FATCA: Tax Compliance Requirement for Americans in France

The Foreign Account Tax Compliance Act (FATCA) is a United States statute that requires all United States citizens, including individuals who live outside the United States, to report their financial accounts held outside of the United States. FATCA was written into the U.S. tax code in 2010 in an effort to counter tax evasion and money laundering through the use of offshore accounts and shell corporations.

FATCA also requires foreign financial institutions in signatory countries to report to the Internal Revenue Service (IRS) about their American clients. More than 50 countries have signed the agreement, including France, and the FATCA agreement between the United States and France was published in the French Official Journal in 2015.

France is a signatory of the agreement, meaning that financial institutions and U.S. citizens in France are bound by the disclosure requirements of FATCA. In practice, this means that foreign financial institutions, such as French banks, mustenter into an agreement with the IRS to identify their U.S. account holders and to disclose the account holders’ information.

It also requires U.S. individuals owning these foreign accounts or other specified financial assets to report them on their annual U.S. tax return.

How FATCA impacts second-generation Americans

The reporting requirements (and associated penalties for failing to report foreign accounts), apply to all U.S. citizens,including those born in the U.S., as well as second-generation Americans. In particular, this has caused problems for France’s ‘accidental Americans’ – of which there are an estimated 40,000 throughout the country – who find themselves also bound by the FATCA law. This applies both to foreign-born persons with American parents or those born in the U.S. to foreign parents before moving to France – both situations grant the person U.S. citizenship, which then comes with the responsibility to file a U.S. tax return and declare any overseas accounts.

While the Association of Accidental Americans in Paris has been campaigning to change these rules for French citizens, currently, the only way around it is for the individual to renounce their U.S. citizenship.

An unintended effect of forcing foreign financial institutions and foreign governments to collect data on U.S. citizens is that some French banks are now refusing to open accounts for Americans due to the increased paperwork, administration, and legal responsibility that go along with the FATCA requirement.

While it is within the rights of the bank to refuse to open an account on these grounds, French law also dictates that all residents have the right to open a bank account, so there are ways around this if you are resident in France. However, the options for U.S. non-residents to open an account in France are much more limited.

Read our article: How to open a French bank account as an American in France.

According to the U.S. Embassy in France, “in the event that a non-American financial institution does not comply with FATCA, the IRS may impose a 30% tax deduction on payments from U.S. sources made to that financial institution or its customers.”

This article is for general information purposes only and does not constitute legal or other professional advice. We would advise you to seek professional advice before acting on this information.