France is one from the largest investment markets in continental Europe. A stable economy and legal system, as well as history and culture make France attractive to real estate investors.
At present, France can point to low interest rates and the rental sector, which shows steady growth, particularly in major cities such as Paris, Lyon and Bordeaux. Although this has attracted institutional investors interested in retail and tourism, individual investors seeking investment opportunities are also distinguished, or second houses.
Legal aspects
There is no legal restriction on the foreign ownership of French real estate. French law shall always apply here, except for successions to which the law of the non-resident country applies. The legal documents which transfer direct ownership of French property must be drawn up by the notary and deposited in the Land Register. In case of indirect sales, you need a lawyer. In cases where construction or renovation is ongoing, a construction or demolition permit is required.
The French legal and tax system is complex, but the French property ownership is safe, making it a rational investment in the long term
In the case of leasing, contracts must be drawn up by a lawyer. There are restrictions on rent increases. In addition to paying rent, tenants must pay service fees to keep the rented premises in good condition, they must also insure the property and its contents.
In the case of foreign investors, the property may be acquired directly by natural persons not resident or through a company specifically set up for that purpose. The company will be a non-commercial entity (SCI) under French law. In the case of rental income, shareholders may choose between paying personal income tax or switching to corporate tax.
Property owners pay taxes on acquisition, rental and sale of real estate.
Purchase tax
Sale of real estate is subject to VAT of 20% and / or transfer tax at 5.8%, depending on the age and type of property. In some cases VAT on acquisitions may be deducted from rental income.
Taxes on rental income
For non-residents, the standard rate of 30% tax on net rental income. Additional 7.5% in social charges is also payable, or 17.2%, if the taxpayer is not a resident of the European Union or of the European Economic Area.
Although revenue from the rental of unfurnished property is exempt from VAT, owners may choose to pay VAT on rental income. This may be a useful option as the owner can deduct the VAT costs associated with the property, such as those resulting from construction or renovation.
If the property is owned by a non-resident company, corporation tax is paid on income of 15% below 38,120 EUR, 28% from 38,121 to 500,000 EUR, and increases to 33.33%, when rental income exceeds 500,000 EUR.
Sales taxes
Non-residents pay withholding tax of 19%, calculated on the basis of the difference between the selling price and the original cost of the property. Above one sales per year, taxation will change. Exemptions may be available based on ownership duration.
In addition, social taxes of 7.5% or 17.2%, if the taxpayer is not a resident of the European Union or of the European Economic Area.
If the property is owned by a non-resident company or a French company with a corporate tax option, the tax is calculated on the basis of the difference between sales revenue and the net recognised book value. Tax is charged 15% to 38,120 EUR, 28% between 38,120 EUR a 500,000 EUR, a 33% above 500,000 EUR.
Other taxes
Other annual taxes to be remembered include local property taxes based on the value of the property, based on real estate and use of unoccupied property. Property property tax worth more than 1,300,000 EUR is also valid for:
- • 0.7% between 1,300,000 a 2,570,000 EUR
- • 1% between 2.57 a 5,000,000 EUR
- • 1.25% between 5 a 10,000,000 EUR
- • 1.5% above 10,000,000 EUR
- • 3% where the physical identity of the owners is suspended.
Comments on costs
In addition to taxes, there are other costs to be taken into account when investing in French real estate. These include:
- • real estate brokerage fees to 10% sales prices
- • legal costs for drawing up a provisional contract or purchase contract in certain circumstances
- • bank and accounting charges for certain financial documents
- • charges for including the company, if used as a purchasing vehicle, of approximately 2,000 EUR
- • notarial charges for the final purchase-sale agreement of 8% sales prices
- • accounting fees for certain tax returns.
Financial aspects
Investments in real estate are usually financed by a combination of capital contributions and bank financing. The bank usually requires a minimum 20% a personal deposit and security over the property for each mortgage advance. A notary will conduct money laundering checks to verify their origin
The French legal and tax system is complex, but the French property ownership is therefore safe, making it rational in the long term.