Non-residents are taxed in France on income arising from French sources only. You are considered tax resident in France if you spend at least 183 days there per year or if your main resident home is located in France. Likewise if your centre of economic interest (business) is located in France you will be deemed resident in France for tax purposes (domicile fiscal).
You will also be obliged to file a tax return detailing your worldwide income in your home (tax resident) country.
Where a double taxation agreement exists between France and your home country, which provides for double taxation relief, then a deduction for tax paid in the foreign country can be offset against tax on the same income in your home country.
Tax on purchase:
French Land Registry taxes are 0.715% of the property value (for new property) and 5.09% (for existing property). In addition there are other purchase taxes e.g. mortgage registration fees.
VAT (TVA) rate in France is charged at 21.2% (previously 19.6%) on new property purchases. It may be possible to claim this back where a leaseback agreement is in place. A rate of 7% (previously 5.5%) applies to rents.
Ongoing property taxes:
A French Rental Income tax return must be filed by 30 June after the year end for non-residents (31 May for residents). French Income Tax is payable at progressive rates on income after allowable deductions for expenses incurred in connection with letting/maintaining the property.
Furnished and Unfurnished, leaseback and SCI properties are treated differently for tax purposes.
Unfurnished Property
Unfurnished property is taxed on income less allowable expenses and is regarded as Non-Commercial property (Regime reel des revenues Fonciers). Non-residents can benefit from a simplified scheme (Regime du Micro Foncier) – where income is < €15,000, a deduction of 30% for related costs is permitted in arriving at taxable income which is then taxed at a flat rate of 20%.
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Income < €15,000
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MICRO REGIME
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REGIME REEL DES REVENUE FONCIERS
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Income > €15,000
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MICRO REGIME
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REEL NORMAL REGIME
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Furnished Property
Furnished property is treated as Commercial property. Non-residents have a choice in the method they use. Where income < €83,200 (2012) a deduction of 71% for related costs is permitted in arriving at taxable income and net income is taxed at 20% (Micro Regime). For income > €83,200, or where you choose to opt out of the simplified scheme, tax is calculated on an actual receipts/costs basis and gross income is taxed at 20% (Regime Simplifie d'imposition). Note this threshold / flat rate deduction applies to owners of rural gites, résidences de tourisme and chambres d'hôtes. For all other landlords of furnished accommodation the allowance is 50% against earnings and the maximum turnover limit is €33,300 (2012) per annum.
The French Leaseback property scheme was created by the French government to encourage investment and development in tourist regions throughout France. Property bought through a leaseback scheme involves a contract between the investor and a property management company who will manage and rent the property for a fix period of 9 to 11 years. This contract can be renewed at the end of the period should the investor still own the property. The main characteristics of a leaseback scheme are that the property must serve as a holiday accommodation for at least 20 years and where French VAT is charged on the purchase price of the property it can be claimed back. In this case, you need to account for 5.5% VAT on the rental income. French rental income from a leaseback contract under € 83,200 pa (2012) falls under the Regime Simplifie d’imposition (BIC) and full deductions on costs incurred and property depreciation allowance may apply. A French rental income tax return & VAT return must be filed annually when purchasing property under the Leaseback scheme.
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Income < €83,200
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MICRO REGIME
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REGIME "SIMPLIFIE D'IMPOSITION"
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Income > €83,200
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MICRO REGIME
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REEL NORMAL REGIME
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French Wealth Tax (ISF) applies to non-residents where their asset value is in excess of €800,000 for 2011 (€1.3m proposed from 2012). Tax rates depend on the type of property (antiques & works of art are exempt) and range from 0.55% to 1.8% for 2011 (0.75%-1.8% from 2012) of the value of the property. A deduction against this value is allowed for any outstanding debt (capital) on the property. The Return must be filed before the 15th July (for non-residents in the EU, 1st Sept for non-EU residents) each year.
Social charges for non-resident property owners
Non-residents have so far been exempt from social charges, which were introduced to fill a social security gap. In 2012 the French Government unexpectedly announced plans to levy this tax on their income and gains from French property. This would increase the total tax liability on rental income from 20% to 35.5%, and on gains from 19% to 34.5% (for EU residents).
3 Local property taxes apply in France:
These are based on the rateable value of the property and vary per region. 2009 saw a significant increase in local property taxes, the average increase was 6.1% but some areas eg. Nice saw rates increase by 17%.
Local taxes include:
Taxe Fonciere – generally paid by the owner of the property (though it can be arranged to be paid by occupant/tenant). It includes tax on land/buildings. Allowance available depending on property type of between 20% and 50%. For non-residents, it is proposed that, from 2012, there will be a new annual 20% tax rate on the valeur locative cadastrale (the letting value). It is payable whether or not it is actually rented. This can be regarded as a tax hike on the current annual taxe d'habitation and taxe foncière.
Taxe d’Habitation – paid by the occupant/tenant of the property if rented on a long term (1 year) lease. Otherwise paid by the owner.
Ordures Menageres – annual local tax charged separately for refuse collection.
Transfer Taxes:
French Capital Gains Tax (CGT) on the sale of property is charged @ 19% of the gain if you live in the EU (33.3% if outside the EU). There is a reduction factor applied @ 10% for each year that you own the property after the first 5 years. No CGT is payable if sold after 15 years. Non-residents have so far been exempt from social charges, which were introduced to fill a social security gap. In 2012 it was unexpectedly announced that there may be plans to levy this tax on their income and gains from French property. This would increase the total tax liability on gains from 19% to 34.5% (for EU residents, before length of ownership taper relief is applied).
French Inheritance Tax (IHT) is payable by non-residents depending on a number of factors – the inherited amount, the relationship between the deceased/donor & the beneficiary, the number of children and in some cases the level of gifts enjoyed in the previous 10 years.
Worldwide income
If you are resident in Ireland or the UK, you will be obliged to declare and file your French income in Ireland/ UK also. There is a double taxation agreement between France and Ireland / the UK so relief for certain French taxes will be given against Irish/ UK taxes payable on your French property.