French assurance-vie is one of the most tax-advantaged savings vehicles in France. For US citizens, its attractiveness is substantially reduced by the US PFIC rules, which apply independently of the French tax treatment. Understanding both regimes separately and together is essential before investing.
The core structural issue: the underlying investment funds within an assurance-vie policy are almost certainly Passive Foreign Investment Companies (PFICs) under IRC §1297. The French insurance wrapper does not change that classification. French favorable treatment after 8 years affects the French tax calculation only.
What Is Assurance-Vie
Assurance-vie is a French life insurance wrapper used primarily as a savings and investment vehicle. The name translates as “life insurance,” but for most French savers its function is investment accumulation, not mortality risk coverage.
The contract holds two broad categories of underlying assets:
- Fonds en euros: A capital-guaranteed bond fund managed by the insurer. The return is credited annually and the principal cannot decrease.
- Unités de compte (UC): Units of account invested in underlying mutual funds, SICAV, ETFs, or real estate vehicles. Capital is not guaranteed; value fluctuates with the underlying assets.
The policyholder nominates beneficiaries who receive the policy proceeds outside the normal estate (succession) process, subject to statutory limits. This estate-planning function is governed by Articles 990 I and 757 B of the Code général des impôts (CGI).
What assurance-vie is not, for US purposes: French assurance-vie does not qualify as a life insurance contract under IRC §7702, and the favorable US tax treatment available to qualifying life insurance contracts does not apply. US PFIC rules apply to the underlying fund holdings regardless of the insurance wrapper.
French Tax Treatment — Withdrawals
Taxation applies to the gain component of any withdrawal (rachat), not to the return of premium. The taxable gain on a partial withdrawal is calculated proportionally:
Gain = Withdrawal amount × (Total accumulated gains in the contract / Total contract value)
The applicable French tax rate depends primarily on when the premiums were paid, not only on how long the contract has been open. Two rate regimes coexist and can apply simultaneously within the same contract.
Premiums Paid From September 27, 2017 Onward
This regime applies to all contracts opened on or after September 27, 2017, and to gains on premiums paid from that date on pre-existing contracts. It describes the situation for most people opening an assurance-vie today.
The flat PFU rate of 12.8% applies to gains on withdrawal, regardless of contract age. After 8 years from the contract opening date, gains benefit from an annual abatement and a reduced rate:
Annual abatement on gains (8-year contracts only):
| Taxpayer situation | Annual abatement |
|---|---|
| Single, widowed, or divorced | €4,600 |
| Married or PACS partners (joint declaration) | €9,200 |
The abatement is aggregated across all assurance-vie contracts held by the taxpayer. Gains above the abatement are then taxed at:
| Aggregate net premiums across all policies | IR rate on gains above abatement |
|---|---|
| Up to €150,000 | 7.5% |
| Above €150,000 | 12.8% (PFU rate) |
The €150,000 threshold applies to total net premiums (contributions paid minus any prior returned premium) across all assurance-vie contracts, not per contract.
Social charges of 17.2% apply to the full gain before the abatement, under all contract ages. The abatement reduces the IR base only.
In any year, the taxpayer may alternatively elect taxation under the progressive barème (Article 200 A CGI). This election applies to all investment income in the year, not only to assurance-vie gains.
Premiums Paid Before September 27, 2017
Gains attributable to premiums paid before September 27, 2017, on contracts that were already open at that date remain subject to the prior tiered rate structure based on contract age:
| Contract age at withdrawal | IR flat rate | Social charges |
|---|---|---|
| Under 4 years | 35% | 17.2% |
| 4 to 8 years | 15% | 17.2% |
| 8 years and over | 7.5% | 17.2% |
The annual abatement (€4,600/€9,200) applies after 8 years under this regime as well. Social charges of 17.2% apply to the full gain before the abatement.
Death Benefit and Succession Treatment
One of the primary estate-planning benefits of assurance-vie is that policy proceeds paid to designated beneficiaries at the policyholder’s death fall outside the normal succession regime. The treatment depends on the age at which premiums were paid.
Premiums Paid Before Age 70 (CGI Art. 990 I)
Each designated beneficiary receives an exemption of €152,500 from the Art. 990 I levy. Amounts above the per-beneficiary exemption are subject to:
| Amount above €152,500 per beneficiary | Rate |
|---|---|
| Up to €700,000 | 20% |
| Above €700,000 | 31.25% |
These rates apply independently per beneficiary. The levy is collected by the French insurer as withholding agent when the death benefit is paid.
Premiums Paid After Age 70 (CGI Art. 757 B)
Premiums paid after age 70 receive less favorable treatment. Premiums above €30,500 aggregate (across all contracts and all beneficiaries combined) are included in the succession and subject to standard succession tax rates applicable to the beneficiary’s relationship to the deceased. The investment gains on post-age-70 premiums are fully exempt from succession tax, even on amounts above the €30,500 threshold.
US Tax Treatment — The PFIC Classification Problem
The US PFIC analysis for assurance-vie involves two distinct questions, and they should not be conflated.
Question 1: Do the underlying funds satisfy the PFIC tests? For unités de compte, the answer is almost certainly yes. A foreign corporation is a PFIC if, for a given year, at least 75% of its gross income is passive income, or at least 50% of its average assets are held for the production of passive income. Foreign mutual funds, SICAV, UCITS funds, and foreign ETFs satisfy both tests in virtually all cases.
Question 2: Is the policyholder the relevant PFIC shareholder through the insurance wrapper? This is the unsettled question. US tax practitioners generally treat the policyholder as the indirect holder of the underlying PFIC units, and structure their advice on that basis. The IRS has not issued definitive guidance on whether PFIC ownership attaches at the policyholder level or the insurer level for foreign insurance wrappers such as assurance-vie. French legal classification of the contract is irrelevant for US tax purposes, but the look-through premise itself remains a practitioner consensus rather than a settled IRS ruling.
The practical consequence: most US-qualified tax advisors will treat an assurance-vie with unités de compte as creating PFIC exposure at the policyholder level and advise accordingly. That is the approach reflected in the rest of this article.
Fonds en euros: The fonds en euros component may avoid PFIC classification because its capital-guaranteed, interest-bearing structure resembles a debt instrument rather than equity. The IRS has not issued a definitive ruling on this point, and the analysis is not free from doubt.
US citizens considering assurance-vie investment: The PFIC classification of each intended underlying fund should be assessed before investing. Consult a US-qualified tax professional before opening an assurance-vie or selecting unités de compte. Find a Specialist.
The Three PFIC Tax Regimes
Default Regime: §1291 Excess Distribution Method
The §1291 regime applies when no QEF or mark-to-market election is in effect. It is the default for US holders of assurance-vie unités de compte in most cases.
Under §1291:
- Gains and distributions are allocated ratably over the entire PFIC holding period
- Amounts allocated to the current year are taxed as ordinary income in the current year
- Amounts allocated to prior PFIC years are taxed at the highest applicable ordinary income rate for each prior year, with an interest charge added under IRC §1291(c) for each year of deferral
- Long-term capital gain rates are unavailable
For assurance-vie held for many years, the §1291 interest charge on prior-year allocated gains can produce a US tax burden that substantially exceeds the French tax paid, even when the French tax treatment is highly favorable.
QEF Election (§1295 — Qualifying Electing Fund)
A timely QEF election eliminates the §1291 interest charge and preserves capital gain character on the US return. However, the election requires that the PFIC provide a PFIC Annual Information Statement showing the US shareholder’s proportionate share of ordinary earnings and net capital gain.
French mutual funds operating as unités de compte within assurance-vie have no obligation under French law to produce this documentation. Based on current market practice, the QEF election is unavailable to most US holders of assurance-vie unités de compte.
Mark-to-Market Election (§1296)
The §1296 election applies only to “marketable stock” — stock regularly traded on a qualified exchange as defined in Treas. Reg. §1.1296-2. Fund units held as assurance-vie sub-accounts are typically not directly traded on a recognized exchange. Based on how these funds are structured, the mark-to-market election is also unavailable in most cases.
Result: Neither the QEF nor the MTM election is practically available for typical assurance-vie unités de compte. The default §1291 regime applies. Attempting to switch from the §1291 default to a mark-to-market election in a later year triggers §1291 treatment on the accumulated appreciation in the year of the switch.
US Reporting Obligations
Form 8621 (IRC §1298(f) — Annual PFIC Reporting)
Form 8621 is required for each PFIC held within the policy. For a policyholder with an assurance-vie containing 10 underlying unités de compte funds, 10 Forms 8621 are required annually.
Under the look-through approach that practitioners apply to assurance-vie, a partial withdrawal (rachat) at the policy level is treated as a disposition of the underlying PFIC units by the policyholder, triggering Form 8621 filing for any fund from which units are redeemed, regardless of the policy’s aggregate value. A small-value exception to the annual §1298(f) filing requirement exists, but the applicable threshold depends on ownership structure. The exception does not apply in years with a distribution or disposition event. Consult the Form 8621 instructions and a qualified professional for the threshold applicable to your circumstances.
FBAR (FinCEN 114)
An assurance-vie policy held with a French insurer is a reportable financial account under 31 CFR §1010.350(c). The filing obligation arises if the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. The relevant figure is the maximum cash surrender value during the year.
The FBAR obligation exists regardless of whether any withdrawal is made. A US citizen holding a €200,000 assurance-vie must file FinCEN 114 annually.
Form 8938 (FATCA — Specified Foreign Financial Assets)
An assurance-vie policy is a specified foreign financial asset under IRC §6038D. The maximum fair market value of the policy during the year counts toward the Form 8938 filing threshold and is reported on the form. For US taxpayers living abroad, the filing thresholds are:
| Filing status | Threshold at year-end | Threshold at any point during year |
|---|---|---|
| Single or MFS (living abroad) | More than $200,000 | More than $300,000 |
| MFJ (living abroad) | More than $400,000 | More than $600,000 |
Form 720 — Federal Excise Tax on Foreign Insurance Premiums
IRC §4371 imposes a 1% federal excise tax on premiums paid to foreign insurers on policies covering risks within the United States. Its application to a French resident paying premiums to a French insurer on a French savings contract is not automatic and depends on the specific facts of the arrangement, including any applicable treaty provisions. A qualified US tax professional should assess applicability before premiums are paid.
US–France Treaty Analysis
The US–France income tax treaty (1994, as amended) does not provide relief from US PFIC taxation on assurance-vie holdings for US citizens. The treaty’s saving clause (Article 29(2)) preserves the US right to tax its own citizens under US domestic law as if the treaty did not exist. The PFIC rules under IRC §1291 through §1298 are US domestic law provisions that operate without regard to the treaty.
French income tax paid on assurance-vie withdrawals (the 7.5% or 12.8% PFU IR component) is a creditable foreign income tax for Form 1116 purposes (passive category basket). The 17.2% social charges component’s creditability is a contested area. Where the same gain is subject to the §1291 interest charge, the coordination between the French taxes paid and the non-creditable interest charge component requires analysis by a dual-licensed professional.
Technical References
French withdrawal tax rates are governed by CGI Art. 125-0 A; the PFU rate structure (7.5%/12.8%) and the €150,000 aggregate premium threshold that determines the applicable rate are in CGI Art. 200 A. The Art. 990 I per-beneficiary levy (€152,500 exemption; 20%/31.25% rates) and Art. 757 B (€30,500 aggregate exemption for post-age-70 premiums) govern the death benefit succession treatment. The PFIC income and asset tests are in IRC §1297. The §1291 excess distribution regime is in IRC §1291 and §1291(c). The QEF election is in IRC §1295. The mark-to-market election is in IRC §1296 and Treas. Reg. §1.1296-2. Annual PFIC reporting obligations are in IRC §1298(f). FBAR financial account definition covering life insurance with cash value is in 31 CFR §1010.350(c). Form 8938 FATCA obligations are in IRC §6038D. The §4371 excise tax on foreign insurance premiums is in IRC §4371 and §4374. The US–France saving clause is in Article 29(2) of the US–France Income Tax Treaty (1994, as amended by the 2004 and 2009 Protocols).
Frequently Asked Questions
Is French assurance-vie tax-free after 8 years?
Partially, for French income tax purposes only. After 8 years from the contract opening date, gains on withdrawal benefit from an annual abatement (€4,600 for single filers; €9,200 for married or PACS couples) and a reduced IR rate. For premiums paid from September 27, 2017 onward, the post-8-year rate is 7.5% on gains from net premiums up to €150,000 aggregate, and 12.8% above that threshold. Social charges of 17.2% continue to apply to the full gain before the abatement. For US citizens, French favorable treatment has no effect on US PFIC obligations under IRC §1291. The two regimes operate independently.
Do I have to file Form 8621 for my assurance-vie?
Yes, if you hold underlying funds classified as PFICs within the policy and your tax advisor applies the look-through approach treating you as the indirect PFIC shareholder. On that basis, one Form 8621 is required per PFIC per year, and an assurance-vie with 10 unités de compte funds typically requires 10 Forms 8621 annually. Under the same approach, a withdrawal (rachat) is treated as a disposition event triggering Form 8621 filing regardless of the policy’s aggregate value.
What PFIC regime applies to assurance-vie unités de compte?
The default §1291 excess-distribution regime applies in most cases. The QEF election requires a PFIC Annual Information Statement from the fund manager, which French funds virtually never provide. The mark-to-market election requires that the fund units be marketable stock traded on a recognized exchange, which is typically not the case for assurance-vie sub-accounts. Without a valid election, §1291 applies and gains are allocated across the holding period with an interest charge added for prior PFIC years.
Does the US–France treaty protect assurance-vie gains from US taxation?
No. The treaty’s saving clause (Article 29(2)) preserves the US right to tax its own citizens as if the treaty did not exist. The PFIC regime under IRC §1291 through §1298 is a US domestic law provision that operates independently of the treaty. No treaty article specifically addresses PFIC treatment or the §1291 interest charge.
Do I need to report my assurance-vie on FBAR?
Yes, if the aggregate value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year. An assurance-vie policy with cash surrender value is a reportable financial account under 31 CFR §1010.350(c). The relevant value is the policy’s cash surrender value at its maximum during the year. The FBAR filing obligation arises from the account’s existence and value, not from taxable withdrawals.
What is the French annual abatement on assurance-vie gains after 8 years?
The annual abatement is €4,600 for single, widowed, or divorced taxpayers and €9,200 for married or PACS partners filing jointly. The abatement is applied to the gain component of withdrawals made during the calendar year, aggregated across all assurance-vie contracts. It reduces the income-tax base only; social charges of 17.2% apply to the full gain before the abatement.
Are fonds en euros within assurance-vie PFICs?
Probably not, but there is no definitive IRS ruling. Fonds en euros are capital-guaranteed, interest-bearing bond funds managed by the insurer. Their structure is more consistent with a debt instrument than an equity interest, which would place them outside the PFIC definition under IRC §1297. Most practitioners treat fonds en euros as lower PFIC risk than unités de compte. US citizens holding an assurance-vie invested exclusively in fonds en euros avoid most PFIC exposure, but the analysis is not free from doubt and the IRS has not issued a ruling confirming this position.
Can I make a QEF election for my French assurance-vie funds?
In practice, no. A valid QEF election under IRC §1295 requires that the PFIC provide an annual PFIC Annual Information Statement showing the US shareholder’s pro rata share of ordinary earnings and net capital gain. French mutual funds (SICAV, UCITS funds) operating as unités de compte have no obligation under French law to produce this documentation. Without the annual statement, the election cannot be made and the default §1291 regime applies.