French Property Tax Update 2014

French Property owner’s tax (“taxe fonciere”) – this annual tax is paid by the owner of the property based on the size and location of the property. As Paris is a very densely populated area, the tax has remained quite low over the years. The agent or seller will disclose this tax as part of the property information. For example, for a 75 m² apartment in central Paris, it can be 600 to 800 euros.

French Property user’s tax (“taxe d’habitation”) – this annual tax is paid by the user of the property so if you rent your property long term, it can be passed on to the renter. It is based on the size and the location of the property but also on the revenues of the occupant to some effect so the seller cannot disclose what it will be for the buyer. It is often very close to the amount of the property owner tax.
Revenue tax (“IR” or “impot sur le revenu”) – this tax would be due on any rental income collected in France for renting the apartment. The taxable rental revenue can be reduced by interest paid on a French mortgage, value improving renovations and management fees for example. Other deductions may apply based on the tax status you choose. The tax rate depends on your global revenue but should be less than 25% in most cases.
Since August, 2012, the social contributions apply on the rental income so that an additional tax rate applies on the tax rate based on the rental income (tax rate + 15,5%)

Wealth tax in France (“ISF” or “impot de solidarité sur la fortune”) – this tax is calculated on the total annual market value of all your real estate assets, cash, investments and other valuable items such as fine art owned in France less any French loans outstanding on the property. Therefore taking a French mortgage can help you reduce or avoid this tax. Paris apartment owners - be sure to check the value of your Paris real estate annually to know if this applies to you.

As an indication, the current wealth tax rates on your total net asset value are:

Total net asset value Rate (%)
Until 800.000 € - 0,00%
From 800.000 € to 1.300.000 € - 0,50%
From 1.300.000 € to 2.570.000 € - 0,70%
From 2.570.000 € to 5.000.000 € - 1,00%
From 5.000.000 € to 10.000.000 € - 1,25%
Superior to 10.000.000 € - 1,50%

For French residents, the calculation is based on their worldwide assets.

For non-residents, the calculation is based on assets located in France, including:
- furniture and movable property located in France;
- real estate assets held directly or through a real estate company (such as an SCI);
- net value of shares of a company located in France (the value of the credit account in favor of the shareholder, in French the "compte courant d’associés”);
- net value of shares of a company located in another country where the majority of the real estate assets are located in France.

Capital gains tax – for a property that is not your main residence, capital gains tax after a sale starts at approximately 34.50% for a French tax resident and at 48.83% (33.33% + 15.5%) for a non-European Union tax resident (the rate is 34.50% - 19% + 15.5% - for a European citizen residing in a European Union country) and is progressively reduced each year after the 6th first years to arrive at 0% after 30 years. Therefore if you hold your property long enough, you won’t pay any capital gains tax at sale. There is no capital gains tax on your primary residence.
For all types of properties (except building land), the capital gain is totally exempt:
- from the CGT part of the tax: after 22 years of ownership,
- from the social charges part of the tax: after 30 years of ownership
• For building land: Exempt after 30 years.

Temporary 25% Discount on the Capital Gains Tax
Applicable: to property sales signed between 01/09/13 and 31/08/2014,
• EXCEPT sales:
- of building land,
- of shares of companies whose capital consists mainly of real estate,
- to a spouse, PACS/civil partner, live-in partner, ascendant, descendant
- to a company owned by the seller and/or the persons listed above.
• to the net capital gain after deducting the allowances for length of ownership (CGT + social charges),
• for calculating the tax basis of the Supplementary Tax (article 1609 9 G of the French Tax Code) (calculated on the CGT part of the tax).

Tax on property owned by a foreign company or the “3% taxe” – if the property is purchased by a non French company, the annual value of the property will be taxed at 3% each year unless you file a report to clearly disclose all the shareholders of the company. This also applies if a non-French company creates and holds shares in a French company to buy the French property. Definitely seek the advice of a French accountant if you plan to purchase this way.

Posted February 27, 2014