The Hidden Advantage of the US–France Tax Treaty for American Retirees: How to Avoid Double Taxation

Tax treaties between countries protect taxpayers by design: the same income should not be taxed twice in the same way—using the same “logic”—in two different jurisdictions.

But the 1994 Convention between the United States and France (as amended by the 2004 and 2009 protocols) can work even more decisively in certain situations. In combination, the provisions of Articles 18 and 24 can effectively cause France to step back from its tax claim over a range of pension and investment income that originates in the United States. For Americans who move to France and continue receiving US-sourced income, this is among the most favorable outcomes available under US bilateral treaties.

Important: you need the right facts and proper handling. However, with correct income classification and compliance with the treaty conditions, the agreement can result in some income streams being taxed only in the United States—without a “second” French layer.

The “source country” monopoly on taxing US pension income

Article 18 grants exclusive taxing rights over pension distributions to the state where the pension plan is established. In plain terms: if the payment comes from a US pension program, then when you live in France, that distribution is generally taxable only in the US.

For example, distributions from a 401(k) received by an American living in France (including in Provence) are taxable in the United States. In this scenario, France does not “pick up” the tax on that stream as if it were a French pension.

France recognizes the relevant US plans and regimes, including:

• plans under Section 401(a) of the US Internal Revenue Code;
• IRAs under Section 408;
• plans under Sections 403(a) and 403(b).

The same approach also applies to Social Security: if payments come from the United States, the US retains the right to tax them.

Many treaties split pension taxation between the “state of source” and the “state of residence,” or cap withholding using an agreed rate. Article 18 does not. For this type of income, the taxing “party” is the US, and France refrains.

Why France gives up the tax claim on certain US investment income

The generosity of Article 18 matters, but it’s not unique. Several US treaties provide for pension taxation in the source country. The distinguishing feature of the US–France treaty is Article 24 (paragraph 1(b)), which extends a similar logic (when conditions are met) to specific types of investment income: dividends, interest, royalties, and capital gains.

The key mechanism is straightforward: France grants French tax residents in France a tax credit equal to the amount of French tax that would otherwise be due on investment income received from the US. In practice, the credit effectively wipes out the French tax liability on those receipts.

So it can look like a full exemption, but legally it is implemented through the credit system.

The practical meaning, as explained by Charlie Maddy, Founder and CEO of The Open World, is that qualifying pension payments and part of investment income may remain primarily taxable in the US, while France removes the tax burden through the treaty’s credit mechanism. As a result, the income is often taxed in only one jurisdiction rather than both.

Why does this structure exist at all? Because two tax systems collide:

• The US taxes its citizens based on citizenship and continues to require tax on worldwide income regardless of where they live.
• France, once you become a tax resident, also claims the right to tax worldwide income.

Without a “manual” solution, an American moving to France could face a situation where two countries claim the same income (for example, dividends), and neither wants to give way under standard methods. Article 24 resolves the conflict: on the US side, the income is treated so that the foreign tax credit can work, while France simultaneously withdraws its own tax claim. The result is that tax is paid once.

Example: One year in Lyon

Imagine an American retiree moves to France and during the year receives:

• $60,000 — distributions from a 401(k);
• $15,000 — dividends from stocks held in a US brokerage account;
• $10,000 — capital gains from selling securities traded on US exchanges.

Under Article 18, her 401(k) is taxable only in the US.

Under Article 24, the dividends and capital gains (if they fall under the treaty’s qualifying categories and are treated as US-sourced income) are effectively exempted in France through the credit mechanism: she includes the income on her French return, but the French tax is reduced to zero via the credit.

Net result: for the three income streams, French tax may end up being zero. At the same time, the retiree still files and pays US taxes on her worldwide income—an obligation that applies to American citizens regardless of whether a treaty exists.

As Maddy notes, with the right structure and cross-border tax planning, some American residents in France can legally avoid double taxation on certain parts of retirement income.

The taux effectif trap: why “zero” can affect the rest of your income

Not paying French tax on income that is covered by the exemption does not mean the French tax administration “doesn’t see” that income. All worldwide amounts—including treaty-covered exempt streams—must be reported in the annual return.

France then calculates the taux effectif, the effective tax rate applied to the portion of income France is still entitled to tax.

If the retiree has, for example, rental income from an apartment during the year or a French pension from a previous job, including the “exempt” US receipts in the base can raise the taux effectif. The exemption remains, but through the effective rate it may “spill over” into the taxation of other income.

What the treaty does not solve

1) US taxes still apply:
The treaty structure assumes US taxation is the baseline. US federal rates on ordinary income can reach 37%, and on capital gains up to 20% plus 3.8% Net Investment Income Tax. Removing the French layer does not reduce the US obligation.

2) French social contributions aren’t always automatically “out of reach”:
Prélèvements sociaux (CSG and CRDS) were previously often treated by the IRS as social payments that do not qualify for the foreign tax credit. This changed in 2019, when diplomatic guidance between Washington and Paris confirmed that CSG and CRDS are not covered by the totalization agreement. As a result, the IRS has a basis to treat these payments as creditable tax under IRC § 901.

For treaty purposes, “French income tax” now includes CSG and CRDS, so the credit mechanism under Article 24(1)(b) may potentially extend to them as well.

In combination, the investment income rate can reach 17.2% for individuals not affiliated with the payer. In practice, the interaction of the credit, social contributions, and affiliated status still requires professional analysis—but the legal framework is clearer than it was before 2019.

3) Compliance is also a “tax” (in effort and risk):
Americans abroad must handle reporting. Key requirements include:

• FBAR (FinCEN Form 114) — if the aggregate value of foreign accounts exceeds $10,000;
• FATCA (Form 8938) — if you exceed the threshold for specified foreign financial assets: $200,000 for individuals living outside the US (depending on filing status, the thresholds may differ).

Intentional FBAR violations can trigger substantial penalties (the greater of: $100,000 adjusted for inflation, or 50% of the account balance). Criminal prosecution is not merely theoretical. Additionally, French banks share information under CRS and under intergovernmental FATCA, so reporting channels work regardless of whether the taxpayer filed the relevant form.

4) US state taxes can “catch up”:
States are not bound by federal tax treaties. California and New York often continue to treat former residents as still having ties and domicile, even after moving. If a retiree in France does not properly sever state tax connections, the French treaty relief can be offset by a state bill (for example, from California or New York).

5) Income from non-US sources usually won’t be covered:
Dividends from the London Stock Exchange, interest on German bonds, capital gains from Hong Kong stocks—these typically won’t receive protection under Article 24. The “qualification” provisions are tied to the source of income. Ironically, the maximum benefit often goes to those who are more strongly connected to the US financial system.

How “structural coincidence” became a tax shield

Articles 18 and 24 are not a loophole and not an avoidance trick. They are the logical outcome of negotiations between two countries with different approaches to tax jurisdiction: France tends to tax based on residency, while the US taxes based on citizenship. The treaty allows each side to tax what it considers its right, while preventing a situation where the taxpayer bears a double burden.

That the result is especially favorable for Americans stems from the specifics of US tax policy. Unlike most major economies, the US does tax nonresident citizens on worldwide income. France therefore has to “fit” itself to a problem that partners at similar scale typically do not create.

According to Maddy, in practical terms the US–France agreement can offer one of the most attractive tax setups in Europe for Americans considering a move to France. Alternatives exist, but they often depend on time-limited legislative programs.

For instance, in Italy, the regime for new residents in certain scenarios is valued at €300,000 per year. Greece and Malta also offer their own preferential programs. However, many of these are temporary solutions that governments can change or revoke.

The France–US structure works differently: it is a bilateral treaty in force for decades and requires agreement by both sides to change.

Americans can obtain French tax residency through different routes, including VLS-TS (a visitor visa with stable income at or above net SMIC, roughly €1,443 per month in 2026, without mandatory investments) or the Passeport Talent path (investing active capital of €300,000, with the possibility of renewal for four years). Both routes can lead to permanent residence and then eligibility to apply for citizenship after five years.

Beyond the arithmetic of taxes, Maddy also highlights “non-fiscal” factors: access to a high-quality healthcare system and one of the strongest education systems in Europe. For retirees planning long-term living and family relocation, this can be just as important as tax treatment.

In the end, the treaty shield is narrow in scope, targeted to a specific audience, and depends on maintaining US citizenship and having US-sourced income. But within those parameters, it remains one of the quietest yet most effective advantages among bilateral treaties.

This material is provided for informational purposes only and does not constitute tax, legal, or financial advice. Treaty provisions may interact with domestic law differently depending on the specific circumstances. The general principles described in this article may not apply to your situation. Before making decisions, we recommend consulting qualified tax professionals in the US and in France. IMI Daily, the editorial team, and the authors of this material are not responsible for actions taken based on the information presented.

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