French Taxation

Being owner of a priority in France

France is one of the most popular tourist destinations. It is also very attractive to non-resident real estate investors. Nevertheless, the administrative, legal and fiscal aspects represent concerns to foreign investors.

Our goal is to advise you and accompany you throughout your project on these points.

When you purchase a property, there are several steps:

• Offer to purchase / bid
• Signature of the sales agreement (payment of 5% to 10% of the purchase price)
• Cancellation period of 10 days (the purchaser has the right to cancel the purchase without paying any compensation)
• Possibly obtaining a loan, if required
• About 2 months for signature of the authentic deed in the presence of the notary (payment of the selling price and handing over of keys)

Concerning the notary fees, only the purchaser is liable. The total cost represents approximately 7 % of the purchase price

Calculation of notary fees

Only the buyer is subject to notary fees. These, coupled with registration fees (also called transfer duties), amount to, on average, 7% of the overall selling price of the property.

In the context of new real estate, it is possible to benefit from reduced notary fees in comparison with older properties. Notary fees represent only 2 to 3% of the sale price for a house, chalet, or apartment that is new or less than 5 years old.

Under the umbrella heading of “notary fees”, we can in fact find a set of fees that consist of:

• 80% taxes and levies intended for the State and local authorities
• 10% of disbursements, i.e. sums advanced by the notary for the costs related to the documents
• 10% remuneration of the notarial office, made up of regulated tariffs called “emoluments” as well as fees set by the notary according to their own policies
• 0.1% land registration

Real estate VAT: 20% of the price of the new property

According to the General Tax Code, real estate VAT applies to building land sold by a professional, to buildings for sale, to certain collective social housing, and to new and off-plan properties. In VEFA (sale in the future state of completion), it is to be paid over the collection of the total purchase price. In some cases, this amount is recoverable.

UNDERSTANDING VAT RECOVERY

The Pinel system

From January 2021 until 2024, the PINEL system is reserved for investments made in collective residential buildings. It facilitates the acquisition of new, off-plan or old apartments to be completely rehabilitated, and focuses on areas where the real estate supply has the highest demand

zone A, A bis et B1 OF THE TERRITORY

French households are thus entitled to a tax reduction of up to €300,000 per year, with a limit of €5,500 per m².

This system facilitates rental investments by both individuals and SCIs. However, it is subject to many conditions:

• The apartment must be rented unfurnished for at least 6, 9, or 12 years (the longer the rental term, the more generous the tax reduction rate will be).
• It must be rented to a household with modest resources, according to a set ceiling.
• The rental price is capped by law.

When to create an SCI?

An SCI (for Société Civile Immobilière) is an attractive solution for acquiring real estate as a group. Each contributor will receive shares that are proportional to their investment.

This structure also facilitates the transmission of assets, as its members can transfer shares to each other. An SCI also provides an allowance in the event of resale of the property or donation to an heir.

It may be subject to income tax (IR) or corporation tax (IS). This last option will make it possible to deduct certain charges and depreciation, such as work carried out for the renovation of the accommodation or rental management costs, for example.

Tax exemption: LMNP status for furnished rentals

The status of a non-professional furnished rental company is a real estate tax exemption system. It is only accessible to individuals who rent furnished accommodation for short periods subject to a particular set of conditions:

• The income from your holiday or short-term rental is less than €23,000 per year
• Your collected rents do not represent more than half of the income of your tax household subject to income tax.

As a non-professional furnished rental company, if your rental income is greater than €72,500, you will be taxed under the simplified scheme. Under this scheme, many expenses such as renovation and insurance costs are tax deductible.

Below this threshold, it is preferable to opt for the micro-BIC scheme, unless you are undertaking work on the rental accommodation. Indeed, the micro-BIC scheme entitles you to a tax reduction of 50% on taxable income from a furnished rental (71% for income from tourism real estate).

Taxation of rental income

When you rent a good during the season, two plans are applicable: the flat-rate plan and the actual plan. The profits are taxed:

• According to the prevailing rate for French residents + social security contributions up to 17.2%
• According to a minimum rate of 20% for non-residents + social security contributions up to 17.2%

Capital gains on the property

The taxation of the real estate capital gain is determined as follows:

• Selling price - acquisition price = gross capital gain
• The net capital gain is determined after the deduction of the allowances for the period of possession of the property, according to the table below.

The tax rates are as follows:

• 19% of income tax + additional taxes of 2% to 6% + social security contributions of 17.2%

Inheritance in France

Transferring your assets

• Are you subject to French civil law? (inheritance law)

The law that applies is the law of the last place of residence of the deceased

Unless the deceased has stipulated in a will, that the applicable law must be that of the country of which he/she holds the nationality. French law states that it is not possible to disinherit your children (principle of "hereditary reserve")

The inheritance tax:

• The transmission of your goods is subject to French tax if: 
  • Your last place of residence was in France
  • You own one or several properties in France
  • Your heirs / beneficiaries have resided for at least 6 years in France during the 10 years preceding the inheritance, if there is no tax treaty.