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Hello to everyone on my favorite board.

I am just at the threshold of investing with a vengence to facilitate an early escape from the "forced" workforce in 7-10 years (my spouse and I are both 32 now), if all goes well. We are seriously interested in setting up our new home base in rural France at that time. From reading the many posts on ex-patriate taxation of U.S. citizens, I was wondering if there is anything we can do now, from the beginning, to structure our assets in the most optimal way for a future abroad. We are open to anything at this point (just exploring), including giving up US citizenship and becoming French citizens (after we move there), or setting up a French bank or brokerage account or IBC now, and investing the funds through it. Would this have advantages to leaving the assets (LTBH stocks) in a US account and drawing from them while in France, or moving the whole thing to a French account upon relocating there?

Does anyone have any advice, or can you point me toward a good source for further reading? I know I'll need to hire a professional tax advisor eventually, but I want to learn all I can on my own first. Thanks!

By the way, the bulk of our investments will be in a taxable account, with a small amount in tax-deferred accounts.

Anya
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retiring overseas:

1. You will be considered a taxable person in France if you live there more than 182 nights per year, and therefore, you will pay taxes there for every dollar you make anywhere in the world, no matter if you're a French citizen or not. Also you will pay taxes there if your main economic interests (farm, etc.) are seeded there. If you have already paid taxes in the states for any income you may earn, you can discount those taxes in France. If you find that US taxes are expensive (as I have read here in some ads) wait until you see the French rules....tax deferring is a MUST when you're moving to a country that taxes $4 in every gallon of gas. In addition to tax deferring, we find that creating a small co. from where you can invest your money is slightly better than investing it personally..... specially if you can save money in a long term basis.

2. The euro is really cheap now, (0.98 per dollar... 1,16 per dollar one year ago), and we expect it to raise until 1,08-1,10 per dollar by dec 31, 2000 ...assuming that you're moving there definitely, i'd change my dollars into euros before summer.... but this is just a forecast..... (meaning that you can blame me if i fail if you're ready to send me a bottle of burgundy/bourgogne if i succeed :)) good luck! R.
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Anya wrote:
We are open to anything at this point (just exploring), including giving up US citizenship and becoming French citizens (after we move there), or setting up a French bank or brokerage account or IBC now, and investing the funds through it. Would this have advantages to leaving the assets (LTBH stocks) in a US account and drawing from them while in France, or moving the whole thing to a French account upon relocating there?

If you LIVE in France and you invest THRU a French corporation, that corporation is NOT an IBC. It's a DBC (domestic business corporation). IBC implies that your corporate investment vehicle is NOT domiciled in either a country you live in or a country where you hold cizizenship or residency. It should also NOT be in the country where your brokerage account is held. It SHOULD be domiciled in a tax haven country.

If memory serves me correctly, investing thru a French corporation and buying US securities would oblige you to pay a 10% withholding tax on dividends and interest income (but no capital gains tax) to the US government. This is because France and the USA have a tax treaty. BUT, you would also be exposed to the VERY SIGNIFICANT French corporate taxes. You would be defeating your purposes. Thus, you do not want to use a French corporation as your investment vehicle.

If you plan to live in Europe, your best investment vehicle is an Irish IBC. For you, Ireland is a great tax haven country. If you do give up your American citizenship or residency, your structure could be as simple as this:
Schwab Europe Account--Irish IBC--Your Family.

If you remain an American, you might want to add another IBC layer domiciled in a different EU country:
Schwab Europe Account--Irish IBC--Other EU IBC--Your Family.

You should see the "What's Wrong with this Picture" thread I (unfortunately) started a few days ago. You need to do a risk-benefit analysis. For example, if you and your legal spouse are going to pull out $36K annually for living expenses, the US will allow you shield approximately $12K in exemptions and standard dedutions leaving you with a $24K taxible capital gains of which you'd pay 10% or $2400 per year. This is an average MAXIMUM tax rate of 6.7% of your income.


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Anya writes:
We are seriously interested in setting up our new home base in rural France at that time...Does anyone have any advice, or can you point me toward a good source for further reading?

David Hampshire has written some interesting books on living, working and buying a home in specific countries and I believe he has a couple books on France. If you search for his name on Amazon.com, they will all be listed. The books look less like investment strategies and more like "how to" books though.

Hope that's helpful!
Linda

P.S. and thanks again to 4aapl for introducing me to html italics, etc!
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Thanks galeno,

I read the thread you mentioned (whew!). It was backslash's post #3941 that got me thinking about where I should be investing now to avoid higher taxes in the future:

backslash wrote:

“I've looked at this issue some, and haven't made up my mind what to do. The gummint has put such tight (shall we say suffocating) restrictions on the expat tax situation that there doesn't seem to be either a semi-legal or relatively foolproof method of escaping US taxes. Even if you give up your citizenship you are required to pay US taxes for 10 years. The US gummint does not accept ANY other reason for rejecting US citizenship except tax evasion (talk about political prisoners!). And it would take you forever to move money out at a rate of $10K per trip. In my opinion, your best bet is to actually earn money outside the US, like move and work. As long as you earn $70K or less, it isn't taxed by the US. You can then invest that money overseas, and it is then protected from, as galeno puts it, the big eagle.”

So the question is, is there any advantage to opening the IBC now and investing through it for the next 10 years or so? Or is it just as sensible to build the wealth in a US brokerage (taxable) account and 401(k), and then transfer the assets (stocks) lump-sum to the IBC when we retire and move to France? Will we have to pay any US taxes to move the stocks to an overseas account? Also, if I sell any stock in an IBC account while I'm still living in the US, will I pay the normal 20% capital gains, or does some other rate apply? I assume that as residents of France, we will have to pay local taxes on our income as well. That's understandable -- we'll be benefiting from the services. It's just the US tax angle that concerns me. Thanks for bearing with me; I'm having trouble picturing how all this would actually play out.

Any and all assistance appreciated! -- Anya
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Anya wrote:

Hello to everyone on my favorite board.

I am just at the threshold of investing with a vengence to facilitate an early escape from the "forced"
workforce in 7-10 years (my spouse and I are both 32 now), if all goes well. We are seriously interested
in setting up our new home base in rural France at that time. . . . Anya


I haven't a clue as to the answer to your questions, but I am curious why you chose France. It has been many years since I was there and I was favorably impressed by the art and culture but was put off by how rude people were in the big cities. They really did not like foreigners of any nationality. However, the little time I spent in the countryside, things seemed much different and I have always wondered if I missed the best part of the country. Anyway, what part of country were you considering? I might want to go there an another visit someday. I assume there must be some places in rural France where the trees are still standing after the record-breaking winter storms. 8^)
-- John
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I am curious why you chose France. It has been many years since I was there and I was favorably impressed by the art and culture but was put off by how rude people were in the big cities. They really did not like foreigners of any nationality.

I was in France for three weeks this summer, and didn't find that to be any more true than anywhere else in the western world -- people are nearly always nicer to strangers in the countryside than the big city. If a Frenchman spent half a trip in rural New York state and half in New York city I'm sure he'd say something similar.

But even in Paris people were friendly enough. Now there are some cultural differences -- if you expect quick service, even at McDonalds, you're insane but it's not like the locals get treated differently.

Doug
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Anya said: We are seriously interested in setting up our new home base in rural France . . .

The standard advice to people planning a move to a new town, state, country, whatever, is RENT FIRST. Lots and lots of transaction costs and other gotchas to buying a place, especially in a new jurisdiction. Test drive your "Peter Mayle" (A Year in Provence) fantasy before taking the plunge.

As far as investments, theoretically, you could start slipping cash out of the country now and invest it through a low/no tax jurisdiction. There are several problems though.

1. If you hide what you are doing from the IRS, you are breaking the law. If you don't hide what you are doing, there will be no tax savings.

2. Investment choices may not be as good and fees are likely to be higher. This is especially true if you are trying to "hide" assets from the IRS, which may result in your working with financial intermediaries who feel that they deserve a "share" of your tax savings. The worst case is you wind up investing through someone with the ethics of Dogbert.

3. You may find your new domicile is less tax friendly that the US. The EU area is not particularly tax friendly, and the future will likely bring "tax harmonization" proposals as the big taxers work diligently to keep their own citizens from avoiding/evading taxes.

4. Tax deferral schemes (IRA's, 401K's, etc.) may not translate well if you become resident in another country. So some extra homework on what is taxable when and where would be advisable.

Au Revoir
Baanista
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Anya wrote:
So the question is, is there any advantage to opening the IBC now and investing through it for the next 10 years or so? Or is it just as sensible to build the wealth in a US brokerage (taxable) account and 401(k), and then transfer the assets (stocks) lump-sum to the IBC when we retire and move to France? Will we have to pay any US taxes to move the stocks to an overseas account? Also, if I sell any stock in an IBC account while I'm still living in the US, will I pay the normal 20% capital gains, or does some other rate apply? I assume that as residents of France, we will have to pay local taxes on our income as well. That's
understandable -- we'll be benefiting from the services. It's just the US tax angle that concerns me. Thanks for bearing with me; I'm having trouble picturing how all this would actually play out.


Anya, these are tough questions. The best way to go is to expatriate you money little by little but their are costs to doing that. A good rule of thumb to follow is that every 1% of assets paid to a money manager or another type of middleman is roughly equivalent to a 10% annual income tax.

What you must remember is you will pay taxes sooner or later. I'm an advocate of paying less sooner vs more later.

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Thanks, everyone, for your advice and warnings. Just to set the record straight, I am not looking for any kind of "scheme" to evade taxes. I just want to avoid a situation when we retire of finding out then that "if we had only known ten years ago..."

We just want to handle this as intelligently as possible to avoid paying anything we don't have to pay. This is a pretty complicated area, so it looks like I will need to get some professional advice. But first I'll add the David Hampshire book to my reading list.

I realize that taxes might be higher in France, but the object of the game is to live where and how you want, not to pay the least in taxes, right? You're absolutely right, baanista, about testing out the new country before doing anything permanent. I'm looking forward to exploring all of France on vacation time up until we are free of the 9 to 5. The first year or so after we retire will be spent living there full time, but as renters, until we feel ready to buy a home. So far, we have explored Paris and the surrounding area, Normandy, and the Suisse Normande area just south and east of Caen. Our next visit will be to the Dordogne valley, east of Bordeaux. We stay in bed & breakfasts, rent a little car and explore the countryside, stopping in little villages to walk around and, of course, try out the restaurants.

Every time we go, we are more convinced this is the country we want to call home. We just seem to love all of the things the French love about themselves, while we don't feel the same affinity for our American cultural heritage. It's just how we're wired. We also have friends in Russia, and living in France would allow us to visit them (and the rest of Europe and Asia) more often, without the expensive trans-Atlantic flights. We're travel bugs, and France's location is a big plus.

Anyway, thanks again. This board has helped me believe that this can happen for us much sooner than we originally thought. I am more inspired and motivated than ever! -- Anya
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Hi Anya,

One more suggestion. See if you can find magazines or web sites for ex-pats living in France. They are usually good sources of practical information of all sorts and will generally have tips for structuring finances. I think this is true for just about any foreign country someone might want to live in.

The International Herald Tribune also has regular articles on finances and so forth. And next time you are in Paris go to a bookstore specializing in English language books and ask if they have magazines, etc. for ex-pats.

All the best,

Virginia
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