A working trip = a tax deduction: maybe? (See Footnote #1)
Jane and I have returned from a two-week trip to the French Riviera. The purpose of this trip was to explore the possibility of real estate investments in the French Riviera. Although it was primarily a work trip, I cannot deny that it was also incredibly enjoyable.

Our hosts are dear friends who reside in the small village of Eze sur Mer (Eze by the Sea). Their home is situated on the side of a cliff, approximately a quarter mile away from the Mediterranean Sea with a magnificent view! Perched about 1,400 feet above their home is the ancient village of Eze, a medieval fortress town characterized by its charming cobblestone streets, battlements, cactus, and an array of fabulous restaurants.

While there is a walking pathway from their house to Eze in the clouds, we opted to drive instead. The climb of 1,400 feet straight up would have been quite a challenge, and I believe Jane was the only one of us fit enough for such a stroll.
Having close friends host us proved to be a significant advantage. This family has a successful track record in real estate investing both in the USA and in France, making our trip even more perfect.

The French Riviera

Weather
The Riviera truly is magnificent. Nice, France serves as a central hub on the Riviera and interestingly shares a similar northern latitude with Portland, Maine (43.7 degrees). However, despite their shared latitude, Nice experiences much milder weather. During our trip, we were fortunate to have mostly high temperatures in the upper 70 degrees Fahrenheit. As evening fell, the breezes flowing down from the nearby Alps caused the temperatures to drop into the 60s.

Harsh storms are a rarity along the Riviera, adding to the region’s allure and making it a delightful destination to enjoy its natural beauty and pleasant climate.

Architecture
The architecture found on the French Riviera is truly iconic, and I have a deep appreciation for its beauty as a form of art. During our exploration, we had the opportunity to witness a multitude of magnificent buildings, some of which had an ancient origin, and a few even traced back to the medieval period. It was truly awe-inspiring to witness the enduring charm and craftsmanship of these historic structures.

Furthermore, I was pleased to observe that the modern architecture along the French Riviera demonstrated a great sense of respect for the region’s architectural heritage. The contemporary buildings we encountered seamlessly blended with the surrounding environment while paying homage to the rich architectural traditions of the area. It was evident that the architects behind these modern designs took great care to preserve the cultural and historical significance of the French Riviera.
The French Riviera’s architectural landscape serves as a testament to the enduring legacy of the past while embracing the innovations of the present.

Gardens
The French display notable passions for various pursuits, and one such area is the creation of beautiful gardens. Even modest French homes boast charming and well-tended gardens. Throughout public and private spaces, the presence of blooming flowers provides a year-round delight.

It is evident that the French place great value on the aesthetics of their gardens. They take pride in meticulously selecting plants and flowers that bloom at different times throughout the year. From the vibrant blossoms of spring to the lush foliage of summer, and even the captivating colors of autumn, French gardens offer a constant feast for the eyes.

This love for gardens extends beyond the boundaries of private residences. Public areas, parks, and squares in France are often adorned with meticulously designed and maintained gardens.

Exploring these gardens is a truly pleasurable experience, providing a serene sanctuary and an opportunity to appreciate the artistry and tranquility of nature. The French have truly mastered the art of cultivating and admiring beautiful gardens, making them an integral part of their culture.

Food
It is indeed a universally known fact that the French have a strong appreciation for good food, and this reputation holds true. As one French waiter aptly put it, “if it is on my menu, it is delicious!” He didn’t exaggerate. During our visit, we had the pleasure of enjoying almost every meal alfresco (in the open air). Each dining experience was truly fabulous, and what’s more, the prices were quite reasonable.

Our host family, who are dear friends, rarely dine at home because the sidewalk cafes in France are simply too tempting to resist. The quality and variety of food available at these cafes are exceptional, making it a delightful experience to savor the local cuisine while immersed in the lively atmosphere of the streets. The French truly excel in creating culinary delights that please the taste buds and leave lasting impressions.

The combination of dining alfresco and the exceptional quality of food offered in France make it a culinary paradise. It is no wonder that the French have gained a well-deserved reputation for their culinary expertise and their appreciation for the pleasures of good food.

Mass Transportation
The train system along the French Riviera is truly outstanding. However, it’s important to note that it can get crowded during rush hour, so plan your travel accordingly.

During my visit, my main objective was to explore real estate opportunities while also admiring the fabulous architecture of the Riviera. Opting to travel by train proved to be the most efficient way to see as much as possible.

The train network allowed me to conveniently reach various destinations along the Riviera, providing easy access to different towns, cities, and their respective real estate markets. Additionally, as I traveled by train, I had the opportunity to appreciate the stunning architecture that adorns the Riviera, from elegant villas to historic buildings and modern structures.

By utilizing the train system, I was able to maximize my time and explore the diverse real estate offerings and architectural wonders of the Riviera in an efficient and enjoyable manner.

The places I visited are numerous.  I have listed them in Footnote #2.

The Side-Effect of Mass Transportation
Wear Good Quality Shoes! You will walk.  A lot. One day we walked 18,000 steps!

Automobiles
The Riviera is characterized by a complex network of narrow one-way streets, which often presents challenges when driving and parking. Given the circumstances, if I were to reside on the Riviera, I would choose not to own a car.

This brings me to two important observations that I will emphasize later in this newsletter. Firstly, the value of residential real estate is greatly enhanced by its proximity to a train station. The convenience and accessibility offered by train connections are highly sought after by residents and potential buyers alike.

Secondly, owning a dedicated parking space is another significant factor that positively impacts the value of residential properties on the Riviera. Considering the scarcity of parking in the area, having a secure and reserved parking spot is highly desirable and can be a valuable asset for homeowners.

These two observations underscore the importance of considering proximity to train stations and securing dedicated parking spaces when assessing the value and desirability of residential real estate on the Riviera.

Europe is a good investment.
Europe presents an enticing investment opportunity for several reasons. Europeans enjoy a relatively prosperous lifestyle and experience gradual but steady improvements in their standard of living. Notably, they strike a commendable balance between work and leisure, which ranks among the highest globally. Moreover, Europeans highly value and fully embrace their vacation time.
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Considering these factors, investing in short-term rental properties that cater to European vacationers can be a smart financial choice. Such properties can benefit from consistent demand driven by Europeans’ fondness for vacations and their preference for comfortable and distinctive accommodation experiences.

On a side note, it’s worth mentioning that Americans could benefit from adopting a similar work-life balance to that of Europeans. The European approach emphasizes a healthier equilibrium between work and leisure, while Americans often tend to overwork without fully prioritizing leisure time. By embracing a more balanced approach, Americans could improve their overall well-being and enjoy a more fulfilling personal life. It’s important to recognize the value of leisure and relaxation alongside professional commitments in order to achieve a more harmonious work-life balance.

Residential Real Estate on the Riviera may be a good investment.
Residential real estate in the right location along the Riviera possesses several favorable qualities as an investment. Two notable factors are:

1. Stability: Riviera residential real estate tends to exhibit more stability in value compared to similar properties in the United States. This stability can contribute to a sense of confidence for investors.
2. Predictable Appreciation: Real estate on the Riviera typically experiences a more gradual and predictable appreciation over time. This subdued rate of appreciation can be appealing for investors seeking a steady and reliable return on investment.

However, it is crucial to note that these two factors may not hold true for all locations along the Riviera. Certain areas, such as Monaco and Cannes, may not align with these characteristics. Additionally, Paris (I know it’s not the Riviera, but it is Paris!) has its own unique considerations, which are briefly discussed in Footnote #3.

Tourette-du-Château and Saint-Paul de Vence, two mountain towns in the hill country of the French Riviera, possess a captivating charm. However, I advise against real estate investments in these towns primarily due to the absence of a train station. While they do have excellent bus service, personal preferences regarding transportation can play a role in investment decisions. It is worth noting that respected individuals do have real estate investments in these towns.

Monaco and Cannes, on the other hand, are regarded as overpriced locations. Monaco is notoriously overpriced. Everything, including dining experiences, tends to come with a steep price tag. Lunch, for instance, cost us a staggering $500. While the quality may be good, the exorbitant prices can be off-putting for potential investors.

Monaco is not a tax haven: see footnote #4.
Like Monaco, I’m not impressed with the investment potential of Cannes. Cannes is well on its way to becoming a big city with big city problems and, like Monaco, it is expensive.

Not a Tax Shelter!
French real estate or any foreign real estate investment is not a tax shelter. The USA taxes worldwide income and imposes additional strict measures on foreign income and banking.  See footnote #5.

Other important factors in making residential real estate investments in the Riviera:

1. Not all residential real estate comes with dedicated parking.
   1. Parking is very important!
   2. Parking on the Riviera is limited and expensive.
   3. Dedicated parking adds substantial value and potential appreciation to any real estate investment.
2. Be within a mile (2-klicks) or a comfortable walk to the train station.
   1. Train transit along the Riviera is outstanding so long as you know to avoid rush hours.
   2. The train system will take you to 90% of the places you want to visit.
   3. Mass transit (including buses) is inexpensive and well maintained.
3. Jane made a noteworthy suggestion to include “The View” as an essential factor to consider. She strongly believes that having a scenic view of the Mediterranean Sea is a crucial element when investing in residential real estate along the Riviera.

Jane’s perspective highlights the allure of the stunning coastal vistas that the Riviera has to offer. A captivating view of the Mediterranean Sea can greatly enhance the overall appeal and value of a property.

The Costs
The cost of residential real estate on the Riviera is considered reasonable when compared to highly desirable locations in Atlanta, Georgia. While not inexpensive, the square foot costs in these sought-after Riviera locations are comparable to those in desirable areas of Atlanta.

The cost of ownership
Moreover, the cost of ownership for comparable properties on the Riviera is significantly lower in comparison to Atlanta. This can include expenses such as property taxes, insurance, maintenance, and utilities. The favorable cost of ownership contributes to the overall appeal and financial feasibility of investing in residential real estate on the Riviera.

Overall, while the cost of real estate on the Riviera is not exorbitantly high, it offers an attractive balance between affordability and the desirable lifestyle and amenities provided by this renowned coastal region.

1. Property Taxes: Property taxes in France are typically around one-fourth of what you would expect to pay for comparable properties in the USA.
2. Insurance: Insurance costs tend to be lower in France. In many cases, the homeowners’ association (HOA) covers the building insurance, while the owner is responsible for content insurance.
3. Maintenance and Repairs: French craftsmen are known for their high quality of workmanship and lower costs compared to their US counterparts. Typically, the cost of hiring French craftsmen is around half to three-quarters of what you would pay for similar services in the USA. French craftsmen take pride in doing the job right the first time.
4. Property Management Fees: Surprisingly, property management fees in France are slightly higher. It is common to pay around 25% of rental income to a management company. I will provide a more detailed explanation for this later.
5. Utilities: Electricity in France is notably cheaper, typically around one-fifth the price of electricity in the USA. This significant difference is mainly due to the fact that over 90% of France’s electricity is generated from nuclear power.
6. Homeowners Association (HOA) Fees: HOA fees in France are typically around one-fourth of what you would pay for comparable properties in the USA. This is influenced by the lower costs of craftsmen and other factors listed above.
7. Legal and Accounting Fees: Legal and accounting fees in France are generally similar to those in the USA. It is advisable to have a French attorney who can also act as a tax accountant. Reporting income or losses on a French tax return is a straightforward process.

These factors highlight the financial advantages of owning property in France, including lower property taxes, insurance costs, maintenance expenses, utilities, HOA fees, and comparable legal and accounting fees.

There are other things you need to know.
American citizens with foreign bank accounts face increased reporting requirements, including the obligation to file FBAR (FinCEN Form 114). These reporting requirements are not optional.

In the recent past, French banks were hesitant to accept American citizens as clients due to the demanding rules and regulations imposed by the US government on foreign banks doing business with Americans. However, there have been changes in French law that have made it easier for French banks to engage with American clients. These changes, although recent, do not guarantee that all French banks will accept new American customers. French banks retain the right to decline potential customers for any reason, and it is not uncommon for them to refuse American banking clients. This legacy of caution may continue for some time.

There are viable banking options.

Regarding business entities, while the US has LLCs (Limited Liability Companies), France has its own equivalents, such as “Société par Actions Simplifiée” (SAS) and “Entreprise Individuelle à Responsabilité Limitée” (EIRL), each with their own specific characteristics and requirements. The choice of business entity in France depends on various factors, including the nature of the business, the number of shareholders, and the desired level of flexibility and liability protection.

When it comes to owning residential real estate on the Riviera, it is essential to seek French legal advice. While a French legal entity is one option, it is not the only option available. Depending on your specific circumstances and objectives, an LLC formed in Monaco, known as “Société à Responsabilité Limitée” (SARL), could be a valid alternative. The choice of entity should be made in consultation with your French attorney, who can provide the necessary guidance based on your individual situation and preferences.

Footnote #1: One of our clients, a profitable corporation, recently organized a working vacation in the Central European Time Zone. The trip involved two corporate officers, their spouses (who are also shareholders), and a total of eight children, resulting in a group of twelve individuals in total.
I can assure you that this will not be 100% tax deductible. The vacation, pleasure component of this working holiday is significant.

The deductibility will depend on two primary factors:

• The Primary Purpose and Substantial Business Component
  • Why was that time zone necessary?
  • Who did they meet with and why?
• Documentation and more documentation.
  • Allocation of expenses
  • Quality of record keeping

Once this very responsible and conservative client understands these complex rules, there is a very high probability that they will simply forgo the tax deduction.
That may be a wise choice.

Footnote #1 – Addendum: No matter how you twist or bend the law, Jane’s contributions to the French fashion industry can never be a tax deduction!

Footnote #2:
The places I visited while in France by using the train are:

1. Cannes
2. Golfe-Juan-Vallauris
3. Juan-les-Pins
4. Antibes
5. Biot
6. Villeneuve-Loubet
7. Cagnes-sur-Mer
8. Saint-Laurent-du-Var
9. Nice-Saint-Augustin
10. Nice-Ville
11. Villefranche-sur-Mer
12. Beaulieu-sur-Mer
13. Èze-sur-Mer
14. Cap-d’Ail
15. Monaco-Monte-Carlo
16. Roquebrune-Cap-Martin
17. Carnolès
18. Menton-Garavan
19. Menton

Trip not on the Train:

20. Tourette-du-Château
21. Saint-Paul de Vence
22. Paris!

Footnote #3:
Paris, being a major city, is not exempt from the challenges commonly associated with urban areas. Despite its allure and cultural significance, some individuals, like our host family, have opted against real estate investments in Paris in favor of the Riviera.

During our stay, we experienced the charm of a delightful French boutique hotel, where it seemed that most guests were Americans. The breakfast conversations revolved around real estate, and a consensus emerged: Paris is perceived as having overpriced properties, and the quality of routine services often falls short of expectations compared to the Riviera.

While Paris undoubtedly has its unique appeal and cultural offerings, the cost and quality factors raised by fellow guests at the breakfast roundtables have influenced our host family’s decision to pursue real estate opportunities elsewhere. These insights highlight the specific considerations that potential investors take into account when evaluating investment options in different regions of France.

Footnote #4: Monaco is recognized as an independent country that boasts a tax-friendly environment. It imposes no income tax, wealth tax, local tax, property tax, or capital gains tax on individuals. Furthermore, corporate tax and inheritance tax are considerably low compared to many other nations. This may initially sound appealing, but there are important considerations to bear in mind.

However, before jumping to conclusions, it’s crucial to weigh the pros and cons. Unless one is subject to paying substantial amounts in U.S. income and capital gains taxes in the millions of dollars, obtaining citizenship in Monaco could prove to be a significant mistake. There are two hidden taxes that individuals pay while in Monaco: 1) the value-added tax imposed on goods and services and 2) the considerably high cost of living in the region.

For me personally, the deal breaker lies in the fact that to take advantage of Monaco’s perceived tax haven status, one must renounce their U.S. citizenship. While our nation is not without its imperfections, it is still our homeland. The benefits and advantages of being an American citizen are significant and should not be disregarded lightly.

Footnote #5: It is important to note that investing in French real estate or any foreign real estate does not serve as a tax shelter. The United States taxes its citizens on their worldwide income, which includes income generated from foreign sources. Additionally, the US government has implemented stringent measures to regulate foreign income and banking activities.

US taxpayers are required to report their foreign income, including rental income from foreign properties, on their tax returns. They must also comply with reporting requirements for foreign bank accounts, such as the FBAR (FinCEN Form 114) and FATCA (Foreign Account Tax Compliance Act) regulations. Failure to comply with these reporting obligations can result in severe penalties.

It is essential for US taxpayers considering foreign real estate investments to consult with a qualified tax professional who is well-versed in international tax matters. They can provide guidance on the reporting requirements and help ensure compliance with US tax laws. By understanding and fulfilling these obligations, taxpayers can navigate the complexities of foreign real estate investments while adhering to their tax obligations in the United States.