For American expatriates living in France, tax obligations are often complicated by overlapping US and French tax systems. The risk of double taxation—once in each country—remains a central concern.

The US–France Income Tax Treaty of August 31, 1994 (as amended) provides essential mechanisms to mitigate this burden, most notably through the Foreign Tax Credit (FTC). The FTC allows US citizens who are also French tax residents to credit certain foreign taxes against their US income tax liability, subject to statutory limitations.

More broadly, the treaty is designed not only to prevent double taxation, but to enable Americans to comply with both US and French tax obligations with predictability and legal certainty while residing abroad.

Key Treaty Provisions Eliminating Double Taxation

The principal authority governing the elimination of double taxation is Article 24 of the US–France Income Tax Treaty. This article establishes reciprocal relief mechanisms for both French and American tax residents.

French Tax Credit Mechanisms

From the French tax perspective, Article 24-1 (Article 24-2 in the US version) provides two distinct approaches, depending on the type of income.

Tax credit equal to French tax (exemption method) France grants a tax credit equal to the French tax attributable to the income. This operates as an effective exemption and applies to most categories of income, including:

• Employment income
• Business profits
• Pensions
• Government remuneration

Tax credit equal to US tax paid For income on which the United States retains limited withholding rights, France grants a tax credit equal to the US tax actually paid, capped at the amount of French tax due. This applies primarily to:

• Dividends (generally subject to 15% US withholding)
• Interest
• Capital gains on real property
• Directors’ fees

Special Rule for US Citizens (Article 24-1(b))

US citizens who are French tax residents benefit from an enhanced treaty regime. Under Article 24-1(b), France grants a tax credit equal to French tax—rather than US tax—on the following US-source income, subject to specific conditions:

• Dividends
• Interest
• Royalties
• Capital gains
• Gains from US options or futures markets

This mechanism effectively exempts qualifying US-source investment income from French taxation.

For treaty purposes, “French income tax” includes not only impôt sur le revenu but also CSG and CRDS, as formally recognized by the IRS in July 2019.

French Tax Treatment of US-Source Income

For US citizens residing in France, understanding how US-source income is treated under French tax law is critical. Several scenarios warrant particular attention.

Interaction with the CDHR

The Contribution Différentielle sur les Hauts Revenus (CDHR), introduced by the 2025 Finance Act, ensures a minimum effective tax rate of 20% for high-income French tax residents.

For US-source income benefiting from a treaty tax credit:

• When income is taxed under the progressive scale and qualifies for a credit equal to French tax, the French tax is calculated before treaty relief. This means the income still counts toward the 20% minimum threshold.
• For US-source passive income taxed at the 12.8% flat tax (dividends, interest, capital gains), the rate falls below the CDHR floor. In such cases, the treaty credit applies proportionally against the CDHR using the formula: CDHR × (US-source income / total income).

If 100% of income is US-source and qualifies for the tax credit equal to French tax, the CDHR should be fully eliminated.

Progressive-Scale Income and the Effective Rate Mechanism

US-source income taxed at the progressive scale and benefiting from a tax credit equal to French tax remains relevant for determining the effective tax rate (taux effectif) applied to other taxable income.

Although the US-source income itself is effectively exempt, it may increase the marginal rate applied to French-source income, potentially raising the overall French tax burden.

US Trust Distributions

Distributions from US trusts treated as dividend income for French tax purposes generally do not qualify for the Article 24-1(b) tax credit. As a result, such distributions are fully taxable in France at:

• 31.4% under the flat tax regime, or
• 34.4%–35.4% if the Contribution Exceptionnelle sur les Hauts Revenus (CEHR) applies, with potential additional exposure under the CDHR for high-income taxpayers.

Capital Gains on US Real Property

Capital gains on US real estate are taxable in the United States under Article 13-1 of the treaty. In France, the tax credit is limited to the US tax actually paid.

If US tax is nil or lower than French tax—due to exemptions or lower rates—French tax may still apply. In such cases, domestic French relief mechanisms should be considered, including:

• The principal residence exemption
• Duration-based taper relief (after 22 years for income tax and 30 years for social charges)

Filing and Compliance Requirements

Proper application of the treaty requires strict adherence to French reporting obligations.

French tax residents must report worldwide income using:

• Form 2042 (main income tax return)
• Form 2047 (foreign-source income and treaty relief)

Key reporting codes include:

• Case 8TK: foreign income benefiting from a tax credit equal to French tax
• Cases 8VM, 8WM, 8UM, 8VL: income benefiting from a tax credit equal to foreign tax paid
• Case 8TI: exempt foreign income subject to the effective rate method

US citizens claiming the Article 24-1(b) benefit must be able to demonstrate compliance with US federal income tax obligations if requested by French tax authorities.

Limitations and Recent Developments

Several important limitations should be noted.

No carry-forward of unused credits French law does not permit unused treaty tax credits to be carried forward. Any excess credit is lost and cannot be refunded or applied in future years.

Impact of recent French tax increases The 2026 increase in CSG by 1.4% and the introduction of the CDHR in 2025 should not negatively affect US citizens who qualify for the tax credit equal to French tax. Since the credit mirrors the French tax due, increases in tax rates are offset by corresponding increases in the credit.

Final Observations

Strategic use of the US–France Income Tax Treaty—particularly the Foreign Tax Credit—can eliminate double taxation when properly applied. However, the interaction between treaty provisions, French social charges, and evolving high-income surtaxes makes careful, individualized planning essential.

Consulting an experienced cross-border tax advisor is critical to ensure correct application and optimal outcomes.

About the Author

Julien Darras is an experienced tax attorney specializing in French and cross-border taxation. He regularly assists clients with international relocations, treaty interpretation, tax optimization, and French reporting obligations. Readers seeking tailored guidance on treaty application or cross-border tax strategies may contact Julien Darras for personalized advice.