Have you heard about “the American dream”? Well, many of you have taken the plunge and conquered the American market. The United States is one of the favorite destinations when you decide to boost your career, create your company, etc.
If you decide to settle in the Sunshine State (Florida), you will need to familiarize yourself with the rules and laws of the country but also and especially with the tax system.
Although Florida offers a much more flexible tax system than France, it is still very specific unlike the 49 other states in the United States.
In the United States, the tax system is a bit complex. People have to pay different taxes at the federal and state level. But not only that, there are also taxes at the city and county level… taxes in the United States are endless.
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Which tax treaties between France and the United States?
here are two (2) tax treaties between France and the United States. The first one dates from 1978 and the second one from 1994.
A double taxation treaty (DTT) is a treaty concluded between two (2) States, which aims to avoid double taxation of persons and companies. An important point is the determination of the tax residence, i.e. the place of taxation. The goal is that the person or company is not taxed once in each country for the same income. There are of course conditions, which can be found in article 4 of the Franco-American convention of 1994 to determine the country of your tax residence (in hierarchical order):
- The country where you have your permanent home
- The country where you have your center of vital interests*
- The country of your habitual residence
- The country of your nationality
To be considered a U.S. tax resident, you must meet at least one of the following criteria:
- Be a U.S. Citizen;
- Be a Green Card holder;
- Be present in the United States for at least 183 days;
- Be present in the United States for 183 days according to the following calculation
- Number of days spent in year N: + 1/3 of the number of days spent in year N-1 + 1/6 of the number of days spent in year N-2.
A tax treaty therefore avoids double taxation and makes the transfer of assets easier.
Taxes in the United States are administered by the Internal Revenue Service, better known as the IRS. State taxes are administered at the state level.
Taxes in the USA
What about the wealth tax in the US?
Good news, there is no wealth tax. The United States, unlike France, avoids any mechanism that could scare away the wealthiest.
The federal tax in the United States is also called the national tax. As in France, the scale varies according to family situation and income. It is a progressive tax imposed on income that varies from 10 to 35%.
There are possibilities to reduce this tax through the deductions for professional expenses. If you are the manager of a company that makes less than $50,000 in income, then the rate of this tax will be 15%. The advantage is that this tax is based on the possibility of deducting professional expenses (within a certain limit).
Income tax is deducted at source, i.e. the employer collects the tax and remits it to the State. Before the tax is deducted, deductions and allowances are applied.
What is the tax rate in the United States?
- For individuals: Rates vary from 10% if you earn less than $8,925 to 35% if you earn more than $398,350 to 39.6% for incomes over $400,000. This can also change depending on your family situation.
- For corporations: The rates vary from 15% if your taxable income is less than or equal to $50,000 to 38% if your corporation has more than $15 million in taxable income.
The state tax
- Individuals: The state tax is more commonly known as the “state tax”. In the State of Florida, it is mentioned in its constitution that there was no personal income tax.
In reality, it did exist but was abolished in 2007. At that time it was called the “intangible personal property” tax.
- Corporations: Corporations in the State of Florida are subject to a 5.5% tax on their net income.
Other taxes: local taxes
The calculation of these taxes is based on declared gross income. Both residents and non-residents are affected by these taxes. In brief, some of these taxes:
- The Property Tax: in French we speak of the property tax. The basis of this tax is the real estate of individuals and companies.
This tax amounts to approximately two percent of the market price of the property in question. Note that this tax is tax deductible.
In Florida, there is also the Homestead Exemption, which allows a Florida homeowner to benefit from a tax abatement of up to $50,000 on the property tax of their principal residence.
- There is also the “Sales and Use Tax” which is similar to the local VAT that is added to the purchase price of any type of consumer goods. This tax is seven percent in Miami County…a far cry from the 20 percent applied in France.
In contrast to VAT, companies do not deduct Sales Tax. Companies pay this tax to their supplier if they are the final users of the goods. But, if the company collects Sales Tax, it can obtain a certificate that will allow it not to pay tax on goods purchased for resale. Also, it should be noted that there is no sales tax on services.
- Taxes on rental income: According to Article 6-1 of the Convention, rental income from real estate located in the United States is taxable. This income is exempt from taxation in France, but if you are a French tax resident, France reserves the right to take this income into account when calculating its tax rate.
Tax residency is not a subject to be taken lightly, especially in countries such as the United States. An omission or attempt at fraud could cost you dearly. We advise you to get in touch with a tax lawyer in your country of origin to validate all your questions regarding tax residence.
For all matters related to the creation of a company, our local team can welcome you and accompany you. For more information: firstname.lastname@example.org.