Trusts and the French Fiducie: How France Taxes Foreign Trusts and What the Fiducie Can Do

What a Trust Is and How France Views It

A trust is a legal arrangement in which a person (the settlor) transfers assets to another person (the trustee) to be held and managed for the benefit of one or more beneficiaries and ultimately distributed to a capital beneficiary. The key feature for French lawyers is the split of ownership: the trustee has legal title; the beneficiary has the beneficial interest. This split is entirely foreign to French civil law, which requires every asset to have a single owner.

French courts recognise the validity of foreign trusts constituted abroad, provided they comply with the law of the country in which they were created and do not violate French ordre public — in particular, they cannot override the réserve héréditaire (forced heirship rules) where French succession law applies. A trust that tries to disinherit a French reserved heir through a charitable trust will be set aside to the extent of the reserved share.

For tax purposes, the 2011 reform created an entirely autonomous fiscal framework. The CGI Art. 792-0 bis definition covers all arrangements meeting the essential criteria — assets under a trustee’s control for the benefit of beneficiaries — regardless of label. This means certain Liechtenstein foundations, Swiss stiftungen, and similar non-trust vehicles with trust-like characteristics can fall within the French fiscal definition.

Income Tax: Trust Distributions to French Residents

Distributions from a foreign trust to a French resident beneficiary are taxed as capital income (CGI Art. 120, 9°) — specifically, as income from foreign securities and similar placements. The characterisation of the underlying trust income (rent, dividends, interest, capital gains) is irrelevant: everything distributed by a trust to a French resident beneficiary is treated as revenus de capitaux mobiliers at the trust level.

Since 2018, these distributions fall within the PFU (flat tax) at a total rate of 30% (12.8% income tax + 17.2% social charges), or at the progressive income tax rate on global opt-in. The 40% dividend abatement does not apply. There is no 8-year abatement or taper. The distribution must be declared on the annual income tax return.

One nuance: where a French-US arrangement applies, the administration has accepted a transparency approach for simple trusts (which distribute income as earned), meaning the nature of the underlying income is preserved at the beneficiary level and treaty treatment of the specific income type applies. For complex/discretionary trusts, the same transparency principle applies but the US tax paid at distribution is credited against French tax. For grantor trusts (revocable), the administration treats the income as the settlor’s, not the beneficiary’s, since the settlor never truly divested.

Accumulated Income: CGI Art. 123 bis

Where a French resident holds rights in a trust that accumulates income rather than distributing it, CGI Art. 123 bis may apply. Since 2022, the 10% minimum holding threshold required for Art. 123 bis is presumed satisfied by the settlor or deemed-settlor beneficiary; only genuine evidence of the contrary rebuts this presumption — and the irrevocable, discretionary nature of the trust alone is not sufficient rebuttal.

Succession and Gift Duty

The 2011 framework created two parallel regimes for trust transmissions, depending on whether the transmission can be characterised as an ordinary donation or succession.

Where the Transmission Is a Donation or Succession

When assets leave the trust and are clearly transferred to beneficiaries in a way that can be characterised as a donation or succession, the assets are taxed at standard succession or gift duty rates based on the kinship between the settlor and the beneficiary, with the same abatements and tariffs that would apply to a direct transfer. The trust’s assets are added to the rest of the succession for progressive rate purposes. This is the preferred route where the trust structure permits a clear qualification.

Where the Transmission Cannot Be So Characterised: Sui Generis Rates

Where the trust is irrevocable and discretionary and the settlor has effectively divested, but the transmission does not fit neatly as a donation or succession, a sui generis death duty applies at the settlor’s death (CGI Art. 792-0 bis, II):

The trustee is primarily liable to pay these duties. If the trustee is based in an ETNC country or a jurisdiction without a mutual assistance treaty with France, the beneficiaries are jointly and severally liable. Successive transmissions within a trust are handled by deeming each beneficiary who receives trust assets to become a new “deemed settlor” for future transmission purposes.

French courts have consistently held that an irrevocable trust deed where the settlor effectively divested constitutes an indirect donation taking effect at death (Cass. com. 15-5-2007; Cass. com. 6-11-2019; Cass. crim. 6-1-2021 — confirming that failure to declare trust assets in a succession can constitute tax fraud even for trusts characterised as irrevocable and discretionary where actual divestment is disputed).

Where Assets Stay in the Trust After Death

Assets that remain in the trust after the settlor’s death are not a new mutation at the time of their eventual distribution to beneficiaries who were already identified at the last transmission, provided the allocation is unchanged. A distribution to a different person or on different terms triggers gift duty at that point, the first beneficiary being treated as the donor.

IFI: Real Estate Assets in Trust

Real estate assets held in a trust are included in the settlor’s IFI base at their net market value on 1 January each year (CGI Art. 970). The same applies to deemed-settlor beneficiaries after the original settlor’s death. If the trust deed does not specify the allocation between multiple deemed-settlor beneficiaries, the asset is divided equally between them.

Territoriality rules apply: a French-resident settlor is taxed on all trust real estate worldwide; a non-resident settlor is only taxed on French-situs real estate within the trust.

An exception for capacity to pay: the Conseil constitutionnel held that a settlor can challenge IFI inclusion if they can prove the trust assets give them no capacité contributive — but crucially, the irrevocable and discretionary nature of the trust alone is not sufficient proof. Only where the settlor demonstrates it has no access whatsoever to any benefit (pecuniary or non-pecuniary) from the trust assets can the inclusion be challenged.

The Specific Trust Levy (CGI Art. 990 J)

The specific trust levy is a substitute for IFI where the settlor (or deemed-settlor beneficiary) fails to declare trust real estate assets for IFI purposes. It applies at the highest IFI rate (currently 1.5%) on the net fair market value of all IFI-eligible assets in the trust on 1 January, with no IFI threshold and broader scope than IFI itself — exemptions for business property, woodlands, etc. do not apply. The levy is paid by the trustee by 15 June each year. The levy and IFI do not cumulate: if the trust assets have been properly declared for IFI, the levy is not due.

Conventions fiscales do not in principle protect against the specific levy, according to the administration, although the Paris Court of Appeal held otherwise in a Canadian trust case in 2023 (CA Paris 6-2-2023 n° 21/10189), finding the trust qualified as a “person” under the France-Canada treaty.

Mandatory Declarations: What Must Be Filed and When

The declaration obligation is triggered by any French connection, broadly defined. The trustee must file where: the settlor, any deemed-settlor beneficiary, or any beneficiary is French tax resident; the trust holds any French-situs asset (not limited to real estate); the trustee itself is French tax resident (even with no other French connection); or a non-EU trustee acquires French real estate or enters a business relationship in France.

The 3% Annual Property Tax

Any legal entity (including entities without legal personality, such as trusts) that directly or indirectly owns real estate in France owes an annual 3% tax on the market value of that property (CGI Art. 990 D). Numerous exemptions apply — in practice the tax only bites entities in non-cooperative tax jurisdictions or those that fail to disclose beneficial ownership. The trustee can benefit from exemptions on condition of proper disclosure. The administration treats trusts as located in the jurisdiction of the law governing them for the purpose of the location criterion in the exemptions.

The French Fiducie: What It Is and What It Cannot Do

The fiducie (C. civ. Art. 2011 et seq.) was introduced in 2007 and extended to natural persons in 2009. It is a contractual mechanism by which a transferor (constituant) transfers assets to a fiduciary (fiduciaire) to be managed for a specified purpose for the benefit of designated beneficiaries, with the transferred assets forming a separate patrimony — distinct from the fiduciary’s personal estate. This adopts the concept of patrimoine d’affectation (dedicated patrimony), previously unknown in French law.

The critical limitation: a fiducie constituted for the purpose of a gratuitous transfer is absolutely null (C. civ. Art. 2013). The fiducie cannot be used as a succession-planning tool, a substitute for a will, or a mechanism for reducing succession duty. It is reserved for:

• Fiducie-gestion: management of assets (financial portfolios, business assets) where the transferor wants professional fiduciary management with clear separation of the asset pool.
• Fiducie-sûreté: security for creditors — assets are transferred to the fiduciary as security for a debt, with the fiduciary keeping or selling the assets in case of default. This has become an important tool in French secured finance.

Permitted fiduciaries are restricted: credit institutions, investment firms, insurance companies, and (since 2009) lawyers. Both the transferor and the fiduciary must be residents of the EU or a country with a French tax treaty containing an anti-fraud assistance clause. The contract must be written, registered within one month at the tax office of the fiduciary’s seat, and published at the land registry if it covers real estate. Duration: up to 99 years. The fiducie terminates automatically on the death of an individual settlor (except a fiducie-sûreté which survives death of the individual settlor).

For IFI purposes, assets transferred to a fiducie remain in the constituent’s patrimony (CGI Art. 969) — as though they never left. For income tax, the regime is one of fiscal neutrality: the creation of the fiducie does not trigger realisation of gains; the fiduciary’s income is taxed in the constituent’s hands as if the assets were held directly.

Legal Notice. This article is provided for general information and educational purposes only. It does not constitute legal or tax advice. The French fiscal treatment of trusts is complex, fact-specific and subject to ongoing case law development. Always consult a qualified French tax lawyer before making decisions affecting trust structures with French connections.