PEA (plan épargne action) for Americans or U.S. citizens in France can be useful.
The P.E.A. is a tax advantaged retirement program in France which may be a favorable way for U.S. citizens to invest in listed European securities with tax benefits. Those benefits take place after between 5 and 8 years and are essentially the avoidance of some or all of the capital gains taxes. Basically, what this plan allows one to do is invest a maximum of 150,000€ in European securities. During the time they are invested in the PEA, both taxes on dividends and taxes on capital gains are deferred. After 5 years, the distributions are taxed at a favorable tax rate of 17.2%. Prior to 5 years, there is an additional tax of 12.8%, so in essence the tax is reduced from 30% to 17.2%. You can also convert the portfolio to an annuity which totally exempt the tax liabilities. There are some restriction in what you can buy however, and further issues for US citizens. May firms who offer the products do not offer them to U.S. citizens.
There are two kinds of eligible investments for a PEA. One are the stocks of European companies headquartered in the European Union (EU), Iceland or Norway. The second type of investment is mutual fund type (including Sicav and FCP). The second type can invest some of the money in the fund outside of the EU. What one must be cautious of as a U.S. citizen, however, is the avoidance of a PFIC. A PFIC (passive foreign investment company), a term used by the IRS, but essentially it relates to the European equivalent of a mutual fund and for a U.S. investor, it has very negative tax consequences. So U.S. citizens who invest in a PEA will have to keep their investments limited to individual stocks and bonds.
The basic rules of investment taxation for U.S. citizens, is that investments made in U.S. companies are taxed in the U.S. and investments made in non-U.S. companies are taxed in France. It doesn’t matter where they securities are custodied. So, I can have an account in Europe, but if it holds U.S. securities, it is taxed in the U.S. (Make sure the provider provides to you the 1099 and capital gains and loss reports for completing your U.S. taxes or you will have an administrative nightmare). Likewise, if I hold European securities I fall under European taxation. If France provides a tax benefit to holders of European securities, then it won’t be doubled taxed in the US, because non-US securities are taxed in France, not in the U.S. It works the same way as a Livre A. This is a French bank product and it is exempt from all French taxes. It also is exempt from U.S. taxes.
Always keep in mind that financial investments like individual stocks and bonds can rise or fall in value.