We are considering spending 2 or 3 years living full-time in Paris,
Amsterdam or London.  We are  a family of 4 with an income from
investments of around $150,000 and from royalties and payments (all in
the US) of another $150,000.  We would be buying a house in one of the
three areas listed above, and spending almost all our time there.  We
would earn no income from local sources.  So, my question is, would we
be liable for French, Dutch or British taxes and social insurance
payments, and if so, approximately how big of a bite would be taken? 
And how would this affect any US income taxes?

---

Request for Question Clarification by hedgie-ga on 14 Oct 2002 11:58 PDT

We have just moved to Europe form California and before we moved
 we  spent quite a bit of time researching this question both online
 and over $1000 asking  the  experts.

 However, before I go into describing what we
 found, and adding specific research for your countries,
 I would  need to know a bit more.
 First, state and federal taxes are handled differently and so
 either you have to limit your question to  US federal taxes or to
name
a state of your current residence.
 Second, it must be understood, that I am not a tax accountant or
atorney
 and you are not getting legal or accounting advice. That is stated in
the google rules, but I would want to hear  from you that that is
known to you.
 Finally, the answer will not have enough details to allow you to
calculate
 what your the taxes will be. It will give you more information than
what is
now in the comments. In particular, it will point to (not reproduce)
the
text of the treaties which prevent double taxation  and point to those
resourceswhich decribe the rates in your potential host  countries.
Are you interested in that kind of the answer?
What is the history of this question? Was an answer rejected before,
 If so, how many times and why?

Do you expect  to get procedures and rules for bying a house or just
a tax consequences for your US taxes and rates in your host country?

Do you expect recommndation of reasonable procedure (who can help you
with what) or do you expect complete set of rules which will allow you
to estimate your tax bites?

hedgie

<All of the three countries where you are considering living have tax
treaties with the United States. This means that you can avoid being
taxed twice on your income. All of the countries require you to
declare your worldwide income but not all of it will be taxable. What
this often means in practice is that you will require a statement from
the U.S. and the foreign tax office to show that you have paid tax in
that country. This statement will then help you to reclaim any excess
tax that you have paid in the other country. However be prepared for
lengthy and time consuming bureaucracy. What tends to complicate
matters is that the tax year varies in different countries.

When you make a decision about which country to opt for, your best
option is to contact a tax specialist who is familiar with dealing
with expatriates. This will ensure that you avoid a high tax bill.

A summary of the situations in each country is given below with links
to further information.

The Netherlands.
The belastingdienst deals with income tax in the Netherlands. They
have a tax treaty with the U.S. which means that if you pay tax on
your income in the U.S. you will not be liable to pay tax in the
Netherlands. Investments are taxed at the rate of  up to 25%. The
sociale verzekeringsbank deals with national insurance. However if you
pay social contributions in the U.S. you can be exempted from paying
them in the Netherlands. If you are liable to pay national insurance
in the Netherlands, you will receive a bill with your tax demand.

France
Les administrations fiscales deals with income tax in France. As your
main residence will be in France you will be domiciled there. You will
therefore be liable for tax on your worldwide income. A double
taxation treaty exists between France and the U.S. Under this treaty,
you will be given credit for any tax paid in the U.S. On average the
French lose 15% of gross pay for income and wealth tax and 7% on
social contributions.

United Kingdom
The Inland Revenue deals with income tax in the United Kingdom. Your
length of stay will mean that you will be considered a U.K. resident.
The U.K. has a tax treaty with the U.S. In the U.K. the system of
double taxation is similar to that of France. As a resident, you are
liable for income tax on your worldwide income with tax credits given
for tax paid in the U.S. However in your case it is advisable to avoid
being domiciled in the U.K. If you are not domiciled in the U.K then
you will only be taxed on money that you actually bring into or redeem
in the country. As you will not be working you will not be liable for
National Insurance (social contributions). Britons lose on average 29%
of their income to tax, this breaks down as 13% of gross pay for
income and wealth tax and 16% on social contributions.

Calculating income tax.
There are a few places online where you can make calculations of
income tax in the various countries. I have listed these links below.

Cost of living.
In addition to considering the income tax implications of these three
cities you may also want to compare the overall cost of living,
particularly as you are considering buying property. From the cities
that you are considering, Amsterdam has the cheapest cost of living
followed by Paris and then London. What makes London particularly
expensive is the high price of property. As regards quality of life,
the Netherlands often comes top in surveys.

Impact on U.S. taxation.
As a U.S. citizen your worldwide income is taxable in the U.S.
regardless of where you live. If you pay income tax abroad it is
possible to claim a tax credit, tax exemption or reduced rate of tax. 
This is dealt with in publication 54 from the IRS (a link is given
below).>


<Additional links.>

<Dutch tax office/belastingdienst (particulieren –private
individual).>
<http://www.belastingdienst.nl/>

<From this link click on private tax payer followed by the link for
‘living in the Netherlands while receiving income from abroad’.>
<http://www.belastingdienst.nl/2001/buitenland_uk/frame.htm>

<Sociale verzekering (national insurance.)>
<http://www.svb.org/>

<French tax office.>
<http://www.impots.gouv.fr/>

<French/U.S. double taxation treaty.>
<http://www.info-france-usa.org/intheus/tax/004us.asp>

<Calculation of French income tax.>
<http://www2.finances.gouv.fr/calcul_impot/2002/simplifie/calc_s_p01.htm>

<Inland revenue – international issues.>
<http://www.inlandrevenue.gov.uk/international/index.htm>

<Inland Revenue – Income from abroad.>
<http://www.inlandrevenue.gov.uk/pdfs/ir139.htm>

<Inland Revenue – Residents and non-residents.>
<http://www.inlandrevenue.gov.uk/pdfs/ir20.htm#part1>

<Inland Revenue - Investment income.>
<http://www.inlandrevenue.gov.uk/pdfs/ir20.htm#investment>

<U.K. income tax calculator.>
<http://www.moneyweb.co.uk/products/tax/income/generalincometaxni.html>

<British tax burden one of the highest in Europe.>
<http://money.guardian.co.uk/Print/0,3858,4391213,00.html>

<IRS – living abroad.>
<http://www.irs.gov/pub/irs-pdf/p54.pdf>

<American expats.co.uk>
<http://www.americanexpats.co.uk/taxes.htm>

<Expatica>
<http://www.expatica.com/hr.asp?pad=233,240,&item_id=6701>

<Escape artist.com – expats in France.>
http://www.escapeartist.com/embassy30/france7.htm

<Cost of living.>
<http://www.finfacts.com/costofliving.htm>



<Search strategy:>

<inland revenue>
<://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=inland+revenue>

<irs>
<://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=irs>

<belastingdienst>
<://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=belastingdienst>

<cost of living>
<://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=cost+of+living>

Greetings!  I suggest you pose your question to the embassy of each
country you mentioned.  They will be able to fully address your needs.

French embassy in US
http://www.info-france-usa.org/contactus.asp

Dutch embassy in US
http://www.netherlands-embassy.org/fie_embas.html

British embassy in US
http://www.britainusa.com/functions/bis.asp

Hi,

How exciting! Living abroad can be such a great experience. However,
you're right in thinking that the paperwork can be daunting.

There are plenty of expat resources online. Including many that deal
with financial and family matters. Raising kids in a foreign country
can be a challenge - especially if you decide to reside in a country
where they would need to speak a foreign language.

The family resources are great. ExPat Moms
(http://www.expat-moms.com/) is a good start. They provide plenty of
links to other family centered resources.

http://www.expatica.com/ deals specifically with expats in the
Netherlands Holland), Germany, France or Belgium.

Financial information is more difficult.

You've asked an unanswerable question. 

Social Security taxes are taken care of by "totalization agreements"
with each of the countires you are interested in. For more information
on these agreements see the US Social Security Administration page:
http://www.ssa.gov/international/inter_intro.html

The online resources for paying taxes to foreign countries on domestic
investments and royalties as expats are a thin. The norm seems to be
foreign investments. However, since it is unearned income - not salary
or other payment for work or self employment - it should fall under
the same category as interest income.

All of your unearned income is produced in the US so it is all taxable
as US income, even though you live abroad.

If you decide on Paris, you would be liable for payment of the wealth
tax if your net worldwide assets are in excess of €720,000. The Euro
is roughly eqivalent to the dollar. The excess is subject to a
progressive tax which starts at 0.55% and rises to a maximum of 1.8%
for the net assets in excess of €15 million.
http://www.angloinfo.com/information/moretax.asp
http://216.239.39.100/search?q=cache:bcdVoKoqUWoC:www.itpa.org/open/archive/anthony.rtf+French+tax+laws+foreign+residents+unearned+income&hl=en&ie=UTF-8

The rules for England and the Netherland are different, but not any
less complex.

http://www.writing-world.com/international/taxes.html is an article by
a writer living abroad. Her advice is, "few people know their way
around the jungle of international tax laws. If you are at a loss, try
calling up the European tax office and asking stupid questions. They
are often more knowledgeable than their American counterparts, since
foreigners are an accepted part of business life throughout Europe.

Each country, and even each region, has its own tax office. Generally,
you would contact the tax office in the capital, and go from there.
Most of them haven't caught on about websites: a telephone call is
usually your best bet."

The turbo tax site has an English version of the IRS regs concerning
foreign tax exclusion http://www.filetaxonline.com/pubs/p59304.htm

A limited amount of the taxes that you pay in a foreign country are
deductable from your US taxes.

If you have any earned income - other than your royalties and
investments, you could exclude up to $78,000 from US taxes. This only
applies to a US citizen living outside the US for the entire tax year
and to EARNED income, i.e. salary or self employment earnings. If
you're only outside the US for a part of the year, you can claim a
prorated portion based on number of days spent outside the US. This
will probably apply to both the year you move and the year you return
to the States if you or your spouse earn any income in those years.

You are also considering buying real property - a house - while you
are overseas. This adds complications to the situation. Say you decide
to move to France and live there for a few years. You claim no French
income for tax purposes - since all of your income is produced in the
US - yet you come up with enough money to buy a house. This is a red
flag for the French authorities to audit you. In addition you will
need to pay real estate taxes on the value of the property. These
taxes paid to a foreign government are not usually able to be deducted
when filing your US income tax forms. Since the house would be your
primary domicile, you wouldn't need to pay taxes on the sale. However,
if you decided to maintain the house and rent it out when you returned
to the States - you add another international tax problem...

A thread in the British Expats.com forum provides the best advice "If
you are not extremely comfortable with this, you should contact a tax
consultant,
familiar with the tax laws that apply to US citizens abroad, for
further advice."

http://www.pstein.com/ is a CPA firm that specializes in US and
international taxes and will answer questions online.

I suggest you contact them or another reputable CPA firm and go
through the specifics of your situation. It may determine which
country you move to. It may cost more than $100 for the consultation,
but I think you'll find it money well spent.

I've entered this as a comment because I can't honestly say that I've
answered your question!

Good luck with the move!

bcguide-ga

Dear Michael, 

This sounds like a wonderful adventure for you and your family. 

You've been pointed to some sensible sources for the foreign tax issues.
And not being an expert in those areas, I won't presume to advise you.

However, US taxes are another matter.

The Foreign Tax Exclusion mentioned by bcguide-ga refers to foreign 'earned'
income. This means, you won't have to pay taxes on job, freelance or 
consulting in your earn overseas, up to $78,000 per year. That won't 
apply to you, since all your income will come from the US and you won't 
be working overseas. 

Here are some publications to help you read up on any tax implications
that arise from paying (or being required to pay) taxes overseas:

Publication 514 - Foreign Tax Credit for Individuals
http://www.irs.gov/formspubs/page/0,,id=11719,00.html

Publication 901 - U.S. Tax Treaties
http://www.irs.gov/formspubs/page/0,,id=12747,00.html
(Although, this generally refers to US taxing income from aliens
on our soil, do scroll all the way down to the links to the 
'Tables." See if your chosen countries are on the tables (look 
through all the links, there are different tables for different 
sources of income), and what kinds of exclusions we have with them.
They are usually reciprocated by that country.)

Publication 686 - 
Certification for Reduced Tax Rates in Tax Treaty Countries
http://www.irs.gov/formspubs/page/0,,id=12713,00.html
(You may want to see if you can arrange for these certifications.
Find out if the countries you will be visiting will give you
exemptions from local income tax.)

Publication 593 -
Tax Highlights for U.S. Citizens and Residents Going Abroad
http://www.irs.gov/formspubs/page/0,,id=12607,00.html
(This is of particular importance to peruse. It's not long, 
but you may find things to take care of before leaving the country.)

After all this, let me give you one or two other suggestions
for traveling:

1) Write down all your passport numbers and make at least
three copies. Put each copy in a completely separate piece
of luggage, purse, wallet or bag. If your passports are lost 
or stolen, they're easier to replace if you know the numbers.
(Better yet, have each member of your group memorize their
passport numbers. Make it a game.)

2) If you get travelers checks, do the same thing with those
numbers series and denominations. Again, replacement is easier
if they can quickly identify which checks are gone (and stop
payment on them). Despite the ads, the companies don't replace
them quite as easily as they say they will. 

3) Keep track of all your addresses during your travels.  And the
dates at each. (You won't be staying in hotels, mostly. It sounds
as if you will spend several months in each location.) You never 
know when you will need that information.

Have a wonderful time!

You will be meeting some wonderful, generous, kind people.

Your TaxMama-ga

Oops. One thing I did forget to mention.

All those US tax treaties?

Your state my not recognize them.
Many states will not give you credit
for foreign taxes. 

You don't say what state you're from. 
So, you'll need to look up your state's
tax information yourself.  You can find 
a link here:

http://www.taxadmin.org/fta/link/forms.html

Your TaxMama-ga

For London (UK)

If a person spends more than 6 months in a tax year which runs from 6h
April to 5th April in the UK, he will be tax resident in the UK for
that year.
If you are in the UK for 2-3 years, you will also be "ordinarily"
resident in the UK. However, you are probably "non-domiciled" in the
UK. Domicile depends upon your country of origin(eg. where your father
was born), unles you have acquired a domicile of choice(say in the
UK).
But assuming you are non domiciled in the UK, nbut resident in the UK,
you will only be taxed on income or gain you remit to the UK.
Therefore, if you live on USD 150,000 per annum out of the US
investment income(i.e. roughly UK GBP £100,000), the UK tax rates you
will pay on, after deduction of teh annual personal allowance of £4615
will be applicable as below.
First £1920 - at 10%
£1921 - £29,900 at 22%
Over £29,900 at 40%

Because the income is not earned in the UK, there will be no social
security contributions such as National Insurance. You would have to
declare the UK tax in your US tax filing, probably obtaining a tax
certificate from the UK Inland Revenue.

If you have both "capital" and income accounts in the US, you can even
live tax-free in the UK if you live solely out of your "capital
account", not remitting any "income" at all. We are assuming that both
your $150,000 are "income" and $300,000 may not be sufficient to buy a
house in London and meet living expenses for a family of 4 in London
for a year. There will be stamp duty payable on purchase of a UK
property.

You must undertand though that I am not a tax consultant as such and I
received this advice from (www.rkgconsulting.com - a London based TAX
and VAT expert) some time ago(which could cost couple of hundered GBP)
- which I am now sharing with you.

From what I understand, these matters are very complicated in Europe
as well, and there WOULD BE NO SUBSTITUTE to a proper advice and tax
planning from an accountant. Also the advices vary according to
individual circumstances and their previous tax planning.

There are some ways in which you can recover as much as 80% tax paid
in the UK if you properly plan the whole thing well in advance like 6
months(depending on the tax year). Because if you live off your
"capital"(which you acquired in the previous tax year) - which you
remit in to the UK - you wouldn't have to pay any tax on remitting
that "capital" to the UK :):)