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When buying a property in France as a rental investment, it is essential to take into account the taxation regimes applicable to rental properties. Among those available to the buyer, the para-hotel regime allows value added tax (VAT, or TVA in French) to be reclaimed upon completion of the acquisition. Whilst this is clearly a potentially advantageous tax break, specialist knowledge is required to properly assess all the implications, especially those pertaining to taxation.
The para-hotel regime applies to furnished rentals where, in addition to the property itself, at least three of the following services are also provided :
It is not sufficient for the owner to simply declare that he or she is offering these services, they must actually be provided, and this may be the subject to verification by the tax authorities.
In effect, these services must be provided in a similar manner to those typically offered by hotels.
A para-hotel rental is more than a simple furnished rental, and the furnished rental taxation regime is therefore not applicable.
When an owner of a furnished rental property becomes a para-hotel operator, he or she becomes liable for VAT on income from the additional services provided as well as from the property rental itself. This liability entails additional reporting and accounting requirements.
Eligibility to reclaim VAT depends upon the type of property being acquired:
► Offered for sale off-plan
► Newly built or less than five years old, and sold via a professional agent
► Re-sold by an owner who has reclaimed the VAT on their initial Investment
It is also possible to reclaim VAT on the cost of renovations if these can be classified as ‘major’ according to the applicable criteria of the tax regime.
There is also a time commitment. To be eligible to reclaim the VAT due on the purchase price, an owner must commit to renting the property out for a minimum of 20 years. If this commitment is not met, the tax authorities may demand repayment of the reclaimed VAT, proportinate to the actual duration of any para-hotel rentals.
By way of illustration, if a property is bought off plan for 850,000 Euros excluding tax, the amount of VAT at 20% will be 170,000 Euros. This sum may be reclaimed at the time of acquisition or calls for funds.
Understanding the para-hotel regime and the rules for reclaiming VAT is crucial for optimising your rental investment. In light of the complexity of the taxation rules and the potential implications for your finances, it is strongly recommended that you engage the services of a taxation specialist to carry out a detailed analysis of your particular circumstances.
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