Main rule of VAT:
You can only deduct the VAT if you have previously collected some!
4 important terms for VAT:
• Collected VAT (“TVA collectée”): it is the VAT that you collect on behalf of the French authorities whenever you are invoicing rents, and that must be refunded to the French authorities.
• Deductible VAT (“TVA déductible”): this is the VAT you have paid each time you have purchased something in connexion with your activity.
• VAT credit (“Crédit de TVA”): you have a VAT credit that you can claim back to French authorities when the amount of deductible VAT is higher than the amount of VAT collected.
• VAT due (“TVA à payer”): this is the VAT you have to pay when the amount of VAT collected is higher than the amount of VAT deductible.
VAT rules for leaseback:
When you acquire a newly build property intended to be rented out furnished within a residence with services, 7.0% VAT can be levied on the rent if the owner renounces to the tax exemption of € 76,300.
In France, certain activities are indeed subject to VAT and others are not. Furnished rentals are not subject to VAT as long as they benefit from a tax exemption (“franchise en base”) up to € 76,300 from the French government. However, the owner of the furnished rental property may decide to renounce to this tax exemption and then its activity becomes subject to VAT.
The main advantage of VAT liability is that you can claim back the VAT! And of course claim back the 19.6% VAT on your acquisition price!
• You only have 15 days from the the delivery date of the property or the signing of the deed of sale (whichever is later) to inform the French tax authorities that you renounce to the tax exemption on your furnished rental activity.
• You have two years to claim back your deductible VAT.
This means that, in theory, the tax authorities can refuse to reclaim the deductible VAT if you do not waive the tax exemption within the legal time limit. This is just theory, because in practice this is almost never the case!
• VAT recovery is done quarterly, before the 20th day after the end of the quarter.
You cannot claim the refund until the quarter has finished.
For example, the leaseback property you bought on April 15, 2006, was fully completed on May 15, 2006. If you decide to waive the tax exemption, you have to do it before May 30, 2006, and your claim for a VAT return must not be made until the end of the second quarter of 2006, no later than June 20, 2006.
There is one exception:
For the months of October, November and December, you will be able to apply for the VAT refund at the beginning of the following year, since in this case the VAT is reclaimed through the annual VAT return.
• It should be noted that the VAT refund on leaseback property is not fully acquired until the expiration of 10 or 20 years, depending on the development, as this is the number of years required for the total VAT to be settled.
If the property is sold before the expiry of this period, then a pro-rata of the VAT must be refunded to the French authorities.
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