TAXATION

American citizens and Green Card holders living abroad have the dubious honor of being the only expatriates of an industrialized nation to be subject to dual and even random taxation.

If you are a US Citizen or Green Card holder you must file a US tax return if you earned over the minimum filing income for a US resident. For a married taxpayer filing separately, the threshold for filing can be as little as $3000.  See IRS Link http://www.irs.gov/businesses/small/international/article/0,,id=97324,00.html

In most cases, foreign residents are granted an automatic filing extension to June 15th (return must be received in Philadelphia by that date.)   Interest; however, will accrue from April 15th. 

Note that if you haven't been filing, there are often ways to come forward and set the situation right voluntarily before the IRS finds you and imposes interest or penalties.

Section 911 of the US tax code allows bona fide foreign residents to exclude up to $87,600 (2008) of foreign earned income under certain conditions.  Generally this income will not fall under US taxation laws even if you pay no local taxes. 

Passive income such as pension payments, rental income, capital gains, dividends, etc. is subject to US taxation and generally may not be excluded, no matter where it was earned.   You may; however, use income tax paid to a foreign country as a credit, but only if that tax was paid for income from the category (passive, salary, …) in question.

All capital gains must be calculated in dollars. The value of the initial investment in dollars at the time of purchase is subtracted from the US dollar value of the investment at the time of sale.  This means that currency fluctuations can create a fictitious gain when there is a real monetary loss and vice-versa.  Even if you lost money in terms of local currency, you may still have a capital gain in US dollars and a very real tax may be levied on that fictitious gain.

Furthermore, investing in a foreign mutual fund may prove to be a tax nightmare.  US mutual funds are required to report annual earnings per shareholder as if they were distributed to shareholders.  Tax (or credit) is then calculated year by year based on annual profit/ loss. 

In France, capital gains from mutual funds are calculated between the difference in sale price and purchase price on the day of sale of the shares.  If you wait until the day of sale to report French mutual fund gains to the IRS, you may owe back taxes with interest and penalties from as far back as the first year of ownership in the fund.  Furthermore, ownership of foreign mutual funds generally obligates you to file IRS forms for ownership of a "Passive Foreign Investment Corporation."

Aside from being obliged to file a tax return with the IRS, Americans or Greencard holders with foreign bank accounts, for which the sum of the holdings surpassed $10,000 on any day of the year, are required to file Form TD F 90-22.1 with the US Treasury Department every year by June 30th.  I you do not file, the US Treasury can impose fines or imprisonment.

You should also note that many or most French banks are now requiring all customers whose birthplace is listed as the US (regardless of whether you are a French national) to fill out and sign Form W-9 authorizing the bank to report certain information about your account to the IRS.

For more detailed information see: US Taxes

Or the IRS Office in Paris: http://france.usembassy.gov/irs.html

Update: December 2008

Note: this information is provided as a courtesy. There is no guarantee implied or otherwise to the accuracy of this information.