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Selling and Transferring French Real Estate

DIRECT SALE OF REAL ESTATE

Resident individual

Capital gain

Introduction

Capital gains on the sale of real estate are taxed at a fixed rate after application of an allowance, depending on the duration of detention of the estate.

Liability to tax

The sale of real estate property.

Basis of tax

Capital gains may be partially taxed according to how long the estate was owned.

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

Exemptions / reductions from taxation are available depending on the nature of the real estate investment or holding period.

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.

VAT / transfer tax

No VAT is ever due by the vendor of real estate.

Losses

Losses on the sale of real estate cannot be imputed on capital gains of the same nature. There is a no compensation principle.

Non-resident individual

Non-residents are treated the same way as residents. There is an exception for non-residents who pay social security in a European Economic Area member state: social contributions are reduced from 17.2% to 7.5%.

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

Resident company

Capital gains

Capital gains on French real estate realised by companies are subject to French corporate income tax as business income.

A reduced tax rate of 19% applies to capital gains realised by French SIIC (French listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value.

VAT/transfer taxes

The supply and lease of real estate is generally exempted from VAT. An option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%. VAT is always charged if a building is sold within 5 years after it was built.

Transfer taxes apply by the acquisition of the legal or economic ownership of French real estate and is normally payable by the purchase. The market value of the immovable property constituted the basis of the transfer tax. The transfer tax rate amounts to 5.09% in general cases.

Losses

The losses realised on the sale of the real estate may be offset against taxable income. A loss carry-forward is also possible.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is limited taxable in France with the income generated in France.

INDIRECT SALE

Resident individuals

Capital gains

The sale of shares is subject to tax on capital gain. The gain is subject to a flat tax of 30% or to the progressive rate with an allowance (50% to 85%, depending on how long a person owned the titles).

If a company is said à prépondérance immobilière (consisting in more than 50% of real estate) and subject to income tax, the sale of its shares is treated like the capital gain on direct sale of real estate.

Deferral of tax

If an individual contributes with shares of a company A to the capital of a corporate-tax company B which they control, the tax payment is deferred, but the tax is calculated at the time of the operation.

If an individual contributes with shares of a company A to the capital of a corporate-tax company B which they do not control, the payment and determination of the capital gain are deferred. The operation of contribution to the capital of company B is neutral in terms of tax and the capital gain will be determined by the difference between the cession price of company B’s shares and the acquisition price of company A’s shares.

Losses

If the sale concerns shares of a company which is not “real estate company” (à prépondérance immobilière, i.e. consisting of more than 50% of real estate) or à prépondérance immobilière subject to corporate tax, the regular regime of capital gains on shares is applicable and the losses can be imputed on same type revenues (capital gains on shares). If the sale concerns shares of a company which is à prépondérance immobilière (consisting of more than 50% of real estate) and subject to income tax, the regime of capital gains on the sale of real estate applies, meaning it is impossible to impute the losses even on same type revenues.

Non-resident individual

Non-residents are treated as residents, exonerations are very rare.

Resident company

Capital gains

Capital gains realised on the sale of the shares of a French company are subject to French corporate income tax as business income.

A reduced tax rate of 19% applies to capital gains realised by French SIIC (listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value

VAT/transfer taxes

The supply and lease of real estate is generally exempted from VAT. An option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%. VAT is always charged if a building is sold within 5 years of its creation.

Transfer taxes apply by the acquisition of the legal or economic ownership of French real estate and is normally payable by the purchase. The market value of the immovable property constituted the basis of the transfer tax.

Transfer taxes apply at a rate of 5%.

Losses

The losses realised on the sale may be offset against taxable income.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is limited taxable in France to the income generated in France.

DIRECT TRANSFER INTRA CONCERN (FRENCH REAL ESTATE TO FRENCH COMPANY)

Resident Company

Capital gains

Capital gains on French real estate realised by companies are subject to French corporate income tax as business income.

A reduced tax rate of 19% applies to capital gains realised by French SIIC (listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value

VAT/transfer taxes

The supply of real estate is generally exempted from VAT. However, VAT is charged if a new building is sold within 5 years after its creation. Nevertheless, an option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%.

Transfer taxes apply at a rate of 5%.

Losses

The losses realised on the sale of the real estate may be offset against taxable income. A loss carry-forward is also possible.

Fiscal unity

Under French law, it is possible to form a fiscal unity if the holding company owns 95% of the shares in its subsidiaries. A fiscal unity can only be formed in case both of the entities are French residents. The intra-group transactions are neutralised for tax purposes. Thus, the transfer of real estate within a fiscal group are not visible for tax purposes and not subject to tax. However, it exists certain anti-abuse rules in case the fiscal unit will be broken after transferring the real estate.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is limited taxable in France with the income generated in France. A foreign company cannot be part of a fiscal group; however, it is possible to form a fiscal group with a foreign company’s permanent establishment. Various conditions apply.

INDIRECT TRANSFER INTRA CONCERN (FRENCH REAL ESTATE TO FRENCH COMPANY)

Resident company

Capital gains

Capital gains realised on the sale of the shares of a French company are subject to French corporate income tax as business income.

A reduced tax rate of 19% applies to capital gains realised by French SIIC (listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value

VAT/transfer taxes

The supply of immovable property is generally exempted from VAT. However, VAT is charged if a new building is sold within 5 years of its creation. Nevertheless, an option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%. Transfer taxes are due by the purchaser and amount to 5.09% in general cases and to 5% for transfer of SIIC’s shares.

Fiscal group

Under French law, it is possible to form a fiscal unity if the holding company owns 95% of the shares in its subsidiaries. A fiscal unity can only be formed in case both of the entities are French residents. The intra-group transactions are neutralised for tax purposes. Thus, the transfer of real estate within a fiscal group are not visible for tax purposes and not subject to taxation. However, its certain anti-abuse rules exist in case the fiscal unit will be broken after transferring the real estate.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is subject to limited taxation in France in respect of the income generated in France. A foreign company cannot be part of a fiscal group. However, it is possible to form a fiscal group with a foreign company’s permanent establishment (various conditions apply).

DIRECT TRANSFER INTRA CONCERN (FRENCH REAL ESTATE TO FOREIGN COMPANY)

Resident company

Capital gains

Capital gains realised on real estate are subject to French corporate income tax as business income.

A reduced tax rate of 19% applies to capital gains realised by French SIIC (listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value

VAT/transfer taxes

The supply of real estate is generally exempted from VAT. However, VAT is charged if a new building is sold within 5 years of its creation. Nevertheless, an option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%.

Transfer taxes are due by the purchaser and amount to 5.09% in general cases and to 5% for transfer of SIIC’s shares.

Losses

The losses can be offset against other taxable French income.

Fiscal unity

A foreign company cannot be part of a French fiscal group.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is subject to limited taxation in France in respect of income generated in France.

INDIRECT TRANSFER INTRA CONCERN (FRENCH REAL ESTATE TO FOREIGN COMPANY)

Resident company

Capital gains

Capital gains realised on the sale of the shares of a French company are subject to French corporate income tax as business income.

A reduced tax rate of 19% applies to capital gains realised by French SIIC (listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value.

VAT/transfer taxes

The supply of immovable property is generally exempted from VAT. However, VAT is charged if a new building is sold within 5 years of its creation. Nevertheless, an option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%.

Transfer taxes are due by the purchaser and amount to 5.09% in general cases and to 5% for transfer of SIIC’s shares.

Losses

The losses can be offset against other taxable French income forward and backward.

Fiscal unity

A foreign company cannot be part of a French fiscal group.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is subject to limited taxation in France in respect of the income generated in France.

A foreign company cannot form a fiscal group for French tax purposes but can indirectly be a member of the group relief (through French permanent establishment).

TRANSFER OF FRENCH REAL ESTATE TO AN EU-COMPANY

Individuals

The transfer of French real estate to an EU-company is the same treatment as the transfer of French real estate to a French company. This transfer is assimilated for tax purpose to a sale, therefore it triggers all the tax due by a such operation.

Resident individuals

VAT / transfer tax

No VAT is ever due by the vendor of real estate.

Losses

Losses on the sale of real estate cannot be imputed on capital gains of the same nature. There is a no compensation principle.

Non-resident individuals

The same treatment applies to non-residents.

Companies

Resident company

Capital gains

Capital gains realised on the sale of the shares of a French company are subject to French corporate income tax as business income. A reduced tax rate of 19% applies to capital gains realised by French SIIC (listed real estate investment companies) and to capital gains realised on the sale of professional premises converted into dwellings or building land on which dwellings are built.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value

VAT/transfer taxes

The supply of immovable property is generally exempted from VAT. However, VAT is charged if a new building is sold within 5 years of its creation. Nevertheless, an option for VAT is possible for sellers who are liable for VAT purpose (French “assujettis”). Thus, the input VAT should be deductible. The applicable VAT rate is 20%.

Transfer taxes are due by the purchaser and amount to 5%. The transfer tax is not deductible from the profits as business cost but is part of the acquisition costs for tax purposes.

Losses

The losses can be offset against other taxable French income.

Fiscal unity

A foreign company cannot be part of a French fiscal group.

Non-resident company

Non-resident companies are treated in the same manner as resident companies. However, the non-resident company is subject to limited taxation in France in respect of the income generated in France.

 

 

This report has been produced in conjunction with Nyenrode Business Universiteit

RSM is the brand used by a network of independent accounting and consulting firms, each of which practices in its own right. The network is not itself a separate legal entity of any description in any jurisdiction. The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ. ­The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.

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