PFICs and Assurance Vie: The Hidden Trap for Americans in France

Dylan St. Cyr
Oct 22
3 min read

Are you an American living in France with an assurance vie investment account? Few financial pitfalls are as costly for Americans as Passive Foreign Investment Companies (or “PFICs”) and the “assurance vie trap”. What look like normal French investments often trigger harsh U.S. tax rules. Without careful planning they can result in punishing tax bills, complex reporting, and years of frustration.

These issues usually arise when opening a French bank account. Well-meaning French bankers may suggest products like the assurance vie, unaware of how problematic they are for U.S. taxpayers. For Americans who are thinking of moving to France, understanding the basics of expat banking is an important first step.

What is a PFIC?

“Passive Foreign Investment Company” is a designation coined by the IRS which was originally created to discourage offshore tax shelters. However, In practice, they unfortunately apply to many everyday foreign investments accounts. The IRS defines a PFIC as generally any non-U.S. investment fund, including:

Foreign mutual funds
Foreign ETFs
Funds packaged inside local bank products
Some foreign insurance products

The issue for American investors is that the financial impact can be severe:

Punitive taxation: Gains can be taxed at the highest U.S. rate, plus interest for every year the investment was held. This could result in a tax liability of as much as 100% of your profits.
Complex reporting: Each PFIC requires its own IRS Form 8621 every year. This form is notorious for its complexity, and requires a qualified tax advisor to complete it correctly.

As a result, for most Americans, PFICs are best avoided.

The Assurance Vie Trap

In France, the assurance vie is the go-to investment product. Despite the name (“life assurance”), it functions more like a flexible investment account with tax advantages for French residents:

Lower taxes on gains after seven years
Favorable inheritance treatment, including up to €152,500 tax-free per beneficiary

But for U.S. citizens, it can be costly. While the account itself is not the problem, the funds inside an assurance vie are almost always considered PFICs. This can mean U.S. tax penalties on gains and costly Annual IRS filings. Further exacerbating the problem, French banks don’t issue U.S. tax forms like 1099s. This combination makes what is a tax-efficient product for the French a costly nightmare for Americans.

How to Avoid the Pitfalls

It’s important to note that this problem also extends to all other French investment accounts such as PEA (plan d’épargne actions) or comptes titres. If you are an American who wants to invest while living in France, it’s best to make sure your investment solutions are compliant with tax authorities in both France and the US. With the right strategy, Americans in France can still invest confidently.

Key approaches include:

Approach	Why It Works
Invest through the U.S.	Keeping assets in U.S. accounts (retirement or brokerage) avoids PFIC rules.
Avoid foreign funds	European mutual funds and ETFs are usually PFICs.
Stick to U.S. securities	U.S.-listed stocks, bonds, or ETFs are generally safe.
Work with cross-border experts	Advisors who understand both U.S. and French rules can guide you to compliant solutions.
Segregate accounts	A non-U.S. spouse can hold French investments without triggering U.S. tax rules.

Final Thoughts

PFIC rules make even simple investments complicated for Americans living in France, and the assurance vie is one of the most common and costly mistakes. Before committing to any local investment product, Americans expats should seek advice from a Dunhill Financial cross-border specialist who understands both sides of the tax code and can offer fully compliant US-French investment solutions. A little preparation upfront can prevent years of frustration later, and give you the peace of mind you want for your expat life in France.

DUNHILL FINANCIAL, LLC IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.