The facts of life
An assurance vie is a good way to reduce the amount of tax you pay on your investment, but make sure it complies with French tax rules, says Robert Kent
For those not in the know, assurance vie is essentially a tax structure, which allows investors to reduce or eliminate income and inheritance tax, while not being restrained by French succession law. It provides many tax-efficient benefits, and taking them all into consideration, it is small wonder why the French invest around half of all capital this way.
We have had many enquiries from people with money in a foreign-based assurance vie that are running into problems. We therefore thought it would be helpful to explain some causes of these issues, as well as helping those who are considering investing in an assurance vie to avoid the costly pitfalls that doing the wrong thing entails.
WHAT MAKES AN ASSURANCE VIE COMPLIANT?
France clearly has an obligation to treat other European life insurance-based investment structures in exactly the same way as French ones. However, the French system for gaining the tax advantages has made this very difficult for foreign companies, because compliance with certain rules is required.
The first, and arguably the most important issue, is that it is very difficult to obtain the tax advantages if the assurance vie that you have taken out has no fiscal representation in France. A fiscal representative is a person or department, appointed by the assurance vie provider, to liaise with the French tax authorities to ensure that the tax calculations are done correctly and that it complies with regulations.
A major tax issue arises when a withdrawal is taken either on a regular or an ad-hoc basis. This is because a calculation has to be made and documentation issued in a format that is acceptable to the French tax authorities, so that the taxable gain can be established. This is not simply the difference between the price of the investment when it was bought and what it is worth now, but what part of the withdrawal is gain and what part is deemed to be the withdrawal of capital. It is the taxable gain that is liable to both income tax and social charges.
The taxable gain element can be taxed in one of two ways. In the first instance, the income tax is payable at your marginal rate, with the figures submitted along with your annual tax return. Another way to go about it is that your income tax is applied at the source with special fixed rates, known as the prélèvement forfaitaire libératoire (PFL).
In the early years, the taxable gain may be
It is small wonder why the French invest around half of all capital this way