French Trust Reporting Obligations: A Practical Overview

At Syntaxe, we frequently meet trustees who manage structures with a French connection without realizing how easily they can fall within the scope of the French trust reporting obligations set out in Article 1649 AB of the French Tax Code.

Scope

The rule is straightforward on paper: if there’s a French link, there’s a report.

That link can be any of the following:

• one of the settlors, beneficiaries or trustees is a French tax resident; and/or
• the trust holds assets located in France.

In our experience, the “French link” often appears unintentionally:

• a holiday home held in trust;
• a single distant beneficiary (such as a great-grandchild of the settlor) who relocates to France for education or work purposes;
• a trust deed amendment extending to new relatives without checking their residence;
• etc.

In practice, determining whether a “French link” exists is not always straightforward, especially when it relies on tax residency. The concept of French tax residence goes far beyond the so-called “183-day rule”, which is largely a myth. French tax law assesses residence based on a range of factual criteria (including the location of one’s main home, economic interests, or family ties) and may look back as far as ten years to determine whether someone should have been treated as a French tax resident.[1]

As a result, an individual may become a French tax resident without realizing it, and this status automatically triggers all the related obligations and consequences, including trust reporting. Trustees should therefore monitor whether any settlor or beneficiary could inadvertently acquire French tax residence, as this alone brings the trust within the French trust reporting scope.

From that moment, the trust becomes subject to the French trust reporting obligations, whether or not it was designed with France in mind.

Purpose and Rationale

In the past, French tax authorities regarded foreign trusts as opaque vehicles used to shield income and wealth from taxes. The trust reporting regime was meant to ensure that any trust with a French connection (however remote) can be identified and traced.

In that sense, the reporting obligation is primarily a transparency measure rather than a direct tax. It enables the French Tax Authorities to map the existence, composition, and evolution of trusts that may later have tax consequences under income tax, wealth tax or inheritance tax rules.

It is therefore essential to distinguish reporting from taxation.

The trust reports (Forms 2181 TRUST 1 and 2181 TRUST 2) are purely informational. Filing them does not, in itself, create a tax liability.

That said, what they disclose may have tax consequences. For instance:

• Income distributed from a trust to a French tax resident beneficiary is taxable as financial income and must be reported in the beneficiary’s income tax return.
• Even undistributed income can, in certain cases, be taxed under French Controlled Foreign Company (CFC) rules.
• Assets located in France held by the trust may also be liable to wealth tax (Impôt sur la Fortune Immobilière or IFI) when they fall within its scope.
• Inheritance tax may also apply to transfers of trust assets.

In short, the reporting is informational, but what it reveals may lead to taxable consequences.

A common misconception is that settlors or beneficiaries who declare their income or wealth from the trust have “done their part”. In reality, this does not replace the trustee’s duty to file the trust reports. The two obligations are completely separate.

The trust reporting obligations are also entirely separate from the reporting requirements applicable to foreign bank accounts and life insurance policies.

Two Types of Reports

Once a French link exists, two filings come into play: one yearly and one event-based.

A Yearly Report

The yearly report is due solely because the trust exists on 1 January of the relevant year.

The scope depends on the residence of the parties involved:

• if either a settlor or a beneficiary is a French tax resident, the report covers all trust assets worldwide;
• otherwise, it is limited to assets located in France.

This yearly filing (Form 2181 TRUST 2) must include the identification and market value of the assets, full details of the settlor(s), trustee(s) and beneficiary(ies), and a summary of the trust deed.

In our experience, asset valuation is often the main challenge, particularly for non-listed or illiquid assets.

An Event-Based Report

Beyond the annual filing, any event that alters the trust’s existence, composition or operation must also be reported.

Typical triggering events include:

• the creation, amendment or termination of the trust;
• the death or replacement of a settlor, trustee or beneficiary;
• the contribution or distribution of assets;
• or any legal or factual change likely to alter the economic balance of the trust.

This event-based filing (Form 2181 TRUST 1) must describe the event, identify all relevant persons, list the assets concerned, and include a summary of the trust deed.

One report must be filed for each event. In other words, if the trust makes monthly distributions, each of them triggers a separate filing obligation within one month of the date of distribution.

We regularly see trustees overlook this obligation after what they view as minor administrative updates (such as a change of trustee or reallocation of assets) because such events would not be reportable in their home jurisdiction. Under French law, they are.

Filing Deadlines

The yearly return is to be filed by 15 June each year, reflecting the trust’s situation as of 1 January.

The event-based return is to be filed within one month of the relevant event (creation, modification, termination, death of a party, contribution, distribution…).

Persons Responsible for Filing

The trustee is personally responsible for both the yearly and event-based filings.

The settlor and beneficiaries are not required to file, but they can still be held jointly and severally liable for any penalties resulting from non-compliance.

That means the French tax authorities can recover unpaid amounts from any of them.

So while the paperwork belongs to the trustee, the financial exposure is shared.

Penalties for Non-Compliance

The French system is deliberately deterrent.

Each failure to report triggers a penalty of €20,000 or, if higher, 80% of the taxes avoided.[2]

On top of that, there’s an annual 1.5% levy on any undeclared French real estate held in trust.[3]

While the trustee is the formal target, the settlor and beneficiaries remain jointly and severally liable, which means the French Tax Authorities can pursue the most reachable person.[4]

In practice, trustees who discover these obligations late often end up regularizing multiple years of missed filings at once.

Non-compliance may also carry criminal liability. Under Article L. 228 of the French Tax Procedure Code, whenever the above 80% penalty is applied and the total amount of taxes evaded exceeds €100,000, the French Tax Authorities are legally required to refer the case to the public prosecutor for potential prosecution on grounds of tax fraud.

This €100,000 threshold is assessed globally for the entire reassessment, not per year, and given the standard three-year audit window, it can be reached very quickly in practice.

Once those conditions are met, the referral is automatic and leaves no discretion to the French Tax Authorities.

Practical Considerations

The real challenge is often diagnosing the French link early enough to act.

A single French property or a single beneficiary who becomes a French tax resident is enough to trigger the reporting obligations.

If past filings have been missed, it is often preferable to regularize voluntarily rather than to let the French Tax Authorities discover the situation themselves.

Before filing, it is advisable to audit the trust’s position to determine whether any back taxes might also be due, for example, on income generated but not reported, or on past distributions that may have French tax implications.

The sensible approach is proactive: identify potential French connections early, gather the required data, and seek French tax counsel before any reporting deadline arises.

Trustees who anticipate and document their obligations, or who rectify them proactively, manage compliance efficiently and protect both themselves and the settlors and beneficiaries from unnecessary exposure.

References

[1] Article 4 B of the French Tax Code; Article L. 169 §3 of the French Tax Procedure Code

[2] Article 1736, IV bis of the French Tax Code; Article 1729-0 A of the French Tax Code

[3] Article 990 J of the French Tax Code

[4] Article 1754, V, 8 of the French Tax Code