When it comes to advising on a suitable property purchase structure in France, there is no “silver bullet”. It all depends on the buyer’s personal circumstances (finances, family, nationality, country of residency) and the type of property he will be buying (residential, buy-to-let, furnished or unfurnished). It is therefore important to take professional advice on the legal and tax implications of buying a French property via a foreign company before entering into a purchase agreement.
The following will give you the pros and cons.
If you are purchasing a buy to let property in France with annual rental income under €38.120,00, the income perceived may be taxed under a low corporation tax rate of 15% provided that certain conditions related to shareholding and shared capital are met. Over this threshold, the corporation tax would be 28% if the company’s taxable profit in France is less than €75,000.00 and turnover is less than € M50 for the year 2017.
If the property is being let furnished, the corporation tax will be calculated under BIC category (“bénéfices industriels et commerciaux”) and charges (maintenance charges, insurance premiums, land tax, syndic’s fees…) can be deducted to determine the taxable profits.
It is also possible as for individuals to recover the VAT on the purchase price in a “résidence de tourisme” (leaseback property) investments provided that the property meets the criteria fixed by the French Tax Administration.
Purchasing via a company may in some circumstances provide more flexibility in terms of estate planning allowing the shareholders to transfer their company shares without being subject to the French forced heirship.
The tax regime may be less advantageous when selling the property compared with buying as an individual as the seller would be taxed under corporation tax with no taper reliefs.
The intended purchase must be made in accordance with the objects clause of the company’s Memorandum and Articles of Association, which are stating the purpose and range of activities for which the company is carried on. Purchasing a French property via a Foreign company whose business is selling kitchen appliances would put the property investment at risk.
The directors’ personal usage of the property may be taxed as a benefit in kind.
The buying process will be less straightforward as several documents related to the company (certificate of incorporation, articles and memorandum of association, resolution of the directors…) will have to be submitted to the French Notaire and translated into French.
Accounting and reporting requirements will need to be strictly followed. In order to be exempt for the tax on market value (“taxe sur la valeur vénale”) which is applicable to companies owning property in France, the company must covenant at the time of the purchase (special clause would need to be inserted in the deed) to declare each year (before the 15th May) to the French Tax Administration the names, addresses of its shareholders, number and value of their shares and the value of the properties the company owns in France. The company would only be exempt if it is registered within the EU or in a country who has signed taxation agreement with France against tax discrimination and tax evasion. Such tax agreement currently exists between France and the UK.
French mortgage lenders would be reluctant to lend to a foreign company.
Conclusions: if you are a foreign “cash buyer” willing to purchase a property via your company, I would recommend to take advice and to obtain a comparative review of possible purchase structures available in France before signing a purchase contract.