Thinking about buying property in France? It’s a dream for many, but it can be tricky, especially for non-residents. Mistakes are common and can be costly. Let’s explore the key points and pitfalls to avoid.
There are several ‘major’ topics to address when discussing real estate acquisition:
- Legal Structure of the Acquisition
- Transmission
- Capital Gains Upon Resale
- Taxes and Fees from Ownership
- Tax Regime and Rental Consequences
- Buying New Property with Recoverable VAT
As you can imagine, each topic could be subject to a lengthy article, so we’ll now give you a brief overview of each topic to alert you about the various possibilities and their consequences.
Legal Structure of the Acquisition
The legal structure affects everything from ownership to resale. Here are your options:
You can buy the property:
- in your own name or jointly
- with a company subject to income tax (IR): SCI IR, SARL DE FAMILLE, SNC
- with a company subject to corporate tax (IS): SCI IS, SAS, SARL
- with a foreign legal entity (not recommended)
Each has its pros and cons. It is important to choose the structure that fits your situation and financial strategy best.
However, the idea of buying a French property with a foreign legal structure is NEVER a good idea, and we advise against it under any circumstances. We invite you to watch our dedicated video if you are interested in this topic.
Transmission
Planning to pass on your property to your children? Start early to reduce inheritance tax. It doesn’t cost more than a regular purchase but needs foresight and a chat with a notary.
In some cases, transferring company shares can be a smart move. This is why your acquisition structure is crucial.
Capital Gains Upon Resale
Think about capital gains from the beginning. The structure, ownership, and rental status of your property impact these gains. There are three main regimes:
- Individual capital gains
- Professional capital gains
- Company capital gains under corporate tax
Each regime has different benefits, like allowances and flat-rate costs.
Taxes and Fees from Ownership
Owning property in France comes with taxes, regardless of the way you own the property:
- Property tax, which is called ‘taxe foncière’ in French.
- Residence tax for secondary homes, also called ‘taxe d’habitation’
- Vacant housing tax if exempt from residence tax
- If you rent out the property, you need to pay a contribution on rental income (CFE)
- Real estate wealth tax (IFI) if the value of assets exceed €1.3 million net
While property and residence taxes are unavoidable, you can optimize others, especially CFE and IFI.
Renting Your Property: Tax Regime and Consequences
Do you consider renting out your property? You need to choose a tax regime, register, and declare rental income in France and possibly your home country. Do not worry, tax treaties prevent double taxation!
Your legal structure affects how rental income is taxed. Options include:
- Revenus fonciers
- Micro BIC
- LMNP under the régime réel (if in your name)
Each has its own rules regarding accounting and tax obligations. Property depreciation affects taxes in both France and your home country.
Buying New Property with Recoverable VAT
Buying new with recoverable VAT? It sounds great to reclaim VAT when purchasing your dream home in France, but comes with strings attached. You must collect VAT on rents for 20 years and meet accounting and tax obligations, including para-hotel services. We encourage you to watch our video about this subject.
One last point concerns property tax, which can be exempt for 2 years if certain formalities are met – always good to know, isn’t it?
Conclusion
The purpose of this article is to alert you to the various subjects to consider before purchasing a property in France, and to be aware of the tax consequences.
Buying property in France involves many interconnected factors. Make informed choices to maximize your investment. Contact us for help navigating the complexities and optimizing your purchase.