France operates under a civil law system and does not recognise trusts as legal ownership structures. Trusts are a concept of common-law jurisdictions and have no equivalent under French domestic law.
As a result, a trust cannot be created under French law, and when a foreign trust has a connection to France, it is not treated as a separate legal entity. Instead, French authorities generally look through the trust and treat the assets as being directly owned by the settlor or the beneficiaries.
This fundamental difference explains why trusts are viewed with suspicion in France and why they do not offer the legal or tax protection that many foreign individuals expect.
Trusts Are Treated Unfavourably for Tax Purposes
When a trust has a connection with France, it is subject to a specific and restrictive tax regime. French tax law does not distinguish between revocable and irrevocable trusts, nor between discretionary and non-discretionary trusts.
A trust falls within the French tax rules as soon as:
- the settlor is tax resident in France,
- a beneficiary is tax resident in France,
- or the trust holds assets located in France, particularly real estate.
In these situations, the trust is not viewed as an autonomous structure. Instead, the assets are often treated as if they were held directly by the settlor or, in some cases, by the beneficiaries, leading to full exposure to French taxation.
Trusts and French Succession Law
For French succession purposes, trusts do not allow assets to fall outside the estate of the deceased. When a settlor with a French tax connection dies, the assets held in trust may be treated as if they were personally owned at the time of death.
As a result:
- trust assets can be subject to French inheritance tax,
- the applicable tax rate depends on the relationship between the settlor and the beneficiaries,
- where beneficiaries are not clearly identified, taxation may apply at the maximum rate of 60%.
Trust structures also do not override French forced heirship rules. If French assets are involved, children may still be entitled to their reserved share, regardless of the existence of a trust.
Mandatory Reporting Obligations
Trusts with a French connection are subject to extensive reporting requirements, regardless of where they were created. Declarations must be made to the French tax authorities when a trust is created, modified, distributed, or terminated, and in many cases annually.
These filings require detailed disclosure of:
- the settlor, trustees, and beneficiaries,
- the terms of the trust,
- and the value and nature of the trust assets.
Failure to comply can lead to severe penalties, including substantial fixed fines, even where no tax is ultimately due.
To read : 5 legal way to avoid french inheritance tax and Obligation to Declare Foreign Bank Accounts