such foreigners may create trusts, with a duration of 50 years, extendable for an equal period[4], in which, with prior authorization from the Ministry of Foreign Affairs of Mexico[5], credit institutions acquire as trustees, rights over real estate located within the aforementioned restricted zone, whose purpose is that said foreigners use and take advantage of such assets without constituting real rights or property[6] or dominion over them[7], and the trustees are Mexican companies without an exclusion clause for foreigners[8] and foreign natural or legal persons.

If there is doubt as to whether a property is located inside or outside the restricted zone, the Ministry of Foreign Affairs, after consulting the National Institute of Statistics, Geography and Informatics (as known as by its Spanish acronym as “INEGI”), will resolve the matter.[9]

Derived from the above, the purchasers of real estate in restricted areas are trust credit institutions and not foreigners, so the legal and tax burdens for the acquisition of real estate are for said trustees. It means, foreigners will lack real rights over the trust estate, that is, over the real estate on the Mexican beach and, consequently, legal interest to claim any jurisdictional act that affects those rights[10]. Nevertheless, any of the economic burdens derived from the legal and tax obligations triggered by the trust for the acquisition of real estate, may be transferred by the trustee to the foreign trustee, so the latter assumes the corresponding expense and does not become a cost for the trustee.

Where appropriate, the foreign trustee will have the right to discuss or claim the breaches that the trustee has with respect to its contractual relationship in the trust[11], but not on the property or real rights of the type of real estate in question.

On the other hand, with respect to the tax obligations that are triggered by the purchase and sale of real estate in restricted areas, it is necessary that as far as the seller is concerned, he will be subject to income tax, which will be withheld by the notary public involved in the formalization of the operation and can reach up to 35% of the profit obtained by the transfer of ownership[12] of the property (difference between the acquisition value and the sale value of the property).

The effects and obligations of payment may vary depending on the tax regime of the selling taxpayer, it means, if it is an individual or a company, if it is a tax resident in Mexico or abroad[13], as well as by the type of property and its destination or use. The seller must issue the invoice or tax receipt of the sale[14].

As far as the purchaser is concerned, it means, the trustee, in this case, must pay the applicable state taxes, which are the tax on the acquisition of real estate and the property tax. The property acquisition tax applies when a person or entity acquires ownership of a property over the market value of the property or the agreed sale price, so it only applies once. On the other hand, property tax is a tax on the ownership of a property, whose basis is the cadastral value of the property, which is determined by applying unit values of land and buildings, on the surface of your property and is paid bimonthly.

For further information please contact:

Kennya Ramírez, Sr. Consultant, Legal Prosecutor, ECOVIS Mexico, Mexico City, Mexico
Email: kennya.ramirez@ecovis.mx

1 –  Article 33 of the Political Constitution of the United Mexican States.
2 –  Article 750 of the Federal Civil Code.
3 –  Article 27, section I, of the Political Constitution of the United Mexican States.
4 –  Article 13 of the Foreign Investment Law.
5 – https://sre.gob.mx/permiso-para-constituir-un-fideicomiso-en-zona-restringida
6 – Article 830 of the Federal Civil Code.
7 – Article 11 of the Foreign Investment Law.
8 – Article 10 of the Foreign Investment Law. The foreigner exclusion clause: the express provision contained in the bylaws of a company, which establishes that foreigners will not be allowed, directly or indirectly, to be partners or shareholders of the company.
9 – Article 6 of the regulations of the Foreign Investment Law.
10 – Case Law: XXVII.3o.10 C (10a.). Registration No. 200 7764.Location: Tenth Epoch. Instance: Collegiate Circuit Courts. Source: Judicial Weekly of the Federation and its Gazette. Book 11, October 2014, Volume III. Page: 2852. Isolated thesis. Subject(s): Common. – “TRUST ESTABLISHED TO ALLOW FOREIGNERS TO USE AND TAKE ADVANTAGE OF REAL ESTATE LOCATED IN THE RESTRICTED ZONE. THESE TRUSTEES LACK REAL RIGHTS OVER THE TRUST ASSETS AND, THEREFORE, LEGAL INTEREST TO CLAIM THROUGH THE AMPARO PROCEEDING THE JURISDICTIONAL ACTS THAT AFFECT THOSE RIGHTS.”
11 – Articles 381 to 394 of the General Law on Securities and Credit Operations.
12 – Article 14-B of the Federal Tax Code.
13 – Article 9 of the Federal Tax Code.
14 – Articles 29 and 29-A of the Federal Tax Code (tax residents in Mexico and tax residents abroad with a permanent establishment in the country).