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us expat tax guide – france

Can American business owners in France avoid complex IRS filings?

Yes, American entrepreneurs who have opened a business in France, such as a limited company equivalent to an LLC, can simplify their US tax filing requirements. Typically, operating a foreign corporation involves complex and costly annual filings. However, under certain circumstances, there’s a workaround that involves electing to treat the foreign corporation as a flow-through entity.

How does electing a foreign corporation as a flow-through entity work?

By filing Form 8832, business owners can elect to have their foreign corporation treated as a disregarded entity, which changes how the IRS taxes the business. Instead of filing separate foreign corporation returns, the business’s income and expenses are reported directly on Schedule C, which is part of the standard Form 1040. This method avoids the more expensive and complex filing requirements usually associated with foreign corporations.

What additional forms are needed when using this simpler method?

Apart from Schedule C, filing Form 8858, the Foreign Disregarded Entity Form is crucial. This form must be included with your tax return; many people might not know they need to file it.

Does this method affect self-employment taxes?

A significant advantage of this approach, especially for those in France, is related to the totalization agreement between the US and France. 

This agreement exempts individuals from having to pay US Social Security and Medicare taxes (collectively known as self-employment tax, which totals 15.3%). Instead, these taxes are paid to the French system. This exemption allows American entrepreneurs in France to benefit from their company without facing the double burden of self-employment taxes in both countries.

How can American entrepreneurs find out if they can use this tax strategy?

To determine eligibility and ensure compliance with all IRS requirements, it’s best to consult with a tax professional who understands both US and French tax systems. They can provide personalized guidance and ensure that all filings are correctly handled, maximizing benefits while minimizing potential legal complexities.

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