Persons living in Switzerland who are the heirs of a person who died in France are obliged to pay French Inheritance Tax on property located in Switzerland. The tax burden can be significantly reduced provided that the deceased person owned assets during their lifetime in a dedicated form of partnership called "Pacte Dutreil”.
If a Gallic rooster crows ... and calls for taxation, this unsolicited call may even reach Switzerland. Among other things, this can happen in inheritance cases.
France subjects assets located worldwide to inheritance tax if (i) the deceased was last resident in France or (ii) the heir is resident in France.
On December 31, 2014, France terminated the former double taxation agreement (DTA) of December 31, 1953 with Switzerland on the avoidance of double taxation in the field of inheritance taxes. As a result of these events, properties located in Switzerland are also subject to French inheritance tax.
For example, if an owner of property located in Switzerland who was last resident in France dies and leaves the property to an heir who is resident in Switzerland, the Swiss heir becomes liable to pay inheritance tax in France. In this case, Switzerland is also entitled to record the transfer of the estate including inheritance tax, unless the heir is exempt from inheritance tax due to his relationship in the relevant canton where the estate is located. However, under French tax law, Swiss real estate transfer tax is fully offset against French inheritance tax, so double taxation is ultimately avoided by the unilateral French tax law. However, this Swiss tax must be paid in France by the end of the second year following the year in which the inheritance tax return was filed. However, there is no longer a tax exemption for real estate, as was the case with the old free trade agreement with France.
Tax rates are progressive and are up to 45% for direct descendants and up to 60% for unrelated persons.
French tax law recognizes a special form of inheritance tax reduction through the so-called "Pact Dutreil". In this case, the asset is used commercially under the articles of association. The partners undertake not to sell their shares in the company for a certain period of time. If the conditions of the "Pacte Dutreil" are met, three quarters of the transferred shares in the company are exempt from inheritance tax.
The issues related to the "Pacte Dutreil" institution are very complex and must be clarified on a case-by-case basis. The Eberhard Advisory team is well prepared to help you with all tax related issues in France.
