Property Ownership in France
The most common types of investment property ownership in France by Irish individuals are as follows:
- Leaseback Property
- Privately Let Furnished Property (Short-Term Rentals)
- Privately Let Unfurnished Property (Long-Term Rentals)
The Tax Regimes that can apply are as follows
- Régime “simplifié d’imposition” (BIC) (Leaseback / Furnished Only)
- Micro-Regime (BIC) (Furnished Only)
- Régime du Micro Foncier (Unfurnished Only)
- Régime réel des revenus fonciers (Unfurnished Only)
- Income Tax – Regime Simplifié D’imposition BIC (See below)
- French VAT – None (Deducted at Source) or Annual VAT Return
This is a Unique Scheme developed by the French government to encourage quality development in tourist areas. Investors buy a freehold property and at the same time sign a commercial lease contract with a property management company who will rent it for short term rentals for a pre-determined, renewable period of generally 9 – 11 years.
The main aspects of the scheme are:
- The property must be used as holiday accommodation for at least 20 years and leased for a given period of time.
- In return, investors are entitled to a French Value Added Tax (“VAT”) refund on the purchase price, provided that French VAT has been charged to the investor. VAT is normally charged on new French properties.
- The refund is claimed by either purchasing the property at its net price (whereby the developer pays the VAT on your behalf) or by receiving a VAT rebate on the purchase price.
- A commercial lease is signed with a Management Company which will yield a guaranteed return for the duration of the lease contract.
- Income Tax – Micro-Regime or Regime Simplifié D’imposition BIC (See below)
- French VAT – Not Applicable
If you privately own property in France that you let either through your own advertisements of through the use of an agency, you are taxed in much the same way as the leaseback property owner however, you are not obliged to account for VAT and you can opt to use the micro regime.
- Income Tax – Regime du Micro Foncier or Regime Reel des Revenus Fonciers
- French VAT – Not Applicable
Where a French property is let privately and is unfurnished a different set of rules apply than to that of a Leaseback or Privately Let Furnished property. However, again there are two different methods to tax your rental income – Regime du Micro Foncier and the Regime Reel Des Revenus Fonciers.
TAX REGIMES – Leaseback / Furnished – French Income Tax
Régime “simplifié d’imposition” (BIC)
The advantage of using the Régime “simplifié d’imposition” is that you are entitled to deduct actual expenses incurred in the year of assessment (provided they are allowable under French legislation) and you may be entitled to a depreciation allowance on the property.
Allowable expenses would include:
- Agency fees
- Local taxes paid (Taxe Fonciere / Taxe d’Habitation)
- Certain travel expenses (wholly and exclusively related to the property)
- Mortgage interest
- Life assurance
- Bank charges
Under this regime you are also entitled to deduct a depreciation allowance on the cost of your property (i.e. the building) and for any furniture expenditure.
The depreciation allowance is between 2.5% (over 40 years) and 3.33% (over 33 years) of the cost of the building per annum and the furniture is depreciated at 10% (over 10 years) per annum.
Note: You cannot create a loss with depreciation however it can be carried forward to set off against future liabilities.
Under the Micro-Regime you are entitled to take a standard deduction from your French rental income to arrive at your net income.
The net income is then taxed. Income Tax Rate at present are 20% for income tax and 15.5% for Prelevment Sociaux. You will always pay some tax using this method; however you are not required to keep receipts for any expenses i.e. the deduction is available no matter what your expenses are. In this regard, this method is typically used where:
- You do not have a French mortgage on your property
- Your rental income is very low
- You did not incur many expenses in the period
- You plan on selling the property between 5 years and 15 years of ownership
TAX REGIMES – Unfurnished – French Income Tax
Régime du Micro Foncier
Where Income is less than €15,000 per annum, you can choose to deduct from the rents a flat deduction and then the remainder is taxed. The net income is then taxed. Income Tax Rate at present are 20% for income tax plus an additional 15.5% for Prelevment Sociaux.
Note: Even where your rents are under €15,000 you can still opt for the other taxation regime 2 below if you prefer.
Régime réel des revenus fonciers
Where Income is greater than €15,000 per annum, you must tax your income using this method (i.e. you cannot opt for the flat deduction).
In this method you can deduct actual allowable expenditure from the rental income however not all items are allowable and therefore an assessment of your expenditure must be carried out to determine what is allowable.
In some cases you are also entitled to a depreciation deduction on the property, however strict rules apply and therefore you will not be afforded the deduction unless your property meets certain criteria.
The net income is then taxed. Income Tax Rate at present are 20% for income tax plus an additional 15.5% for Prelevment Sociaux.