How is the tax computed? What are the practical modalities?
For a non resident taxpayer, capital gains on real estate located in France are subject to a withholding tax of 33.33%, reduced to 19% if the taxpayer is resident in the European Economic Area (EEA) and, in principle, to social contributions amounting to 15.5%.
Tax and social contribution allowances are available depending on the holding period (exemption of capital gains tax after 22 years and exemption of social contribution after 30 years).
The Notary in charge of a sale is responsible for the payment and directly retains the tax to be paid from the sale proceeds.
What are the registration duties on the acquisition of a real property in France?
Compared to other countries the acquisition tax rate in France is not so high. Acquisition of real estate assets is subject to registration with the French Administration. This formality usually gives rise to tax duty. Acquisition are generally taxed at the rate of 5.09% or 5.8% of the sale price, it is reduced to 0.715% in the case of a new building but subject to VAT (20%). The acquisition tax is due by the buyer.
Tax on rental income
What is the difference between furnished and unfurnished rental?
The income derived from renting of a property in France is taxable as income either in the business income category (“Bénéfices Industriels et commerciaux“) if the property is rented out furnished or in the property income (“Revenus fanciers“) category if the property is rented unfurnished.
The taxpayer benefits from a notional deduction of 30% of the property income to cover expenses when the annual property income does not exceed 15,000€. Regarding business income the taxpayer benefits from a notional deduction of 50% when the annual income does not exceed 32,900€
What is the difference between ownership property and dwelling tax/council tax?
Ownership property tax (“Taxe foncière“) is a direct local tax which is payable annually by the legal owner of a property located in France on January 1st of the relevant year. Dwelling tax/Council (“Taxe d’habitation“) is a local tax which is paid annually by the individual who has the disposal (whether as owner, tenant or otherwise) of a dwelling on January 1st of relevant year.
An owner who occupies his property his will be subject both to ownership property tax and dwelling tax/council tax, whereas if the property is rented, the owners will only pay ownership property tax, the dwelling tax/council tax being borne by the tenant.
Taxation on inheritance/gifts of assets
What are the differences for a married couple, partners and a new family?
Unless otherwise provided in a tax treaty, French inheritance and gift tax is due by non French resident recipients in respect of any inheritance or gift of immovable assets located in France.
The computation of tax is made in the same manner as for French residents. Inheritance between spouses or members of a civil contract is totally exempt from inheritance between unrelated parties is taxed at 60%.
Gift tax is assessed on a progressive scale basis with possible tax allowances, in particular with respect to natural recognized or adopted children.
How does it apply and are there any tax optimizations?
Wealth tax applies in many countries. In the selected countries for the server, a wealth taw could apply in Spain, Switzerland, and France and in USA.
To be more specific, in the USA, it is not wealth tax as in France for example, but rather a local property tax due on real estate located in Miami, Florida. As this tax is generally based on the property value, the effects are almost the same as for French wealth tax.
In France, a non French resident will be subject to wealth tax (Impôt de solidarité sur la fortune,“ISF“) only when the total value of the assets located in France, minus the acquisition bank debt exceeds 1,300,000€ on January 1st of the considered year.
Financing the purchase of a property through a bank loan can therefore in certain cases reduce wealth tax.
Purchase through a real estate company/“SCI“versus direct purchase of the asset in joint ownership?
The purchase of real estate through a real estate company/“SCI“ is subject to less legal constraints than a purchase through joint ownership. Indeed, thanks to the bylaws of such an entity, it is possible to anticipate and solve potential conflicts between shareholders. In addition, future inheritance issues will be easier to anticipate with a purchase through a real estate company/SCI. The tax applicable during ownership remains identical in both situations. Implementing an SCI may trigger costs of approximately € 3K.Annual running costs can be estimated to circa € 1K in case of a real rental activity.
Elimination of double taxation
What is the general principle and is it necessary to declare foreign real estate purchased in the country of residence?
In some countries of residence, the purchase of a foreign property may have to be declared (e.g. American citizen holding a property in France). As a general rule, the capital gain or income derived from a real estate property is taxable in the country in which the property is located.
The State of residence can also tax this gain. However in such cases, the double taxation is eliminated through a tax credit granted by the country of residence.
Tax paid in the country where the property is located: 1000€
Tax paid in the country of residence: 25000€
Elimination of double taxation in the country of residence: 25000€ - 1000€ = 24000€
Consequently, the total amount of tax paid will be 1000€ in the country where the property is located and 24000€ in the country of residence.
How are non residents concerned?
Non residents are, in principle, subject to social contributions (15.5%) on the income derived from rental of a property located in France as well as on capital gain on the sale of real property. However, there is a current case in France and in front of the European Court of Justice that should lead to a non application of social contributions to non residents.
The tax on high remuneration
Who is subject and is the tax basis?
The so-called 75% tax only applies to companies paying income over €1 million per year to one of its employees. Consequently, this tax does not apply to an individual.
However, a special contribution is borne by individuals whose income exceeds 250,000€ for a single person or 500,000€ for a couple. For non French residents, the income to take into account is French source income only.
The rate of the contribution is as follows:
For a single person: 3% between 250,000% and 500,000€ and 4% beyond,
For a couple: 3% between 500,000€ and 1M€ and 4% beyond.