Avoiding Double taxation with France
If an employee moves to France - where USA has a double taxation treaty - what is the US Taxation policy? I understand that the employee has pay on global income. If France tax level is 20% and in US it would have been 30%, does that mean the employee pays 20% in France and 10% in US? If so, what is the savings in moving to a lower tax rate country? Sorry, this is a taxation question but I didn't see another appropriate topic. Any links to official sites that actually clearly explains this would be appreciated.
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You are lucky. The IRS now recognize the CSG. So you'll pay France csg + income tax. And get credits for both against your 1040. Don't really spend time reading the treaty, it has a savings clause. So don't use the FEIE, use the FTC. Better for you because you will pay more to france anyways. This way you can contribute to an IRA
Thank you for that update. The reality is that I will be working in Geneva and living across the border on the French side. I have come to know that the Geneva Canton has an agreement with France that the tax will be deducted at source based on the Geneva tax code, not French. So, other than cost of living I am not sure if there is a tax advantage to living on the French side of the border. And would CSG come into play?
You would only pay CSG on investments if sold (flat tax). Work income is from Switzerland so my point is still valid as taxes are most likely higher there than in the US
You pay french tax according to the french tax code for income earned in France (i.e. 20%) You owe tax in US based on your global taxable income net of deductions, and receive a 1 for 1 credit for tax you paid in france. Illustratively if you earned 200k all in France and paid 20% (40k) there and your effective tax rate in the US was 30% (60k) you would be credited the 40k you paid in France and only owe the IRS 20k. There is a wrinkle in that the first ~100k of foreign earned income is exempt from US taxes so you could come out further ahead. Source: worked overseas for 5 years