Real Estate Tax Services in France
Landlord Tax in France
Taxation assistance for landlords in France
Understanding the Taxe Foncière
The landlord tax, known as “taxe foncière” in France, is a property tax imposed on the owners of real estate. This tax is payable annually and applies to both residential and commercial properties. It is one of the key obligations that property owners must comply with in France.
How is the Taxe Foncière Computed?
The French tax administration calculates the taxe foncière based on the “valeur locative cadastrale” of the property. The “valeur locative” is an estimated rental value of the property, determined by considering factors such as the size, location, condition, and amenities of the property. This value is then multiplied by a tax rate set by the local authorities, which can vary from one municipality to another.
Payment Options for the Taxe Foncière
Property owners have two options for paying the taxe foncière:
- Monthly Settlement: Owners can choose to pay the tax in monthly installments. This option helps spread the financial burden over the year and ensures regular payments.
- One-Off Payment: Alternatively, owners can opt for a one-time payment, which is typically due in mid-October. This method requires the entire amount to be paid at once.
Compliance and Support Services
Navigating the complexities of the taxe foncière can be challenging, but at L2A ADVISORY we provide comprehensive support to ensure property owners remain compliant with their tax obligations. Our services can include:
- Tax Compliance Assistance: We help property owners understand their tax obligations, ensure accurate calculation of the taxe foncière, and manage timely payments, whether monthly or annually.
- Valuation Challenges: We utilize our network of DPLG architects to review and, if necessary, challenge the tax administration’s valuation of your property’s valeur locative. This can potentially reduce your tax burden if the initial valuation is deemed excessive.
Guidance on landlord tax obligations in France
At L2A ADVISORY we have a deep expertise in Real estate and we advise our client with guidance on their Landlord tax duties. Landlord tax should not be an issue for your investment so we will make sure that you are compliant and that potential tax savings opportunities can be analyzed.
Real Estate Taxation in France
Services for real estate taxation in France
Navigating the complexities of real estate taxation in France can be challenging for both individual and corporate investors. The tax landscape is intricate, encompassing various tax categories, each with its own rules and regulations. At L2A ADVISORY we specialize in helping investors understand and comply with these tax obligations, ensuring that you maximize your financial outcomes and remain compliant with French law and limit your tax burden.
Advice on property tax laws and regulations in France
Numerous Tax Categories
Real estate taxation in France covers several distinct categories, each relevant to different aspects of property ownership and investment.
Passive Taxes
One of the key passive taxes in French real estate is the “taxe foncière,” or landlord tax. This annual property tax is based on the “valeur locative cadastrale,” an estimated rental value determined by local authorities. The amount owed is then calculated using a rate set by the municipality. Property owners can choose to pay this tax monthly or as a one-off payment in mid-October. Our firm assists clients in managing these payments and can even challenge the tax administration’s valuation through our network of DPLG architects if the valuation seems excessive.
Personal Income Tax
Rental income from real estate is subject to personal income tax in France. There are several options available to property owners, which vary based on the type of lease and income level:
- Micro Regime: For rental income below €15,000, the micro regime offers a simplified tax option with a standard deduction of 30% for furnished rentals (Micro-BIC) or 50% for unfurnished rentals (Micro-Foncier). This regime is straightforward and requires less administrative work.
- Real Regime (Régime Réel): For higher rental incomes or when actual expenses are significant, the real regime allows landlords to deduct actual expenses incurred in earning the rental income, such as maintenance, repairs, management fees, and loan interest. This regime can be more beneficial for those with high expenses but requires meticulous record-keeping and detailed tax filings.
Corporate Income Tax
For significant corporate investors, real estate investments are subject to corporate income tax (CIT). The CIT regime applies complex tax rules, including deductions, depreciation, and specific corporate tax rates. Companies must navigate these rules carefully to optimize their tax position. At L2A ADVISORY we offer expert guidance on corporate real estate taxation, ensuring that your business complies with all regulations while maximizing tax efficiency.
Value Added Tax (VAT)
VAT in real estate transactions depends on several factors, including the nature of the lease, the amount of rent, and sometimes the options chosen by the landlord. For instance:
- Commercial Leases: VAT is typically applicable to commercial leases, but there are exceptions and special conditions that need to be considered.
- Residential Leases: Residential leases are generally exempt from VAT, but there may be instances where VAT can be applied, such as in the case of furnished rentals if certain conditions are met.
- Opting for VAT: In some cases, landlords may opt to apply VAT to their rental income, which can impact their tax obligations and the way expenses are deducted.
Our firm assists clients in understanding their VAT obligations, ensuring compliance, and making informed decisions about whether to opt for VAT.
Comprehensive Tax Services
At L2A ADVISORY we provide a full suite of services to help you navigate the complexities of real estate taxation in France:
- Tax Compliance: We ensure that all your tax filings are accurate and submitted on time, helping you avoid penalties and interest charges.
- Tax Planning: Our experts work with you to develop tax strategies that optimize your financial outcomes, taking into account your unique circumstances and investment goals.
- Advisory Services: We provide personalized advice on all aspects of real estate taxation, helping you make informed decisions and stay compliant with French tax laws.
Property Investment company
Owning a real estate asset Through a Company (SCI, SARL,SNC,SCCV...)
It is very common for investors in France to own real estate assets through a company. It can hold any kind of asset such as housing, office, commercial real estate… This scheme can offer several benefits, including potential tax advantages, better debt financing possibilities and limited liability.
There are different types of companies you can use for this purpose, each with its own implications. Specific attention should be made in choosing the legal structure adapted to your project. Among the most common legal structure we often advise our clients the most adapted to their needs : “Société Civile Immobilière”, “SARL de Famille”, “Société par Action Simplifié” and “Société en Nom Collectif”; “Société Civile de Construction Vente”…
Société Civile Immobilière (SCI)
One of the most common structures for holding real estate in France is the Société Civile Immobilière (SCI), or real estate company. An SCI is a non-commercial company specifically designed for owning and managing property and can be an excellent vehicle for owning office real estate. As a non commercial entity, no furnished nor any commercial leasing activity should be done by a SCI. An SCI can only hold unequipped housing lease of unequipped offices lease.
SCI will offer advantages in many aspects such as tax, civil law issues, inheritance and donation, dismemberment of property… We are used to proposing scheme with an OpCo renting a property to an SCI owned by the business owner also.
Tax Regimes for SCI
An SCI can choose between two tax regimes:
- Corporate Income Tax (CIT) Regime
- Taxation: If an SCI opts to be taxed as a regular company, it will be subject to Corporate Income Tax. This means the company pays tax on its profits at the corporate rate, and any distributions to shareholders are taxed separately. Lower CIT rate of 15% will apply on the first 42 500€ of taxable income, and the usual 25% rate will apply on the remaining profits. The company will be able to deduct the amortization of the building itself.
- Advantages: This regime can be beneficial if the company plans to reinvest profits into the business, as corporate tax rates can be lower than personal income tax rates for high-income individuals. This is in general the best option of a buy and hold strategy since the tax burden will be lower during the life of this asset. On the other hand capital gain taxation will be significant at the exit date.
- Transparent Entity (Personal Income Tax) Regime
- Taxation: Alternatively, an SCI can choose to be taxed as a transparent entity, where profits are passed through to the shareholders and taxed at their personal income tax rates.
- Advantages: This option can be advantageous for smaller investments or where shareholders have lower personal income tax rates, as it avoids the double taxation seen in the CIT regime. It is also very common for multi asset investment firms that will own their assets throughout a SPV at each time but with a taxation at the investor level.
Navigating the taxation landscape for commercial real estate investments can be complex. At L2A ADVISORY we provide expert taxation guidance for offices and commercial real estate in France, ensuring you understand and comply with all relevant tax obligations:
- Corporate Income Tax Compliance: For companies opting for the CIT regime, we assist with accurate tax filings, deductions, and planning strategies to minimize tax liabilities.
- Personal Income Tax Compliance: For transparent entities, we offer detailed guidance on declaring income and expenses, optimizing your tax position.
- VAT Compliance: Depending on the nature of the commercial real estate and its use, VAT may be applicable. Our team helps you navigate VAT registration and ongoing compliance.
- Local Taxes: We ensure you are aware of and comply with local property taxes, business rates, and any other applicable levies.
“SARL de Famille”
As SCI cannot hold furnished or equipped lease, we often advise our client that want to conduct this kind of activity throughout a company to set up an “SARL de Famille”. This particular scheme enable the company to pursue furnished lease activity, throughout a tax transparent entity.
This particular tax situation raises two majors benefits :
- The company will have the capacity to deduct the amortization of the building hence reducing the taxable income.
- The depreciation won’t be considered within the sale of the asset which will reduce the capital gains tax.
“SARL de Famille” should comply with significant requirements such has been incorporated only between family members.
“SNC”
We are used to working with Société en Nom Commercial. This legal structure also aims to enable commercial activity. It is often used in commercial restate for rent that include a variable part based on the turnover of the shop it holds.
SNC are tax transparent entities by principle but they can opt for the corporate income tax. As for the SCI tax regime this will depends on the investor’s goals and strategies.
“SCCV”
The Société Civile de Construction Vente (SCCV) is a specialized entity in France designed for real estate development projects. Unlike a regular Société Civile Immobilière (SCI), which is intended for managing existing properties, the SCCV is tailored for the development and sale of real estate, making it ideal for construction projects.
SCCV will be a very smart option in asset promotion projects where the goals is only to build an asset and to sell it. This is only way to keep this commercial activity within a civilian company whilst applying personal income tax computation.
Choosing the right legal structure is going to be a key success factor of you real estate investment project. We will help you make the best decision. We are used to working closely with tax and corporate lawyers for the most complex situations.
Capital gains on real estate in France
Understanding Capital Gains Tax on Real Estate in France.
In France, capital gains tax on real estate is an important consideration for property owners looking to sell their property. This tax is applicable to the profit made from selling real estate and is divided into two main components: the personal income tax on capital gains and the social contributions.
Components of Capital Gains Tax
- Personal Income Tax: The profit from real estate sales is subject to personal income tax. A fix 19% rate is applicable but can be significantly mitigated by allowances for the length of ownership.
- Social Contributions: In addition to income tax, a social contribution tax at a rate of 17.2% is also levied on the capital gains. This contribution goes towards funding various social security benefits in France.
Deductions Based on Ownership Duration
The French tax system offers deductions on capital gains taxes that are contingent on the duration of property ownership, but these deductions apply differently to the two tax components:
- Personal Income Tax Deductions:
- The tax system allows for an annual exemption that begins from the sixth year of ownership, culminating in a total exemption after 22 years of ownership. This progressive deduction encourages long-term property investment and ownership.
- Social Contributions Deductions:
- While similar to personal income tax deductions, the deductions for social contributions extend over a longer period. Complete exemption from social contributions on the capital gains is achieved after 30 years of ownership. This longer timeline reflects the contribution to social security systems.
Tax Calculation and Compliance
Calculating capital gains tax requires a thorough understanding of the applicable rates, allowable deductions, and the base cost of the property. The base cost can include the purchase price plus any significant improvements made to the property, which can also affect the gain calculation.
Our Role in Your Capital Gains Strategy
At L2A ADVISORY we specialize in helping property owners navigate the complexities of capital gains tax on real estate. Our services include:
- Comprehensive Tax Planning: We provide strategies that consider the timing of the sale and potential renovations to optimize tax deductions.
- Filing Assistance: Our team assists with the accurate calculation and timely filing of capital gains taxes, ensuring compliance with French tax laws.
- Consultation on Deductions: We guide property owners on how to maximize deductions related to property improvements and ownership duration.
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