Offshore Investing: the turn of the question

At a time when many critics are made against the tax regulations in France, many savers decide to invest their money in foreign countries.

Some French people are looking for tax optimization: taxation in France is substantial and pushes them to invest elsewhere in order to benefit from a more generous tax system. Lower daily living prices and the good economic health of the chosen country opening the door to more opportunities can also be taken into account. 

Investing in real estate abroad can provide access to larger real estate or to a higher quality of service or more affordable compared to what is found in France. According to Guillaume Eyssette, Associate Director at Gefineo “Customers want to invest in international real estate and want to diversify. In case of unexpected problem in France, as much diversify its assets. They usually choose a country they know, be it spoken language, cultural, habits and customs in order to feel more confident.

Countries where it is good to place your money

In order to put money abroad, savers generally turn to what are rightly or wrongly called “tax havens”. There are some on every continent and it’s up to everyone to choose the most suitable place for their investments. We must take into account the spoken language, the value of the currency, the political and economic stability as well as the laws in force concerning taxation or taxation. 

In Europe, several choices are possible: 

– Principalities: Monaco and Andorra which are two tax havens dependent on stable countries (France, Spain) both economically speaking and politically (contrary to popular belief, French nationals are not subject to the same rules)

– The member countries of the EEC: Belgium, Liechtenstein and Luxembourg which are three tax havens 

– South America: Panama, even better known since the Panama Papers affair, has a very attractive taxation, legislation and investments for foreigners wishing to invest their capital. Also, Belize, a lesser-known country, is highly rated to then invest in the North American market. 

– The Indian Ocean: Mauritius or Seychelles are popular destinations (Mauritius offers its lot of ultra luxurious villas while in Thailand, we can enjoy the services of a dedicated staff without being too much expensive).

The most attractive sectors for placing abroad

It is the investments (SICAV, bonds, etc.) that attract French investors. For several years, large managers have been marketing a growing number of media in France. Without leaving the country, it is possible to have access to several hundred approved “foreign funds” and in particular Opcvm under Luxembourg law (collective investment scheme in securities, a portfolio whose invested funds are invested in transferable securities or other financial instruments). 

For those who want to diversify their portfolio, these funds offer certain advantages. 

• In general, the French manager of an Opcvm invested in a foreign market will devote a significant portion of the portfolio to purchases of French shares or bonds. For example: A SICAV in the Japan category may have only 51% of its assets in the relevant market. Foreign managers do not hesitate to invest 100% of their investments in the area concerned. It is a riskier and more transparent behavior since the saver knows what he is buying. 

• Second advantage: foreign funds are specialized. They are essential for those who want to invest in a very narrow geographic area (Malaysia, Singapore …) or on certain types of stocks such as small caps.

US real estate and its unique capital gains

There are two markets: the first concerns high-end real estate that can be found in New York, Miami or Los Angeles. There, the goods have a value higher than 400 000 dollars. In this case, it is the potential for added value that is sought as well as the security of a diversification investment. 

The second type of market concerns medium-sized cities such as Memphis, Tampa, Atlanta, Orlando or Little Rock, where the consequences of the real estate crisis still make it possible to obtain net annual returns of between 6.5% and more than 10% after expenses and before taxes, according to the AIR. House prices in these cities, where the discount is the largest (10 to 20% compared to the mid-2000s), vary between 100,000 and 200,000 euros and should rise in the medium term.

In short, profitability is often double-digit. Also, to avoid the risk of unpaid, it is possible to look for a tenant “section 8” which is a federal subsidy program equivalent to housing aid in France.

Portugal attracts thanks to its taxation

Portugal is a safe bet for foreign investors. It allows real estate investments of quality for several reasons. Prices are affordable and there are many good opportunities (thanks, in particular, to an advantageous tax system set up following the 2008 crisis). 

Portugal is also a popular destination for French expatriates thanks to the status of “non-habitual resident” which allows retirees to be exempt from tax for 10 years as long as they spend at least 183 days a year in the country. A measure that makes it possible to appeal to both wealthy pensioners, the country has neither wealth tax or inheritance taxes, but to more modest incomes that can increase their purchasing power (+30% in Lisbon, +45 % in the rest of the country).

Luxembourg life insurance contracts

The global economic crisis of 2008 allowed Luxembourg investments to gain momentum. Especially since the country has a good reputation. According to Guillaume Eyssette, “Luxembourg has a better image today. The country has signed data exchange agreements, offers better provisions for securing life insurance. Not to mention a protective regulation that convinces investors: the super-privilege allows the customer to be a priority to recover his money. “

First attractiveness factor: life insurance contracts are highly personalized and their management is flexible. From 250,000 euros, an investor can also access dedicated funds. Many assets are then eligible: alternative funds, unlisted assets, assets with reduced liquidity, venture capital investment company (Sicar), precious metals … Some can be risky but, if successful, can improve performance. 

Another advantage of the Luxembourg contracts is the flexibility in structuring the assets. In the case of dismemberment of the life insurance contract with children living in other countries, such as Belgium or Germany, cross-border transmission is optimized.

Finally, the last asset concerns the protection that can benefit all savers: unlike what happens in France, the assets are not held by the insurance company, but by a custodian bank. They are therefore separate from the equity of the insurance company. This means that in case of bankruptcy of the latter, the savings can not be seized by one of its creditors.

The risks inherent in this type of investment are numerous. No one is safe from a collapse of the market, a major economic crisis, the devaluation of the currency … Not to mention that the management of wealth and investments abroad is difficult at the same time and expensive for savers who are not often on site. On the real estate side, it is not easy to convince French banks to finance an acquisition. It is necessary to have a solid file and a relatively important personal contribution.

Place abroad: what does the law say? 

At the level of the law, no prohibition is made to a French investor to invest all or part of his assets outside his country. Since the abolition of exchange controls, the free movement of capital has become the norm. This rule does not suffer from an exception, but it nevertheless implies the respect of some declarative obligations, with the aim of combating money laundering. 

The exchange control instrument designed to combat capital flight and speculation, consisting in particular of measures taken by a government to regulate the purchase and sale of foreign currencies by its nationals

Some basic rules for investing abroad 

Anyone who takes more than 10,000 euros out of France in cash must complete a special form at customs. Otherwise, it runs the risk of being penalized up to the confiscation of the amount concealed and a fine of 25% of the amount. In the case of money transfers exceeding € 50,000, whether to or from a European Union State, proof of the origin of this fund is also required.

In charge of the fight against money laundering and the financing of terrorism, Tracfin is a body attached to the Ministry of Economy and Finance. Banking and finance professionals are obliged to report any suspicions regarding certain transfers of money. La Banque Postale recently received a heavy fine for breach of these obligations (it nevertheless appealed the decision to the Conseil d’Etat). 

If the limit is fixed at 10 000 euros in cash, nothing forbids to multiply the trips with 9 990 euros on oneself. However, in the long term, the customs officers can signal the trips and returns of the individual to the tax services.

Open a bank account abroad 

It is totally legal to open a bank account abroad. To do this, you must mention on your tax return the openings and account closings made in the past year and the operation of the account (debits and credits).

The question of taxation 

French investors can sometimes be attracted to investments abroad thanks to a favorable tax system. It should not be forgotten, however, that anyone residing in France has a legal obligation to pay French tax on all their income, including income from a foreign country (one is a French resident since one’s family is in France, that one stays more than six months in France, that one exercises its main professional activity in France or that one has all its economic activities in the country).

The law punishes those who try to escape the French tax system

The taxpayer who contravenes the law by transferring his savings without complying with the reporting formalities escapes the tax in force in France. Which means that these incomes are not known to the taxman and are not taxed. It also means that no remittances can be made. The taxman, if he discovers these operations, can impose a fine of up to 80% of the hidden sum. Not to mention the criminal sanctions (prison sentence).

The most famous recent case, known as the Panama Papers, was revealed by the leak of nearly 11.5 million confidential documents from the Panamanian law firm Mossack Fonseca, detailing information on more than 214,000 offshore companies as well as than the names of the shareholders of these companies. Among them are politicians, billionaires, top athletes, and celebrities.