[ Offshore Tax ] Let’s explore the Tax Treatment of Assurance Vie

Assurance Vie in France and U.S. Tax & Reporting
The IRS tax treatment of an assurance vie for U.S. persons is complex. Similar to the SICAV or UK investment ISA, the assurance vie has several tax-deferred components. However, these components do not receive tax-deferred status under U.S. tax law. Outside of the United States, the assurance vie—sometimes referred to as a Unit-Linked Insurance Policy—is a common type of hybrid life insurance policy/unit-linked investment vehicle.
With an assurance vie, life insurance acts as a wrapper for various types of investments. It is frequently held by French/U.S. dual-citizens or residents. The primary benefit of the assurance vie is that income grows tax-free within the wrapper. While France is the primary country offering this investment, it may also be available in other countries.
How Does an Assurance Vie Work?
The assurance vie accumulates investment income and grows tax-free. Therefore, income earned on the assets within the assurance vie is not taxed until distribution.
Sidestep French Estate Laws
French estate laws are generally complex and strict. One significant benefit of the assurance vie is that it allows the owner to control beneficiary distributions. With an assurance vie, the owner can select beneficiaries for distributions.
U.S. Tax Implications of Assurance Vie
For U.S. persons with a French assurance vie, the major challenge lies in U.S. tax ramifications. Unlike in France, the assurance vie does not receive the same tax-deferred treatment in the U.S. As a result, growth within the assurance vie is taxable as it accumulates.
The key issue for U.S. tax treatment of an assurance vie is determining when the income becomes taxable. This answer hinges on whether the assurance vie qualifies as a PFIC (Passive Foreign Investment Company). If it is a PFIC, tax may be deferred until distribution, potentially resulting in an excess distribution PFIC tax. If the assurance vie is not a PFIC, growth is taxable annually as income accrues.
Reporting Requirements:
FBAR: Whether the assurance vie most closely resembles a life insurance policy or an investment account, it is reportable on the FBAR.
FATCA: An assurance vie is also reportable on FATCA Form 8938.
PFIC: Analyzing the assurance vie under PFIC rules is complicated. If it satisfies the elements of a PFIC, reporting is required on Form 8621, and the tax becomes subject to PFIC excess distribution calculation rules.

TIMESTAMPS:
0:00 INTRO
1:30 Two different tax system
3:00 Withdrawing Assurance Vie
4:30 Reducing taxation of inheritance
5:00 US tax components
7:10 most regulated taxation in the world
9:10 outro


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