In the world of real estate investment in France, non-resident investors face a unique challenge: understanding and navigating the complex labyrinth of French taxation. Faced with a multitude of taxes, regulations and subtleties, it is essential for international investors to master the tax aspects of their investments in order to maximize returns and comply with legal requirements. Here’s a brief summary of the taxes you need to anticipate in advance of your real estate investment project in France.
Property acquisition costs (know as Notary’s fees)
Fees and taxes vary according to the type of property you are buying.
For the purchase of an older property, acquisition costs are generally between 7% and 8% of the purchase price. Registration fees (taxes and land registration fees) represent approximately 5.80% of the purchase price.
When buying a new property or a property off-plan (VEFA), you will pay around 2-3% in acquisition costs, plus VAT at the rate of 20% on the purchase price. Registration fees, included in these costs, represent around 0.7% of the purchase price.
These fees and taxes are paid at the time of purchase to the notary in charge of the sale. Although commonly referred to as “notary’s fees”, it should be noted that actual notary’s fees (emoluments) represent only around 1% of the total, the remainder being made up of registration fees and disbursements.
Tax on rental income
Even if you are not domiciled in France for tax purposes, receiving income from a French source, such as rent, requires you to declare this income and file a tax return in France. There is no threshold for declaring income; all income must be declared. The rules for determining taxable income vary according to the category of income: bare rental properties are classified as “rental income” (revenus fonciers), while furnished rental properties are classified as “commercial income” (Bénéfices Industriels et Commerciaux).
Non-residents are subject to a minimum tax rate of 20%, plus “social taxes” known as CSG CRDS at a rate of 17.2% (7.5% for people affiliated to the social security system of another EU member state + Switzerland + the UK).
Local taxes
If you own a property in France, you will be subject to two different local french taxes: the housing tax (Taxe d’habitation) and the property tax (Taxe Foncière).
The housing tax (Taxe d’Habitation)
This tax applies only to second homes, and is payable by the owners or occupants of the properties concerned (tenants). The amount is calculated directly by the tax authorities according to the occupation of the property on January 1st of the tax year. The amount is determined by multiplying the cadastral rental value of the property by the tax rates set by the local authorities.
The property tax (Taxe Foncière)
This is an annual tax payable by the property owner, whether or not they occupy the property. As with the taxe d’habitation, the tax base is the cadastral rental value.
If you buy a property during the year, the seller is generally still responsible for paying the tax for the current year, but it’s common to come to an agreement with the previous owner regarding the sharing of this tax.
The real estate wealth tax (IFI)
If you don’t live in France, only real estate located in France is taken into account for the wealth tax “Impôt sur la Fortune Immobilière (IFI)”, subject to the provisions of tax treaties between your home country and France. The IFI is an annual tax, assessed on January 1st of each year.
Taxable assets mainly include :
- Main residence, second homes, land and rental properties;
- Shares in non-trading property companies (SCI) ;
- Units held in real estate funds such as SCPI ;
- Shares in companies, provided you hold at least 10% of the share capital and up to the value of their assets.
Debts related to these assets are deductible if they existed on January 1st of the tax year, are borne by the owner and are related to the taxable assets. You will be subject to the IFI if the net value of your assets in France exceeds 1.3 million euros.
Tax is calculated on a progressive scale, with brackets ranging from 0.5% to 1.5%.
Be careful, because the IFI is a declaratory tax: it’s up to you each year to determine whether you have to declare your assets for IFI. However, if the tax authorities deem that you are liable for this tax, they may recover overdue payments with penalties over the following six years (extended statute of limitations for failure to file).
The IFI tax return is generally due at the end of May.
