New legislation which came into force on 1 January 2012 has
changed the way trusts and estates are treated in France for tax
purposes. If you are the trustee or executor of an estate where
there are French assets, a French Settlor or a French beneficiary,
Traditionally, French law has not recognised 'trusts'
however, new legislation which came into force on 1 January 2012
has recognised trusts for tax purposes. This legislation may now
have an impact on any trust or estate with a connection to
Does it apply to me?
A 'trust' can be created during lifetime or as a result
of a Will or intestacy. A trust is subject to the new French tax
the trust's creator (the 'settlor'), or any trustee
or beneficiary is resident or domiciled in France; or
the trust contains assets situated in France
Remember the regime may apply if you own property jointly or if,
for example, one of the potential beneficiaries of the trust is
resident or domiciled in France.
French wealth tax is now applicable to trust assets. If the
settlor is resident in France and has assets over €1.3 million
wealth tax shall be applied to trust assets as though the settlor
still owned them. Upon their death the tax will be charged to the
beneficiaries. If neither the settlor, trustees or beneficiaries
are French resident then wealth tax will just be charged to any
assets situated in France rather than worldwide trust assets.
French inheritance tax is also applicable to trust assets.
Taxation will apply if the settlor is resident in France at the
time of death, all or some of the assets of the trust are French
situated or if trust assets are received by a French resident
beneficiary. The tax will be charged on the value of assets
transferred out of the trust. If the settlor is French resident the
tax will apply to all trust assets, if not then the tax applies
only to French situated assets.
At the heart of the legislation is the obligation to disclose
and report information about the trust. The trustees now have a
duty to file an annual report providing full details of the terms
of the trust deed. If the trust contains French assets then only
these assets need to be disclosed. However, if either the settlor
or a beneficiary is resident or domiciled in France then all
worldwide assets of the trust must be disclosed.
The penalty for non-disclosure is €10,000 or 5% of the value
of the worldwide trust assets, whichever is greater. Liability
falls jointly on the settlor and all trustees and beneficiaries.
Therefore some people may be surprised to learn of their new
obligations and liabilities.
The new tax regime may potentially have an effect on many trusts
and estates in the United Kingdom. Settlors, trustees and
beneficiaries of any trust with a connection to France should take
particular care to ensure that they do not fall foul of the new
French tax liabilities and reporting obligations imposed on
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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