French Property Taxation
Investing in a French property
When investing in a French property, there are many taxes involved and separated into two main categories i.e. Local Taxes and Personal Taxes. Local Taxes in France comprises of the local property taxes called Habitation Tax (Taxe d’Habitation) and the Land Tax (Taxe Foncière). Both originate from “the property’s theoretical rental value according to the local land registry, and is adjusted in line with inflation.” The rates of tax will vary from region to region different rates of tax imposed by the regional and local governments.
The European Property Portal
Explanations of The European Property Taxes
The European property portal explains the different taxes as follows:
- Habitation Tax: The occupier of the French property is liable for this tax. It is due of the 1st January and is payable by the person who was the occupier at that date. There are exemptions for over 60s and also if the property is incapable of occupation due to it needing extensive renovation.
- Land Tax: The owner of a French property is usually liable for this tax, also known as ‘impôt foncier’, a land tax which is generally payable in one lump sum on the 1st January in each year. Unlike the ‘taxe d’habitation’, apportionment can be made between the buyer and seller. If there is an apportionment this should be stated in the contract for sale. This tax is even payable on unbuilt land.
The personal taxes
The Personal Taxes deal with four sorts of taxes, i.e. Income Tax, Wealth Tax, Capital Gains Tax and Inheritance Law and Taxation, which might concern non-resident property owner in France but the best way is to search for a tax consultant’ advice. Hereunder, the European portal definitions and indications:
- Income Tax: The income derived on property in France should be declared in France. Once a property is rented out it will become necessary to file a French tax return (impôt sur le revenu). This Annual Tax Declaration is mandatory and must give the tax authorities complete information concerning the taxpayer’s identity and their marital and family situation, as well as the rental value of their dwellings and/or of their income from French sources.
- CSG Tax (contribution sociale généralisée): a tax imposed by the December 28th 1990 Finance Act, to help financing part of social security costs. Its nature was highly discussed but following the European Union Court of Justice decision, the Supreme Court sees it as a social contribution. Owed by French inhabitants likewise the income tax, the CSG is deducted upon income. The rate varies upon the type of income and the taxpayer’s situation. The second amended Finance Act 2012 undermined the fact that non-residents were not subject to this social contribution. Non-residents cannot benefit from the CSG’s partial deductibility. This rule established on income was set up on January 1st, 2012 and since August 17, 2012, non-residents are bound to social contributions on real estate gains and rental incomes.
- CRDS Tax (contribution pour le remboursement de la dette sociale): created in 1996 and similar to the CSG Tax by helping to finance the CADES (caisse d’amortissement de la dette social), responsible for managing and auditing social debt. It applies to all income and replacement, income assets and income investments. In theory, its durability is limited to 2017. The 0.5% income and income replacement rate is applied after a 1.75% income curtailment (3% until December 31st, 2011). This 1.75% reduction is not applicable beyond 12,344 € per month.
- Wealth Tax (impôt de solidarité sur la fortune): It is levied in France each year on individuals with a total net wealth exceeding €800,000. For non-residents, wealth is assessed on the basis of their real estate assets situated in France. For non-resident, transferable securities are not considered in order to calculate the wealth tax. Their value of the real estate assets is based on the fair market value of the assets in France as of 1st January of each year. Tax is assessed on the net wealth according to a progressive rate from 0.5% to 1.5% (above €10 million).
- Capital Gains Tax: This is derived from the disposal of shares and real property are subject to tax. French tax residents are subject to tax on gains realized worldwide (subject to applicable tax treaty relief). Subject to the provisions of these tax treaties, non-residents are subject to tax in France on sales of a substantial shareholding (over 25%), or of real property or of shares in real property companies situated in France.
- Inheritance Law and Taxation: The ability to give a property away or to leave the property by will is governed by French Law. This gives the investors legal heirs entrenched rights to a certain proportion of the French estate. This proportion is known as the ‘Réserve Légale’ and it is only the remainder, the ‘Quota Disponible’ that investors can freely leave by will. Moreover, in order to avoid the effects of French Inheritance law non-residents can set up a company for the purpose of purchasing the property which are called ‘Sociétés Civiles Immobilières’ or SCI. Another way is to invest in the property jointly or en tontine’.