France is one of the more popular choices, when people consider settling in foreign country. It is a country widely known for its cultural wealth and picturesque beauty of the countryside, not to mention worldwide famous cuisine. Settling in such amazing place seems like a dream come true and for many it remains as a dream after they learn of yet another famous side of this country, for France is famous for many things – cheese, wine, way of serving and sadly, a complicated tax system.
Source of difficulty
Complicated tax system is definitely a discouraging factor, when it comes to buying property in France, especially so for foreigners. There are many types of taxes to take into consideration and calculating them correctly is not an easy challenge to face, however that is not the real issue here.
The real problem is the red tape – bureaucracy for foreigners buying property in France is extremely time consuming, three months are considered to be a quick time to complete the process and that is with no issues appearing in the process. The fees involved are also significant, which is unlikely to be an encouraging factor for those still considering the idea. Another factor that might invoke discouragement in prospective resident are the infamous inheritance laws, of which from time to time one might hear as they are often described as being contrary to the EU regulations.
France has a relatively simple rules concerning tax liability, if you are non-resident then you are only liable for income sourced from France and assets located in France. French tax residents are liable for tax in France for their worldwide income and real estate wealth. Additionally, status of tax resident is relatively easy to obtain, often regardless of intentions of individual – if you fulfil one of the conditions you are automatically recognized as a French tax resident, regardless of your will.
- France is recognized as place of main residence or home.
- France is principal place of abode, more than 183 days spent in France per calendar year.
- Your occupation is in France or main income originates from there.
- Most of the substantial assets possessed are in France.
Individual arriving in France with intention to reside there indefinitely will become a tax resident the day following the arrival, however for those wishing to spend a long holiday in France in your holiday home caution is advised, as you might accidentally meet one of the aforementioned conditions and become subject to French tax obligations. The subject only becomes more complex, if multiple countries are involved, requiring familiarizing oneself with tax treaties involved. French tax authorities will respect all signed double taxation treaties.
Property – unexpected hurdle
When it comes to properties, there are a lot of aspects to take into consideration and France makes it no less problematic. French property taxes are one thing to keep in mind, but another is less obvious yet just as important – ownership and inheritance. In France there are ‘forced heirship’ rules, which means that leaving inheritance to be solved in traditional way might bring unexpected results. It is highly recommended for all interested in buying property in France to familiarize themselves with this topic in order to avoid unpleasant consequences at the later time.
Rental property – French income tax and more
Net taxable income from French rental property is subject to French income tax, with French residents having to pay tax for foreign properties as well. Tax regimes concerning rental property are a sophisticated topic that should be considered with caution.
Another tax, which is worthy of attention is CFE (Cotisation Foncière des Enterprises), paid annually based on theoretical rental value of the owned property, this tax is based on a calendar year, not tax year. If you are a business owner do not be surprised, if tax authorities decide to send you a tax notice. There are many professions exempt from this tax, furthermore turnover less than 5.000,00 EUR allows you to request exoneration from local tax office.
When selling property in France you will be subject to capital gains tax, payable from income gained on sales, and Social Charges. In essence, this tax applies to the difference between sale and original purchase price of the property, however there are additional circumstances to this tax – sale of resident’s main residence is exempt from it. Additionally, property that has been owned for over 22 years is exempt from this tax, while owning it for over 30 years exempts from Social Charges.
Gains over 50.000,00 EUR are taxed with surcharges, at rates gradually increasing with gains starting at 2% up to 6%. These taxes are applied on the same rules to both residents and non-residents, with capital gains tax rates standing at 19% and Social Charges at 17.2% (with possibility of reducing the rates by submitting S1 form).
Buying property is always a huge expense and when it comes to buying property in France you will encounter a bill with a very misguiding name – notary’s fee. This fee is not actually received in full by notary, rather it is a sum of actual fee and other costs involved, which notary will include. The notary’s fee constitutes of:
- Actual fee received by notary
- Stamp duty – tax on buying house, tax rate is dependent on age of the property
- VAT – tax paid on properties less than 5 years old as well as on actual notary’s fee
- If you are not making use of estate agent services, costs such as land registration, property security, etc. will also be included
Notary will also provide help with understanding applicable tax exemptions, calculating owed tax as well as provide documents required to fill French income tax return.
Wealth tax is an annual tax on property, applicable when total value of taxable property assets exceeds 1.300.000,00 EUR. For non-residents it concerns only real estate located in France, however residents will be allowed to apply a reduction on value of their French real estate that is their main residence for the purposes of calculation of annual wealth tax.
Wealth tax rate is calculated according to the value of the property, with first 800.000,00 EUR being exempt from tax. Rates are applied at the progressively increasing values starting at 0.5% up to 1.5%. Value of property can be lowered due to factors such as mortgage and transfer of assets, there is also a discount available for properties with sitting tenants, which is dependent on the circumstances.
Inheritance tax is charged on each beneficiary individually, which may bring some confusion especially when ‘forced heirship’ is taken into consideration. Rate at which this tax is applied depends on relationship with the deceased and value of inheritance received. It is highly recommended for any owner of property in France to be familiar with regulations concerning this aspect, as there are many issues arising in connection with unsatisfactory results of inheritance being dealt with according to the standard rules set by the French law.
Local property taxes
There are two types of tax that could be included in this category – land tax (taxe foncière) and habitation or housing tax (taxe d’habitation). Of these two local taxes, habitation tax was abolished as of 2023, previously it was applied to the occupier of the property, while the second one, land tax is applied to the owner of the property with both of them applying rates according to the local authorities. Land tax is paid annually, with payment reminder sent in the final quarter of the year – in regard to this tax it is possible to choose a different payment option such as monthly direct debit.
If you are a resident of France, you are required to pay taxes on worldwide income there, that however poses a question – what about taxes paid in the country where income occurred? Double taxation treaties generally allow to solve this matter in a simple way – paid tax will be considered as foreign tax credits and offset against tax liabilities in France, although some treaties have clausulae with exclusive taxation, etc. To claim foreign tax credits, it is necessary to report it on tax return form 2047 and 2042. Excess foreign tax credits will be carried forward for up to three next years and offset the tax incurred in those periods.
Due to complexity of the subject of properties, their sales and purchases as well as other involved aspects, it is highly recommended to seek advice of experts, who will provide help on the individual basis after familiarizing themselves with the circumstances.