Today, we delve into a topic that, while potentially irksome, holds immense importance: the declaration of foreign bank accounts for French tax residents. I urge you to read this article in its entirety to grasp the ramifications of failing to comply with these regulations. It’s a task you’ll undoubtedly want to tackle promptly!
In France, the obligation to declare foreign accounts is primarily linked to the declaration of bank accounts held abroad. This obligation aims to combat tax evasion and ensure transparency regarding the financial assets of French residents.
It applies to all individuals considered French tax residents. Tax residency is usually defined by one’s primary residence, principal place of stay, or primary economic activity. We have published an article about tax residency, you can read more about it here.
The accounts to be declared
Foreign bank accounts, securities accounts, and life insurance contracts held abroad fall under the purview of this obligation. This encompasses various types of accounts such as current, savings, or time deposits, as well as securities accounts used to hold stocks, bonds, or other financial instruments.
Life insurance contracts taken out abroad must be included in the declaration. This notably applies to non-redeemable or redeemable life insurance contracts. It is important to note that the declaration must be made even if the accounts generate no taxable income. The goal is to enable tax authorities to have full visibility on taxpayers’ financial assets abroad, to combat tax evasion and ensure transparency.When declaring foreign accounts, certain key pieces of information are required. This includes the declarant’s identity, address and details of the account such as the financial institution’s name and account number, the account’s type and location, and its usage (personal, professional, or mixed).
Filing the declaration
Foreign accounts must be declared annually using Form 3916, which is an annex to the main income tax declaration (Form 2042). The declaration period typically aligns with the personal income declaration period, falling between late May and early June each year. Initially, the declaration must be made in paper format and sent by mail, with subsequent filings possible online.
Risks of Non-Declaration
The consequences of failing to declare foreign accounts can be severe, as evidenced by substantial fines and penalties. These fines can range from 1,500 euros per undeclared account per year to even higher amounts. In particular when accounts are located in a country that has not concluded with France an administrative assistance agreement.
Non-declaration of trusts
Trusts are subject to two types of declarations: first of all, an “event-driven” declaration regarding the establishment, modification, and termination of the trust. Secondly, an annual declaration is required for the fair market value as of January 1. It pertains to assets, rights, and their capitalized products in the trust. Any failure to make these declarations results in a fine of 10,000 or 20,000 euros per year and per omission.
Non-declaration of digital asset accounts: this offense is subject to a fine of 750 euros per undeclared account or 125 euros per omission or inaccuracy, up to 10,000 euros per declaration. These amounts are respectively increased to 1,500 euros and 250 euros when the fair market value of the digital asset accounts exceeds 50,000 euros at any time during the relevant year.
80% increase for taxes
In addition to these fines, the law provides for an 80% increase in taxes for failures to comply with the obligations to declare foreign accounts, life insurance contracts, and trusts. Thus, when adjustments are made for:
• sums appearing on an undeclared account
• sums appearing on one or more capitalization or investment contracts that should have been declared
• assets or rights placed in an undeclared trust
The additional tax related to it is then subject to an 80% increase. Therefore, it should not be taken lightly despite its seemingly unnecessary nature given the fines provided by the law. It should be noted that in case of non-declaration, the tax limitation period is 6 years. Hence the risk is €1,500*6 = €9,000 euros per undeclared bank account…
Given the potential risks involved, addressing the declaration of foreign bank accounts is paramount. While it may seem cumbersome, the effort required pales in comparison to the potential consequences of non-compliance. With the tax limitation period set at six years, the financial risks of non-declaration can quickly escalate.
I trust this article has provided valuable insights into the importance of complying with foreign account declaration requirements. Should you require assistance with your trust or bank account declaration, or any other tax-related matter, please don’t hesitate to reach out. We’re here to support you every step of the way!