With the US dollar to Euro exchange rate at its highest in two decades, it’s little surprise that more Americans than ever are being tempted by the dream of buying a holiday home or investing in real estate in France. While many American buyers successfully purchase French property each year, there are some disadvantages and potential pitfalls that US citizens need to watch out for, so it’s crucial to do your homework before you buy.
Before you start hunting for your dream holiday home in France, here are five things that you need to know.
1. You might not be able to get a French mortgage
The mortgage market in France is tightening in light of recent events, with banks introducing stricter eligibility criteria and interest rates steadily increasing even for French residents. While French mortgages are still available to foreign buyers and non-residents, our expert advisors at International Private Finance stressed that American citizens living in the US, unfortunately, face the tightest eligibility criteria of all, and more and more banks are choosing not to lend to Americans. It’s also worth mentioning that under French law, only French banks are able to lend against a French property, so you won’t be able to take out a foreign mortgage, either.
The situation is constantly changing, so it’s highly recommended to seek up-to-date advice from an international mortgage advisor if you are relying on a French mortgage to fund your property purchase. Alternatively, it might be worth looking into other options. The bottom line: it’s definitely a cash buyer’s market right now, especially for American citizens.
2. Opening a French bank account might be more difficult than you think
While many French banks do offer non-resident accounts, FATCA ( “Foreign Account Tax Compliance Act”) requirements mean that more and more banks in France are refusing to open accounts for US citizens.
The FATCA legislation was added to the US Tax Code in 2014 to help prevent tax evasion by US residents living overseas or holding foreign accounts, and essentially it obliges any international bank with accounts held by US taxpayers to report to the US tax office. In practice, this can be time-consuming and expensive (and has legal consequences) for French banks to uphold, leading many to simply refuse to open accounts for US citizens.
The good news is that while it may well may things easier, especially for managing your second home long-term, you actually don’t need to have a bank account in France in order to purchase a French property. A currency exchange specialist like Moneycorp will be able to make the initial payments for you, and you might have more luck opening an account once you have a registered address in France.
Read our guide to Opening a Non-Resident Bank Account in France
3. You should probably hire a tax specialist
The United States is one of the few countries that requires its citizens to file a tax return in the US regardless of their residency status. This means that even if you one day decide to move to France, you will still need to file a US tax return, even though there is a double-tax treaty in place between France and the United States.
If you stay in the US but own a French home, in most cases, you won’t be required to file a French tax return. However, if you receive rental or investment income from your French property, you must file a French tax return and may be liable for French taxes. You will also be subject to French laws regarding capital gains tax, inheritance tax, and property taxes.
All of this can be incredibly complex, so it’s imperative that you seek the advice of an international tax specialist – our partners at Citrine International shared some of the most common US-France tax pitfalls in their article here.
4. You might need a visa
If you’re purchasing a second home in France, remember that you will be subject 90/180-day rule when visiting your property. If you have dreams of splitting your time between your American and French residences, you’ll need to carefully manage your time in order to benefit from visa-free travel. Alternatively, you’ll need to apply for a temporary long-stay visa that will allow you to stay for up to six months in France and come and go as many times as you like in that time period.
If you want to make additional trips outside of that six-month period, the good news is that the temporary long-stay visa period does not count towards your 90 days (read our article on how this works here). There is an important caveat to be aware of, though: if you aren’t planning to become resident in France and, most importantly, become liable for French taxes, you must not spend a total of more than 183 days in France in any calendar year. Read our article Understanding French Tax- Are You Tax Resident in France?
5. You will probably need more paperwork than you think
Everyone who’s ever moved to France or bought a property in France (including the French!) will tell you the same thing – the French love their paperwork! When buying a property in France, it’s important to understand that you will be asked to provide a rather extensive dossier, including personal documents (such as your birth certificate, marriage certificate(s), and divorce certificate(s)), proof of address, and financial documents proving income, outstanding loans, and savings – especially if you are applying for a French mortgage.
In addition to this, there will be a large amount of paperwork provided to you by the notaire on behalf of the seller at the signing of the Compromis de Vente – the first sale contract that you will sign when purchasing in France. The crucial thing to remember here is that the Compromis de Vente is legally binding, and – naturally – the contract and all accompanying paperwork will be in French! This is just one reason why it’s so important to employ your own translator or legal advisor – before you sign!
Join our free Buying in France for Americans webinar
If you are looking to buy in France, our free webinar is the perfect opportunity to get some clarity on all of the above-mentioned points and put your questions directly to the experts.
Join me on Tuesday, 8th November 12:00pm (ET) and get the latest advice from our panel of experts, which includes International French estate agents Agence Newton, tax specialists Citrine International, and currency exchange specialists Moneycorp. We’ll be answering all your questions on the French property market, foreign currency exchange, and tax, focusing specifically on buyers from the United States.
Sign up for the free webinar here or click the button below.
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