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Quick Overview of French Real Estate tax

Rental income and capital gains of French real estate

Taxpayer Basis of tax Tax levied Tax rates
Resident individual

Rental income

Capital gains

Individual income tax

Real estate profit tax

31% - 62.2%

Up to 36.2%

Non-resident individual

Rental income

Capital gains

Individual income tax

Real estate profit tax

37.5% - 62.2%

37.5% - 62.2%

Resident compagny

Rental income

Capital gains

Individual income tax

Real estate profit tax

Up to 31%

Up to 31%

Non-Resident compagny

Rental income

Capital gains

Individual income tax

Real estate profit tax

Up to 31%

Up to 31%

 

 

 

 

 

 

 

 

 

 

 

Rental income

Individuals 

Resident individuals

Introduction

Rental income is taxable as ordinary income and should be disclosed in tax returns on an annual basis.

Basis to tax

Rental profits are determined by the difference between revenues and expenses (régime réel). Nonetheless, it is possible to benefit from a fixed reduction of the tax basis (régime micro). In that case, expenses are not deductible. In consequence, the regime is potentially advantageous if the amount of deductible expenses provides a worse result than the reduction of basis.

If the estate is rented without furniture, then:

  • For income of less than €15,000 it is possible to opt for taxation on 70% of the income (régime micro).
  • Otherwise, all of the income is taxed after deduction of the expenses (régime réel).

If the estate is rented furnished, then:

  • From less than €70,000 it is possible to opt for taxation on 50% of the income
    (régime micro);
  • Otherwise, all of the income is taxed after deduction of the expenses (régime réel).

Rate

The progressive rates of personal income tax are applicable, from 0% to 45% (the latter being applied to very high incomes) plus 17.2% of social contributions.

Non-resident individuals

Non-residents are taxed at a minimum rate of 30% of income tax. The social contributions are reduced to 7.5% instead of 17.2% for non-residents who pay social security in a European Economic Area member state.

Resident Companies

Introduction

Rental income is taxed as business income.

Liability to tax

Rental income earned by companies is subject to corporate income tax as business income.

The French corporate income tax applies to companies that have an active business in France (companies established in France and foreign companies’ permanent establishment located in France). The French corporate income tax also applies to benefits for which taxation is attributed to France by tax treaties.

Basis to tax

For 2019, business income up to € 500,000 is subject to tax rate of 28%. Profits of more than € 500,000 are subject to a rate of 31%. A specific reduced corporate income tax rate of 15% exists for small and medium business and applies up to € 38,120.

Capital gains

Resident individuals

Introduction

Capital gains on the sale of real estate are taxed at a fixed rate after application of an allowance, depending on the holding period of the estate (see below).

Basis of tax

Capital gains may be partially taxed according to the holding period.

Fixed corrections must be applied to the operation (in absence of justification for actual costs incurred):

  • Fixed 7.5% for acquisition expenses must be added to the acquisition price;
  • Fixed 15% for works must be deducted from the cession price.

Exonerations

The sale of the main residence is exempted from tax.

The first sale of a residence in order to invest the capital gain into the acquisition of a main residence is also exempted.

Otherwise the allowance is a reduction of the tax basis, of a certain percentage as follows:

Holding period Percentage of basis reduction applicable yearly
For income tax For social contributions (Social Security Code)
Less than 6 years 0% 0%
From 6th year to 21st year 6% 1.65%
22nd year completed 4% 1.6%
Beyond 22nd year Total exoneration 9%
Beyond 30th year Exoneration Exoneration

 

Rates

Capital gains are taxed at a fixed rate of 19% plus 17.2% (social contribution on patrimony revenues).

Additional rate of 2% to 6% applies to capital gain exceeding € 50,000.

Non-resident individuals

Non-residents are treated the same way as residents. There is an exception for non-residents who pay social security in an EEE member state: social contributions are reduced from 17.2% to 7.5% (prélèvement de solidarité).

Non-residents must appoint a tax representative in France if the sale price exceeds € 150,000, unless the holding period was 30 years or more (tax treaties can suppress that rule).

Companies

Introduction

Capital gains and losses realised on fixed assets by companies liable to corporate income tax are taxable as business income in accordance with ordinary law.

Liability to tax

As described above, for 2019, business income up to € 500,000 is subject to a tax rate of 28% and profits above are subject to a tax rate of 31%. A specific reduced corporate tax rate of 15% applies for small and medium business up to € 38,120 of benefits.

A specific reduced tax rate applies in certain circumstances:

  • Capital gains on real property realised by listed real estate investment companies (French “SIIC”) are subject to a tax rate of 19%.
  • Capital gains on the sale of professional premises converted into dwellings, or building land on which dwellings are built, are subject to a reduced tax rate of 19%.

French VAT & transfer taxes

Taxpayer Basis of tax Tax levied Tax rates (2019)
Resident individual

Rental income

Transfer of real estate services

Value Added Tax

Transfer Taxes

20%

Up to 5.70%

Non-resident individual

Rental income

Transfer of real estate services

Value Added Tax

Transfer Taxes

20%

Up to 5.70%

Resident company

Rental income

Transfer of real estate services

Value Added Tax

Transfer Taxes

20%

5%- 5.09%

Non-Resident company

Rental income

Transfer of real estate services

Value Added Tax

Transfer Taxes

20%

5%- 5.09%

Value Added Tax

Individuals 

Introduction

Value added tax is a tax based on the increase in value of a product or service at each stage of the supply the chain.

Liability to tax

If a company or an individual performs commercial or professional activities in France, it will be in principle subject to the VAT.

The supply and lease of buildings within 5 years of its creation, as well as land plot transfers, are subject to VAT at a rate of 20%. The supply and lease of old immovable property (buildings after 5 years of its creation) are in principle exempt of VAT. However, when the sale is realised by a professional liable to VAT (either company or individual), an option to VAT is possible. The same rules apply in case of transfer of property rights on immovable property (bare ownership, usufruct, etc).

Basis of tax

VAT is in principle paid by the seller at a rate of 20%.

Interaction with transfer tax

In principle, if VAT is charged because a newly created building is sold within five years after it is built,
or in case of VAT’s option, the transfer of the real estate is subject to transfer tax at the reduced
rate of 0.70%.

The same rules as for individuals apply to companies.

Transfer Taxes

Individuals

Introduction

Transfer tax is a tax on any transfer of real estate or real estate company’s shares. Rights on real estate are assimilated to real estate.

Liability to tax

The transfer of real estate located in France or abroad is subject to transfer tax if it is carried out by a French tax resident. Transfer tax applies only to the transfer of French real estate if carried out by a non-resident.

Basis of tax

The basis of tax is the price if the real estate is transferred against payment and the market value in other cases.

Rate

The rate is 5.09 – 5.80% for real estate located in France (variable according to where it is located) and 5% for real estate located abroad.

Inheritance / gift tax

Inheritance and gift tax are levied at progressive rates between 5% and 45% between relatives in direct line (parents / children) after application of an allowance of € 100,000 per parent, per child.

Companies

The same rules apply as for individuals.

French Local taxes

Taxpayer Basis of tax Tax levied Tax rates
Resident individual Market value Municipal Tax Depend on the municipality
Non-resident individual Market value Municipal Tax Depend on the municipality
Resident company Market value Municipal Tax Depend on the municipality
Non-Resident company Market value Municipal Tax Depend on the municipality

Individuals

Introduction

Taxe foncière (tax on ownership of real estate) is a communal tax on the ownership of real estate.

Liability

Ownership of a real estate on 1 January of the year considered makes one liable to this tax for
the entire year.

Rate

The rates are fixed by municipalities.

Companies

Introduction

The Local Economic Contribution is a local tax based on two components: The Business Premises Contribution (French “Contribution Foncière des Entreprises (CFE)”) and the contribution on the company’s value-added amount (French “Contribution sur la valeur ajoutée des entreprises (CVAE)”). The latter will not be developed because it is not a real-estate-based component of the tax.

Liability to tax

Business Premises Contribution applies to any habitual professional self-employed activities realised in France are subject to Business Premises Contribution any lease and sublease activities on immovable properties. The reference period is the penultimate year preceding taxation or, if the fiscal year does not coincide with the civil year, the last fiscal year of 12 months.

Basis of tax

Business Premises Contribution is based on the rental value of real estate properties liable to French property tax (“taxe foncière”) owning by the company within the referential period. The Business Premises Contribution base is composed of the rental value (less 30% for industrial establishments) which the taxpayer used for business purposes during the reference period. The business premises contribution is calculated by multiplying the tax base (less reductions and allowances) by the rate fixed by each commune.

French net Wealth/ worth taxes

Taxpayer Basis of tax Tax levied Tax rates (2019)
Resident individual Net value of real estate Individual income tax 0.5 to 1.5%
Non-resident individual Net value of real estate Individual income tax 0.5 to 1.5%
Resident company Not applicable Not applicable Not applicable
Non-Resident company Not applicable Not applicable Not applicable

Individuals

Introduction

A wealth tax (impôt sur la fortune immobilière, IFI) is levied on the holding of real estate only by individuals (it was levied on the total wealth including movable property, before 2018).

Liability

Resident individuals are subject to this tax when their worldwide net real estate wealth exceeds €1.3 million. Non-resident individuals are subject to this tax when their French net real estate wealth exceeds € 1.3 million.

The net real estate wealth is constituted by the difference between the market value of the estates and the deductible expenses (e.g. interests of a loan).

Basis of tax

Value of real estate exceeding € 800,000.

Rates

Progressive rates from 0.5% to 1.50%.

Vehicles for French real estate

Commonly used vehicles for French real estate

Limited

The so called “SARL”, the French limited liability company (société à responsabilité limitée), is the most frequently used vehicle for the ownership of French real estate. The equity is divided into shares and the shareholders of the SARL are not personally liable for the business debt. Profits made by the SARL itself are subject to the corporate income tax at a normal rate.

Partnership and joint ventures

Investments in real estate are often done on a collective basis by some of the entities and/or individuals. For French tax purposes, there is no distinction between taxation of partnerships and joint ventures.

Limited partnership

A typical limited partnership is the SAS (“Société par Actions Simplifiée). The SAS shares are held by two types of shareholders, the managing partners and the limited partners. The managing partners bear unlimited liability, while limited partners are only liable with the amount of their capital’s contribution. The SAS is usually used for its flexibility.

The SAS is treated as a corporate entity for tax purposes and subject to corporate income tax at a rate of 15% / 28% / 31%. An option for the French personal income tax regime is possible for small and medium enterprises. If the option is applied, the SAS is treated as a transparent entity for tax purposes.

Transparent partnership

Partnerships can be structured as tax transparent entities. The profits and losses will hereby be allocated directly to the partners.

Foreign partnership

The residence of a partnership is determined by the place where the crucial decisions are made. Usually, the residence is the place where all partners meet. If a foreign partnership carries a permanent establishment in France, the benefits realised through this establishment are liable to corporate income tax in France, or the partners or subject to French personal income tax. French real estate will usually lead to a permanent establishment in France, but this is not the only possibility.

Trust

The concept of trust is not recognised under French law. However, the French “fiducie” regime is very much alike. The term “fiducie” take its roots in the latin “fidus” meaning “trustworthy”. The French “fiducie” is subject to transfer taxes (or to VAT if the settlor is subject to VAT) and property taxes. Its benefits are taxable at settlor’s level at corporate income tax (if the settlor is a company) or at personal income tax (if the settlor is an individual).

If any of the settlor, the trustee or the beneficiary is a tax resident of France, a declaration of constitution of trust must be made by the trustee stating the identity of the settlor(s) and beneficiary(ies), the contents of the contract and the functioning rules of the trust.

An annual statement must be made:

  • If any of the settlor, the trustee or the beneficiary is a French tax resident: a detailed inventory of everything contained in the trust must be provided by the trustee;
  • If none of the settlor, the trustee nor the beneficiary is a French tax resident: a detailed inventory of all French goods and rights must be provided.

Specific advice should be taken when considering creating and using a trust.

Specific real estate vehicles for French real estate

Sociétés civiles immobilières de location (real estate rental company)

This type of company is generally chosen by individuals to manage their real estate. It is a patrimonial structure, opposed to professional / commercial company.

This type of company can be subject either to:

  • Personal income tax: by default, the company does not pay corporation tax, but the benefits or losses are taxed directly in the hands of the associates, at the personal income tax (tax transparency). See “Rental income” for taxation of the benefits;
  • Corporation tax: the company can opt for corporate income tax.

Sociétés d’investissement immobilier cotées (listed real estate investment companies)

These companies aim at buying and building real estate in order to give it to rent. They can opt for an exemption of corporate income tax on the fraction of benefits corresponding to rental income, capital gains, and dividends from subsidiaries. This type of company has very special rules. The option for this type of structure requires deep analysis.

Organismes de placement collectif immobilier (OPCI) (real estate investment funds)

Sociétés de placement à prépondérance immobilière à capital variable (real estate investment company with variable capital)

These companies are exempted from corporate income tax. They are exonerated from the 3% tax on immovable property. The income of these shares cannot benefit from the dividend allowance of 40% but the income is treated as a dividend nonetheless. It is consequently submitted to the progressive rate with the global income (rate from 14% to 45%). The capital gains on these shares are treated as capital gains of investment.

Fonds de placement immobilier et fonds professionnels de placement immobilier (real estate funds)

They don’t have legal personality, so they are exonerated from corporate tax. The incomes collected by these funds keep their nature (unfurnished rental income, commercial income if rented furnished, dividends if they own shares in other real estate companies, capital gains, etc.) and are taxed in the corresponding category in the hands of the individual taxpayer, meaning it is submitted to the progressive rates of income tax (14% to 45%).