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

Living France - - Les Pratiques -

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

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