Assurance vie and PEA: US tax traps for Americans

The two products every French banker recommends, the assurance vie and the PEA, were designed to save French taxes, and for a US citizen they can create IRS headaches that wipe out the benefit.

The short version

Uncle Sam ignores French tax wrappers. The IRS taxes what's inside an assurance vie or a PEA under US rules, whatever France does.
French funds are usually PFICs. Most French and European mutual funds and ETFs count as passive foreign investment companies, with punishing US tax and a Form 8621 for each one [1].
Assurance vie raises extra questions: whether the US sees it as real life insurance, and how to report it. Its cash value goes on the FBAR and on Form 8938 [2].
A PEA holding individual stocks is far less risky than one holding French ETFs.
Get advice before you invest, not after: a cross-border tax preparer who knows both systems can check your situation.

USD conversions in this guide use the Federal Reserve H.10 rate of October 30, 2026 (EUR 1 = USD 1.1163).

What these products are, in French terms

Assurance vie

Despite the name, an assurance vie is mostly a savings and investment wrapper sold by banks and insurers. Inside, your money sits in a capital-guaranteed fonds en euros, in unités de compte (investment funds), or a mix. France loves it for three reasons [3]:

French advantage	The rule (2026)
Lower income tax after 8 years	An annual allowance of EUR 4,600 for a single person and EUR 9,200 for a couple on gains withdrawn (about USD 5,100 and USD 10,300), then a reduced 7.5% rate up to a premium threshold [3]
Social charges	Gains are subject to social charges, generally at 17.2% [3][4]
Inheritance	For premiums paid before age 70, up to EUR 152,500 per beneficiary (about USD 170,000) passes free of French inheritance tax [3]

PEA (plan d'épargne en actions)

A PEA is a stock savings account. You can put in up to EUR 150,000 (about USD 167,000), and gains are free of French income tax if you leave the plan open for five years, though social charges still apply [5]. It may hold European company shares directly, or funds and ETFs that invest more than 75% in qualifying equities [5]. Withdraw anything before year five and the plan generally closes [5].

On the French side, these are fine products. The problem is the other tax return you file every April.

Trap 1: the PFIC rules

Because the US taxes citizens wherever they live, you report the income from your French investments on your Form 1040. The IRS doesn't care that France exempts a PEA after five years, or treats an assurance vie gently after eight.

Worse, most French investment funds are passive foreign investment companies. A foreign corporation is a PFIC if 75% or more of its income is passive, or at least 50% of its assets produce passive income [1]. A French mutual fund (OPCVM, SICAV or FCP) or a Europe-listed ETF fits that description almost by definition.

Without a special election, PFIC gains and large distributions are taxed under the "excess distribution" regime: spread over your holding period, taxed at the top ordinary rate for each year, plus an interest charge. The two ways out:

QEF election: you include your share of the fund's earnings each year [1]. It requires an annual information statement from the fund, which French funds rarely provide.
Mark-to-market election: for marketable PFIC stock, you report the yearly increase in value as ordinary income [1]. No long-term capital gains rate, ever.

You may also need Form 8621 for each PFIC. There's a small-holdings exception: no annual Part I filing if your total PFIC stock is worth USD 25,000 or less at year-end (USD 50,000 on a joint return), and you had no excess distribution or gain [1]. Sell, and the form comes back.

The PEA ETF issue

This is where many Americans in Paris get burned. The typical PEA advice is "just buy a cheap S&P 500 or MSCI World ETF." Those PEA-eligible ETFs are European funds, so they're PFICs. A US-domiciled ETF like the one in your 401(k) isn't PEA-eligible, since the PEA is limited to European holdings [5].

Holding individual shares of European operating companies (think the big CAC 40 names) generally doesn't create a PFIC, because those are regular businesses, not passive investment funds. You still pay US tax on dividends and gains. Since France doesn't tax them inside the PEA, there's little French tax to credit against the US bill.

Trap 2: assurance vie and the "is it insurance?" question

For US tax purposes, a contract only gets life insurance treatment if it meets the US definition in the tax code. Many assurance vie contracts are built as investment products with little actual insurance, and whether a particular one qualifies is a technical question for a cross-border tax preparer to answer, ideally before you buy.

The stakes:

If it qualifies, growth may be tax-deferred in the US too, although withdrawals and some changes in the contract can still trigger US tax.
If it doesn't, the IRS may tax the yearly growth, and the unités de compte inside can be treated as PFICs you own indirectly. The Form 8621 instructions spell out several ways to be an indirect PFIC shareholder [1].

A fonds en euros-only contract avoids investment funds inside, but it doesn't settle the US characterization question, and its interest is still US-taxable.

The foreign trust question

Some advisers also ask whether a foreign savings product is a foreign trust, which would bring Forms 3520 and 3520-A and steep penalties. In 2020 the IRS exempted certain tax-favored foreign retirement trusts and non-retirement savings trusts from those forms [6]. The savings-trust exemption has narrow conditions: the plan must provide medical, disability or educational benefits, and contributions must stay under USD 10,000 a year or USD 200,000 over a lifetime [6]. A typical assurance vie or PEA doesn't fit those conditions neatly. Whether trust reporting applies to your contract at all is a call for your preparer, and FBAR and Form 8938 still apply either way [6].

The excise tax

Premiums paid to a foreign insurer can also be subject to a federal excise tax reported on Form 720, with exceptions in some treaties. Ask your preparer whether it applies to your contract.

Trap 3: the reporting load

Even if you owe no tax, each product adds paperwork. The IRS table comparing the two main forms lists foreign life insurance or annuity contracts with a cash value, and foreign mutual funds, as reportable on both [2]:

Form	Who files (2026 rules)	Where
FBAR (FinCEN Form 114)	Total foreign accounts over USD 10,000 at any time in the year	FinCEN's BSA E-Filing System, due April 15 with an automatic extension to October 15 [7]
Form 8938	Living abroad: single filers over USD 200,000 at year-end or USD 300,000 at any time; joint filers over USD 400,000 or USD 600,000 [2]	With your Form 1040
Form 8621	Each PFIC, subject to the small-holdings exception [1]	With your Form 1040

A PEA holding five ETFs can mean five Forms 8621. That's real money in preparer fees each spring.

What to do instead (or first)

Don't sign anything at the first bank meeting. French advisers mean well but rarely know US rules. Saying "je suis citoyen américain, je dois vérifier les conséquences fiscales américaines" buys you time.
Inventory what you already have. Pull statements for every assurance vie, PEA and fund. Note each fund's name and ISIN code.
Talk to a cross-border tax preparer who works with both French and US returns. They can check whether your contract qualifies as insurance, which holdings are PFICs and which forms you owe.
Consider direct shares if you want a PEA, rather than French ETFs.
Keep your core investing stateside if you can. Many Americans in France keep retirement savings in US accounts such as 401(k)s and IRAs. Our guide to 401(k)s and IRAs abroad covers the catches, including US brokers that restrict accounts for foreign residents.
Fix old mistakes properly. If you've held French funds for years without filing Form 8621 or the FBAR, the IRS streamlined procedures exist for non-willful cases.

French social charges, the US–France tax treaty and foreign tax credits interact in ways that change with your income, so treat all of this as general information. A US expat tax preparer (or lawyer) can check your situation. And if you want to hear how others handled it, plenty of members of our community group for Americans in France have been through the assurance vie conversation with their banker.

Assurance vie and the PEA: why France's favorite savings products can backfire on Americans