Taxation of rental income in France: The difference between the micro and the réel plans

You earn rental income in France and you are wondering which plans to choose to report it. In this article, we will introduce you to the options available We divided into 2 categories: furnished and unfurnished rentals.

Taxation of french rental income : Unfurnished rentals

When you rent unfurnished, you are taxed in the “property income” category. There are two different plans:

• Micro-land tenure system
• The real land tenure system

Micro-foncier plan

The micro-foncier regime applies as a right to the taxpayer when the rental income does not exceed €15,000 for the tax year.

To determine the net tax, the tax authorities take into account:

• Gross revenues
• Miscellaneous income (e.g. rental charges)
• The costs normally borne by the landlord and borne by the tenant

The administration will apply a 30% allowance supposed to be representative of the charges. The owner cannot therefore deduct any additional expenses. Please, note that it is possible to opt for the real regime at this point if you wish.

The real plan (régime réel)

This regime applies to the taxpayer when the rental income exceeds €15,000 for the tax year. It may also apply by an option to taxpayers who have made the decision.

Under this plan, it is possible to deduct certain expenses. To be eligible for a deduction, expenses must meet the following requirements:

• Must be related to buildings or parts of buildings whose income is taxable in the property income category;
• Must have been incurred for the purpose of acquiring or retaining income;
• Must have actually been supported by the owner;
• Must have been paid in the tax year;
• Must be justified.

You can deduct the following expenses:

• Insurance premiums
• Management fees
• Co-ownership charges
• Taxes
• Interest on debts

Taxation of french rental income : Furnished rental

This activity is considered a commercial activity. You will, therefore, be taxed in the Industrial and Commercial Profits (BIC) category and not in the Land Income category.

Persons who rent or sublet part of their main residence as furnished accommodation are exempt from income tax in the following two cases:

1. When the rooms are rented as guest rooms to a passing clientele and when the annual income does not exceed 760 €.
2. When the rooms are rented constitute for the tenant his main residence or temporary residence if he is a seasonal employee with an employment contract and the rental price is set within reasonable limits.

There are two tax regimes:

1. The micro-BIC regime
2. The real regime (régime reel)

The micro-BIC & real-BIC regime

If the annual revenue from the rental does not exceed 72 600€, the lessor is subject to the micro-BIC regime. The net taxable income will be calculated by the administration by applying to this amount a flat-rate allowance for expenses of 50%, this allowance will be increased to 71% for furnished tourist accommodation or bed and breakfast.
When revenues exceed 72 600€, the lessor is subject to the real regime.

Thus, the taxable profit corresponds to the difference between the annual income and the deductible expenses and depreciation.

The simplified actual regime allows, in particular, the following expenses to be deducted:

• maintenance and repair invoices
• property tax
• insurance costs
• management fees
• the fees of the chartered accountant
• the costs of proceedings in the event of a dispute with a tenant
• subscriptions and miscellaneous consumptions integrated with the amount of the rent but for which you are invoiced (e.g. telephone bill, internet subscription)
• the interest on the loan plus the administrative costs and the cost of setting up guarantees and insurance premiums (if the financed property is recorded as an asset)
• registration fees and notary fees relating to the acquisition of premises (if they are recorded as assets)
• provisions for risks (for example risk of non-payment)
• Accounting depreciation