I have foreign bank accounts – How am I supposed to declare it regarding French law in 2023?
First of all it is important to get in mind that It is perfectly legal to open an account abroad. However, it is essential to declare it to the French tax authorities if you are a French tax resident.
You must declare your accounts with your annual tax return using specific forms. If the mentioned account generates income, you will also need to complete other specific forms in addition.
It is important to specify that tax authorities of other countries regularly send information on your foreign bank accounts to the French tax authorities. This information is provided automatically, without the French tax authorities having to ask for it.
It is therefore recommended to declare your foreign accounts correctly and in due time to avoid any tax inspection. You must declare all accounts opened abroad, whether with a bank or other bodies or individuals (stockbrokers, notaries, etc.), as well as life insurance policies and, more recently, your crypto assets accounts.
Foreign accounts: automatic exchange of banking data between countries
As regard to the multiple important abuses in the past regarding tax evasion (tax havens, offshore accounts, etc..), many countries decided to exchange automatically banking information data (especially information regarding bank accounts opened during the year by foreigners).
Therefore, bank establishments are now forced to communicate the banking details of account holders located on their territory if they are tax residents of another country. For example, a polish bank must identify its customers who are not tax residents and provide their country of residence with banking data.
Generally, the information provided are the following : names of account holders, account numbers, opening dates, balances and any interest, dividends or capital gains received. This information is automatically sent to all signatory countries when tax residents open accounts abroad, regardless of the balance of the accounts.
It is therefore important to note that even if your account balance is low, you must comply with these obligations. This international agreement aims to put an end to banking secrecy and limit tax fraud.
This international agreement aims to strive against tax fraud and omissions. If you hold an undeclared foreign account, this could get you into trouble with the French tax authorities, especially if the foreign assets are substantial. You will have to regularize your situation as soon as possible, generally over an extended period (10 years). Many taxpayers chose to regularize their tax situation spontaneously, fearing tax audits. Spontaneous regularization does not cancel out the penalties, but it is generally reduced.
The end of banking secrecy has had a real impact on tax evasion, but some countries are not yet signatories and do not transmit their banking data. It also remains difficult to trace the foreign bank accounts of certain companies or trusts.
Foreign accounts: what information does the French tax authorities hold?
In compliance with the multiple tax treaties signed by France, the French tax authorities have a range of information on its taxpayer foreign accounts.
French tax authorities normally have access to the balance of your foreign account, the income generated by this account (dividends, interest, etc.), the names of the account holders and the date on which the account was opened.
However, French tax authorities cannot access your foreign bank account directly in the same way as they can with French bank accounts. It cannot consult foreign bank account statements directly without first making a request to the tax authorities in the country concerned. Such requests are rare since they involve long and tedious procedures. Generally, such requests are made when you fail to cooperate during a tax audit or if the tax authorities ask you for documentary evidence that you do not provide.
Questions about the taxation of accounts or assets located abroad
When you open an account or hold property abroad, it is legitimate to ask questions about the taxation of these assets and their declaration.
Whether it’s inheritance tax, gift tax or wealth tax on property abroad, it’s normal to be confused, because these issues are delicate and complex. To avoid mistakes and conflicts with the French tax authorities, it is important to find out about the rules in force.
The French tax authorities will first ask about the origin of your assets, bank accounts and income. How did you obtain them? Did you inherit them? A gift? Do you have foreign income? Was it declared? You need to justify the origin of all your accounts and property so that the tax authorities are in no doubt as to the legitimacy of your assets.
A- Tax Declaration for Foreign Accounts :
If you have a foreign account, you are required to declare it to the French tax authorities every year when you file your income tax return using specific forms. Forms to be completed apply not only to bank accounts but also to savings accounts, capitalization accounts, life insurance policies, trading accounts, crypoassets accounts and many more..
B- Failure to Declare a Foreign Account :
If you forget to declare a foreign account to the French tax authorities, you can rectify the situation. However, you will be subject to fines, usually amounting to €1500 per non declared account per year (in some cases, fines may be raised to €10.000). The tax authorities can go back up to 10 years for rectifications, and additional taxes and penalties may apply for Income Tax (IR) and Wealth Tax (IFI) for the last 6 years.
C- Refusal to Declare a Foreign Account :
If you refuse to declare a foreign account, you can be submitted to a tax audit. Many countries have signed international agreements to automatically exchange banking information with France, making it easier to detect tax fraud. Consequences of tax fraud can lead to high fines and criminal prosecution in serious cases.
D- Rectifying your Tax Declarations for Foreign Accounts :
To rectify your tax declarations regarding foreign accounts, you need to prepare a dossier including an explanatory letter about the origin of foreign funds, supporting documents, bank statements, a wealth statement, and amended tax declarations. The process of preparing the dossier is complex, but it can reduce the amount of penalties imposed. It is highly recommended to appoint a lawyer in such a situation, in order to present a serious file and negotiate at the best of your interest.
E- Rectifying Foreign Accounts Following a Letter from the Tax Authorities :
If you receive a letter from the French tax authorities requesting rectification of your foreign accounts, you need to justify all your accounts, demonstrate good faith, and use applicable tax credits based on tax conventions. The assistance of a tax attorney can be valuable in this process.
F- Declaration of Foreign Income :
As a French tax resident, you must declare all your income annually, whether it comes from France or abroad. Some foreign income may be taxable in France, but tax conventions with other countries may provide exceptions.
Declaration in the Case of Selling Property Abroad :
If you sell real estate abroad as a French tax resident and realize a capital gain, you must declare the sale to the French tax authorities. However, certain tax conventions may modify the tax implications in France, and you might be considered as exempted on that capital gain.
Wealth Tax on Foreign Real Estate :
In the event you are a French tax resident, you will be subject to the Real Estate Wealth Tax (IFI) if your net real estate assets exceed €1.3 million, regardless of whether they are located in France or abroad. Tax exemptions or reductions may apply based on tax conventions with the country where the property is located.
Inheritance of Foreign Real Estate: Taxation Rules in France :
Generally speaking, inheritances are taxable in France, even if they occur abroad. However, certain exceptions or tax conventions may influence the tax implications in France when inheriting real estate located abroad. You will need to complete specific forms to declare the inheritance, and the foreign tax already paid can be deducted from the French tax due. A tax attorney is highly recommended to apply legal rules correctly and properly complete the forms.
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MFL registered lawyers remain at your disposal should you have any queries regarding your foreign bank accounts declaration and obligations MFL will provide you with the best lawyers to handle your situation and secure your interest.