Property taxes in France
The French real estate market is characterized by a stable level of consumer activity. The investment attractiveness of real estate in France for Russian buyers is primarily due to saving and increasing funds in the form of income from rental or subsequent resale. However, before purchasing housing in France and assessing the possible benefits, it is important to carefully calculate all the associated costs associated with the purchase and maintenance of housing. One of the expense items is taxes.
Property taxes in France for foreigners
It is worth noting that the taxation system in France is quite complex and often raises many questions among foreign property buyers. However, there are a number of tax benefits and subtleties that make this country attractive from a tax point of view. For example, according to the tax convention of February 9, 1999, citizens of countries that have an agreement with France on the avoidance of double taxation, which includes Russia, are exempt from paying certain taxes, such as income.
At the same time, foreigners who own property in France must pay property taxes on the same terms as citizens of the country, i.e. Property taxes in France for Russians are the same as for citizens of other countries, including France itself. However, there are some tax features related to whether the owner of property in France is a resident of the country or not. These features will be discussed separately for each tax.
Types of property taxes in France
In France, there are several types of taxes related to real estate. Some must be paid upon purchase, others upon sale, others annually, and others depending on the situation. The amount that will have to be paid to the state depends on many factors: the location of the property, its value, whether it is rented, etc.
There are three taxes that must be paid by the property owner:
- notary fees for the purchase of real estate (frais de notaire);
- property tax (taxe foncière);
- accommodation tax (taxe d’habitation).
In France, there are also taxes that are paid when renting out real estate, a real estate tax (impôt sur la fortune immobilière), an inheritance tax (l’impôt sur les successions). Let’s look at each of these taxes.
Notary fees when purchasing real estate in France (frais de notaire)
Notary fees when purchasing real estate in France must be executed by a notary and paid on the day of the transaction. The amount varies depending on the year the property was built, the department where it is located, the method of purchase and other factors.
For new housing (sold directly by the developer less than 5 years from start-up), registration fees will be 2.5-3%. In this case, the buyer pays VAT in the amount of 20.6% included in the price of the property. However, the buyer has the right to receive a discount on the full cost of housing in the amount of 0.6% (excluding VAT).
If you purchase housing built more than five years ago from the date of registration, registration fees will be about 6.5–7% of the cost of the property.
A special tax regime applies when purchasing housing for the purpose of subsequent resale. Registration of ownership rights in this case is estimated at 4.5% of the value of the object, but the owner undertakes to resell this object no later than 4 years from the date of purchase.
Property ownership tax in France
Taxe foncière is a tax on property ownership paid by all home owners in France, it depends on the size of the property and its location. In this case, the tax rate is calculated based on the cadastral rental value (average rental value in a certain region) of the object and varies greatly depending on the department.
Notification of payment arrives in early autumn. All property owners in France, both residents and non-residents, pay tax.
The following properties are not subject to this property tax in France:
- owned by the French state (or other states) and local administrations;
- buildings of government institutions (hospitals, universities, etc.);
- religious sites;
- agricultural buildings.
Low income individuals, disabled people and those over 75 years of age are exempt from paying this tax.
The tax is calculated based on who was the owner of the property as of January 1 of the current year. If the owner changes during the year, the amount is recalculated in proportion to the period of ownership.
Thus, real estate that is located in prestigious areas and, accordingly, has a higher average rental price, is subject to a higher tax.
Tax on accommodation in France (taxe d’habitation)
This is the name of the annual tax paid by non-rental homeowners or tenants. This means that if you own a home in France and there is a tenant living there, the tenant is responsible for paying this tax.
All premises that are equipped for residence (permanent or temporary), with the exception of student residences, boarding schools, and housing for diplomats, are subject to taxation.
Also, the specified tax is charged on objects such as the garden, garage and basement. The tax amount is calculated based on the number of family members and the owner’s income. This tax in France is levied on the person living in a certain premises as of January 1 of the current year. Thus, if a tenant moves into the premises after this date, he is not required to pay tax for that year. The amount of tax, as for real estate tax, is calculated based on the cadastral rental value.
If the home in France is not the main one for the owner and is used only as a summer residence, the amount of residence tax is almost identical to the amount of property tax.
It should be borne in mind that, according to French law, only students can rent out real estate for a period of less than 12 months.
Tax in France on real estate (impôt sur la fortune immobilière)
The real estate tax (IFI) has replaced the joint luxury tax (impôt sur les Grandes Fortunes, or ISF) since January 1, 2018 and affects real estate not related to the commercial activities of its owner. Real estate that is used for the main business activity of the owner is not subject to this tax. Housing officially rented out is also exempt from taxation. However, its owner must be registered as a professional landlord (LMP) and receive income from this type of activity in an amount not exceeding 23,000 euros per year.
French tax residents are required to pay IFI tax if their net aggregate value of assets is more than €1.3 million as of 1 January 2018. We are talking about all real estate, regardless of whether it is located in France or other countries. Individuals who are not tax residents of France pay tax only on properties located in France.
Non-residents who have transferred their tax address to France are exempt from paying tax for five years.
IFI is calculated on a progressive scale:
- if the value of real estate assets lies in the area from 1.3 to 2.75 million euros, the tax rate is 0.7% + 2500 euros;
- for property values ranging from 2.75 to 5 million euros, the tax rate will be 1%;
- at a cost of 5 to 10 million euros – 1.25%; more than 10 million – 1.5%.
Three percent property tax in France (la taxe de 3%) for legal entities
This tax in the amount of 3% of the value of the property is paid if the property in France is registered in the name of a legal entity and the name of its real owner is not disclosed. French companies and companies from countries with which France has entered into an agreement regarding the provision of information about shareholders do not pay this tax.
Capital gains tax in France
This property tax in France is paid if the property is sold at a higher price than it was purchased. The difference between these two amounts, called capital gains, is considered income and is subject to tax at a rate of 34.5%, which includes direct tax (19%) and social contributions (15.5%). At the same time, the amount of tax is affected by the time during which the property was owned by the owner. If this period is less than 5 years, the law does not provide any discounts. From the 6th to the 21st year of ownership, capital gains tax is reduced annually by 6%. For the 22nd year the discount is 4%. After the 22nd year of ownership, no tax is paid.
Tax on rental income in France
This property tax in France depends on the amount of income the owner of the property receives from renting it out and whether it is a seasonal rental or a long-term one. For seasonal rentals, if the amount of income does not exceed 15,000 euros per year, tax is paid at a flat rate of 30% on the entire amount of income (Le régime micro-foncier). In this case, there are no deductions for repairs and other expenses. If rental income exceeds 15,000 euros per year, real expenses, for example, repairs, management, insurance, etc., are deducted from the net income (Le régime réel).
In the case of long-term rentals, the le régime micro-BIC tax regime applies if the annual profit is less than €32,900. A 50% discount on costs may apply. In this situation, it is possible to report according to le régime réel. This is beneficial to the owner if the actual costs are higher than the fifty percent discount. If rental income exceeds €32,900 per year, le régime réel automatically applies.
The tax rate depends on the status of the owner. If he is a resident of France, the income from the rental property and the remaining income of the owner are summed up. The tax rate in this case is calculated on a progressive scale (14–45%). If the owner of property in France is a non-resident foreigner, he pays impôt sur les revenues locatifs at a flat rate of 20%.
At the same time, if the income does not exceed 15,000 euros, a 30% discount applies, and if it exceeds, the costs of maintaining the property are deducted from the amount of income.
Inheritance tax in France
This tax is paid if the property is inherited by the owner of the property in France. Its rate varies between 5–45% depending on the degree of relationship.