Taxation in France

An individual is considered tax resident in France if their home, principal location, professional activity or "centre of economic interests" is in France. Residents are subject to Income Tax on their worldwide income.

Non-residents are subject to tax on their French source income, and are liable to Income Tax, VAT, Capital Gains Tax, Inheritance Tax and Wealth Tax. Non-residents are obliged to make an annual return for income tax if they receive income in relation to a property for the previous calendar year.

Income Tax

Non-residents are subject to tax at the marginal rate on their French source rental income only, subject to a minimum of 25%. Furnished and unfurnished properties are treated differently for tax purposes - rental income derived from furnished property is deemed commercial income.

Where the gross income from unfurnished property does not exceed €15,000 p.a. a flat rate deduction of 40% is available instead of actual expenses. Where the income exceeds €15,000 p.a. actual expenses are deductible in addition to a 14% flat rate deduction (a form of capital allowance).

For furnished property, if gross rental income is less than €76,300, a deduction of 72% can be made instead of actual expenses. The lessor can opt for actual deductions with an additional deduction of 20% provided a government "Management Centre" monitors the accounts.

Where French income tax applies to the rents, a credit will be given for this against the Irish tax on French income.

Stamp Duty

Stamp duty may be payable on the acquisition of property in France at a rate of 6%, and 0.6% for property less than 5 years old.

VAT

The purchase of a new or off the plan property is subject to VAT. However, in a sale and leaseback arrangement, there is an immediate leaseback to the developer or to an associated company of the developer under a commercial lease thereby making it possible to claw back the VAT that would otherwise have been payable.

VAT on a sale of a property only applies to a sale with 5 years of completion at a rate of 19.6% and is due by the vendor.

Local Taxes

There are two local taxes, which vary according to the regional and local government. They are based on residence and ownership at the start of each year and the amount payable is a function of the property's deemed rental value. The taxes are usually payable in November. The local selling agent should be able to advice on the rate of local tax that would apply.

The "taxe d'habitation" is payable by the occupant of a furnished dwelling on the actual rental value of the residence. It is usually between 5% - 15% of the actual rental value of the residence. The tax must be paid even if the property is not occupied at the start of the year.

The "taxe fonciere" is due by the owner of a French home or undeveloped land whether occupied or not. Purchasers of new property have a 2 year exemption from the tax. The local Mairie must be informed when the works are finished in order to get the exemption.

A net wealth tax of between 0.55% -1.8% is levied on individuals whose taxable net wealth is greater than €720,000. Individuals whose net wealth is less than €1,160,000 are levied at 0.55% on the excess over €720,000. Non-residents are taxable only on the portion of their assets are located in France.

The filing date for non residents in 15 July. Mortgages and loans are deductible. The total amount of net wealth tax plus income tax may not exceed 85% of the taxpayer's net taxable income for the preceding year.

Capital Gains Tax

In France, there may be a charge to CGT on the disposal of a property. This liability will be payable by the Vendor and either the purchaser or the Notaire in France should withhold the tax.

For non-French residents domiciled in the EU, the rate of CGT is 16% on the disposal of French property. The gross gain is reduced by 10% per year of holding from the 6th year of ownership such that gains are exempt where the property is held for 15 years.

A person who habitually buys in order to sell property will be deemed to be a property dealer and charged a CGT rate of 50%.

An individual who is Irish resident or ordinarily resident will be liable to Irish capital gains tax on the disposal of a French investment property. No credit is available against the Irish CGT on the gain for any French CGT paid. Relief for tax by deduction (taxing the gain in Ireland after deducting the foreign tax) is not available for capital gains. However, it may be available on a concessionary basis by submission to Revenue.

Inheritance Tax

As Succession laws in other jurisdictions can create difficulties at the time of death. On the purchase of French property it is vital to be aware of them and to ensure that a French will is prepared in respect of the French assets. Care must be taken to ensure that the standard narrative "… I hereby revoke all prior will ands testaments…" is not included, as the Irish will may be revoked. The French will should be referenced in the Irish will and vice versa.

In France, there is a "forced heirship" rule, whereby children have mandated rights to a certain proportion of your French property. If one has no children, other members of the family qualify as legal heirs and so enjoy mandated rights to a proportion of the property. Contrary to the situation in Ireland, a husband or wife is not considered a legal heir and has no automatic right to the legal reserves.

The rate of tax, like Ireland, depends on the relationship between the disponer and the beneficiary, and the value of the property. For a heritance from a spouse or parent, the rates are progressive from 5% to 40% on inheritances in excess of €1.7m. For an inheritance by a sibling, the rate is either 35% or 45%, depending on whether or not the value exceeds €23,000.

French succession law can cause considerable difficulty to non-residents. In particular where there is a dispute between children and parents, where a husband and wife have children by previous marriages and also, where the children are minors. If a minor inherits French property, they are vested in possession by operation of law.

A charge to gift or inheritance tax may also arise in Ireland, but the Irish/French Tax Treaty does not cover gift or inheritance tax.

There are a number of ways to postpone having the property passing to the children and thereby overcoming some of the inheritance problems, but specialist legal advice must be sought.

However, investment property purchases in France can be structured through a company - Societe Civile Immobilere (SCI) with a registered office in France so that the enforced French heirship rules can be avoided. However, French inheritance tax still applies on the transfers of the shares. Rental income arising on the lease of furnished apartments is treated as a commercial activity when the property is held through a company and therefore is subject to corporate tax in France at a rate of 15% up to €38,120 net profits and thereafter at 33.3%.

Under the current Irish/French tax treaty, the disposal of shares in a French company is liable to tax exclusively in Ireland where the shareholder is Irish tax resident.

For more information on the Irish Double taxation agreement with France please click here

This document is only to be used as a guide to the tax systems in each country. It is not to be relied upon for tax planning reasons. Please contact Anne Brady DFK for advice if you require more information.