Too often, we receive enquiries from property owners who have been advised to buy their French property via a company (SCI…). In many cases they did it for good reasons (buying with friends, estate planning, avoiding French inheritance law) but did not take advice on the tax implications. This can have costly consequences.
The “taxe sur la valeur vénale” (tax on the property market value) is one example and its payment can be easily avoided if annual reporting obligations are complied with. This tax has been created a long time ago to prevent tax evasion from individuals who could potentially hide their wealth behind legal entities.
French or foreign companies or legal entities, whose shareholders are domiciled overseas, owning French properties or property interests are subject to an annual tax of 3% of the property market value (Article 990D of the French Tax Code).
To be exempt from this tax, foreign companies must have their registered head office either in the European Union or in a country which has contracted with France an agreement against tax evasion or an agreement containing a non-discrimination clause enabling them to benefit from the same regime as companies registered in France. For instance, many countries such as the United Kingdom and New Zealand have signed with France a double taxation agreement to avoid double taxation, tax fraud and tax evasion.
The legal entities must then meet one of the following 4 specific conditions:
Legal entities which have a direct or indirect interest in the French property of less than 100,000 euros or 5% of the market value of the said assets;
Legal entities created to manage pension schemes and their groupings and legal entities recognised as being of public utility whose activity or funding justifies the ownership of real estate or real estate rights;
Investment companies with variable capital interest (SPPICAV), Real Estate Investment Funds (REIT) and Foreign Entities which are subject to similar regulations in the State or territory in which they are established;
Legal entities which comply with annual reporting obligations to the French Tax Office.
In application to the above fourth condition, if you are UK domiciled or domiciled in a country which has a tax agreement with France and are purchasing the property via a company (French or foreign company), you must covenant to declare every year (before the 15th May) to the French tax authorities the address and value of the property, the names and addresses of its shareholders and the number and value of their respective shares (Article 990 E, 3˚ of the French Tax Code). Your company will have to commit to this obligation of declaration at the time of purchase. You can do this annual declaration via your accountant.
Provided that you comply with this annual reporting obligation, you will be exempt from the “taxe sur la valeur vénale”. Please note that the tax authorities are very strict on this and passing the deadline will incur tax and penalties.
The above short article outlines the importance of taking legal and tax advice on the purchase structure of a French property.
If you are thinking to purchase a French property via a company, we can advise you on a suitable type of company and whether a company would be best for you.
If you require advice on French estate planing & French Tax, please contact Loic Raboteau via email at loicr@bandmlaw.co.uk or tel on +44 (0) 20 7356 0833.
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