Trust – Reporting and Tax Obligations

Trust – Reporting and Tax Obligations

Even though trusts are not well recognized under French civil law, they are subject to French tax regulations.

CM-Tax, a firm of French tax lawyers with bilingual experts based in Lyon and Marseille, provides advice and assistance on all matters relating to French tax law—both tax advisory and litigation—as well as French real estate law. We also assist the international community with the purchase and sale of French properties.

Below is a brief overview of some of the tax obligations imposed on trustees, settlors, or beneficiaries of a trust.

1. Settlors' Obligations

The trustee is required to submit certain tax declarations to the French authorities if the settlor, beneficiary, or trustee has their tax residence in France, or if the assets or rights held in the trust are located in France.

In such cases, the trustee may need to file two declarations:

(i) A declaration of specific events related to the creation, modification, or termination of the trust, as well as its terms.

This declaration must be filed within a month following the event.

(ii) An annual declaration reporting the fair market value of the assets and rights in the trust, as of January 1st of each year.

This must be filed by June 15 each year.

Failure to comply with these reporting obligations is subject to a €20,000 penalty, payable jointly by the trustee, settlor, and beneficiary.

2. Settlors' Taxation

French tax law imposes a specific trust tax of 1.5% on the value of the trust assets as of January 1st of the tax year.

The settlor is responsible for this tax, unless certain exemptions apply:

• If the trust assets are subject to the real estate wealth tax (IFI) and have been properly declared.
• If the trust has been declared by the trustee under the reporting requirements outlined above, and the settlor is not liable for IFI due to the net taxable value of their estate. This highlights the importance of adhering to reporting obligations.

Trusts administered in a country that has signed a tax information exchange agreement with France are exempt from the 1.5% trust tax in certain cases, such as:

• Pension funds
• Charitable trusts

3. Beneficiaries' Taxation

Distributions made by a trust to a beneficiary are taxable as foreign investment income, regardless of the nature of the assets or rights held in the trust.

This income is typically subject to a 30% flat tax, unless the beneficiary opts for the progressive income tax scale if it proves more advantageous.

The CM-Tax team of bilingual tax experts assists French tax residents with trusts and assets abroad, offering tailored tax advice and helping with necessary declarations and calculations to ensure compliance with French tax law.