For foreign investors looking to purchase property in France, understanding the complex tax landscape is crucial for making informed investment decisions. This comprehensive guide will walk you through the essential tax obligations and considerations when buying and owning real estate in France.
Understanding French Property Taxes: An Overview
The French real estate tax system is designed to regulate and tax all stages of the acquisition, possession, and transfer of real estate. Therefore it is structured around several main taxes and fees, covering both real estate transactions and the recurring costs associated with owning the property. Although subject to the same rules as French residents, foreign buyers often face administrative and tax specificities due to their non-resident status.
Types of Property Taxes in France
In France, real estate taxation is based on several types of taxes that owners need to understand and anticipate. These taxes apply to both ownership and the value of the property. Their impact can vary depending on the characteristics of the property and the owner’s personal situation.
1. Property Ownership Tax (Taxe Foncière)
The property tax is an annual tax payable by all property owners in France, whether they are residents or foreigners. It applies to both main residences and second residences.
This tax is calculated on the basis of the property’s cadastral rental value, which corresponds to the theoretical income the property could generate if it were rented. The amount of the tax varies depending on geographical location, as each municipality sets its own tax rate. On average, the amount of property tax is around 1% of the value of the property per year.
Some partial or total exemptions may apply in certain situations, such as for new constructions or people with disabilities.
Legal basis : Articles 1380 to 1406 of General Tax Code
2. Dwelling Tax (Taxe d’Habitation)
The housing tax is an annual tax that applies depending on the use of the property. Indeed, it has been phased out for main residences since 2020, but it remains applicable for :
- Second homes
- Vacant or unoccupied real estate
The tax is calculated on the same basis as property tax. In other words, it is based on the rental value of the property. However, its amount can be significantly increased by local surtaxes. For instance, foreign buyers should note that popular tourist areas often impose higher rates on second homes.
3. Wealth Tax on Real Estate (IFI)
For properties with a net worth of more than 1.3 million euros, owners may be subject to the Real Estate Fortune Tax (IFI). Only real estate assets held in France are taken into account for non-residents.
This tax follows a progressive scale depending on the total value of the property :
- up to €800,000 : exoneration
- between €800,000 and €1,300,000 : 0,5%
- between €1,300,000 and €2,570,000 : 0,7%
- between €2,570,000 and €5,000,000 : 1%
- between €5,000,000 and €10,000,000 : 1,25%
- more than €10,000,000 : 1,5%
Legal basis : Article 977 of the French General Tax Code
For further information on taxes, you can refer to this notice from the French government and this website of the French government.
Transaction-Related Taxes
When purchasing a property in France, buyers, whether resident or foreigner, are subject to several taxes and fees related to the transaction.
- Transfer Tax (Droits de Mutation) : It is a tax included in the notary fees and collected by the state on each property transaction. Their amount depends on the nature of the property acquired.
- For an older property : it is usually set at 5.8% of the sale price, but can vary slightly between departments.
- For a new property : this tax is reduced to a lower flat rate (0.715%) since new dwellings are subject to real estate VAT.
- Legal basis : Articles 682 to 717 of General Tax Code
- VAT on New Properties : The purchase of a new property in France is subject to real estate VAT at the standard rate of 20%.
- Exceptions : A reduced VAT rate of 5.5% is applied to social housing or 10% to priority areas.
- Legal basis : Bofip-impôts n°BOI-TVA-IMM-10-10-10 and Articles 257, 261, 278 and 279 of General Tax Code.
- Notary Fees : They are paid by the buyer when the authentic deed is signed and are added to the sale price. Notary fees actually include several types of costs.
- Registration fees : They are taxes collected by the state. It is 7-8% of the purchase price for older property and 2-3% for new property.
- Emoluments of the notary : It is a fixed amount calculated according to a proportional scale fixed by decree.
- Miscellaneous : They are small administrative expenses related to the management of the file (e.g. costs of publication to the real estate file).
Capital Gains Tax for Foreign Sellers
When selling a property in France, all owners are subject to a capital gains tax. This tax relates to the difference between the sale price of the property and its purchase price. The regulation on capital gains tax varies depending on the seller’s status (EU or non-EU resident) and the length of time the property has been held.
- Basic rate of taxation
- Residents of the European Union : The rate is set to 19% of the amount of net capital gains realized on the sale of the property.
- Non-residents of the European Union : The rate is set to 33.33% of the amount of net capital gains realized on the sale of the property.
- Additional social charges : Social security contributions are added to the capital gains tax.
- Residents of the European Union : It is usually set to 17.2% of the net capital gains after the application of capital gains tax.
- Non-residents of the European Union : The rate is usually reduced to 7.5% of capital gains.
- Sliding scale reductions based on ownership duration : The longer a property is held, the less capital gains are taxed, including the basic tax and the social security contributions.
- Reductions on capital gains tax : A reduction of 6% per year is applied after 5 years of detention and the tax is fully exempt after 22 years of detention.
- Reductions on social security contributions : A reduction of 1.65% per year is applied from the 6th year of detention and the contributions are fully exempt after 30 years of detention.
Legal basis : Articles 150 A bis to 150 VH and 200 B of General Tax Code
Tax Planning Strategies
Foreign investors in France must adopt a tax strategy to minimize costs when buying, owning, and selling property. Several options can be considered to reduce the tax burden :
Consider different ownership structures
The choice of the legal structure of the property can have a significant impact on taxation :
- Direct ownership : Direct ownership means that the buyer holds the property in his or her own name and is often used by small investors. But, it exposes the investor to direct capital gains tax in the event of resale, as well as income tax on rental income.
- SCI : The income is generally subject to income tax or corporation tax, depending on the tax rate chosen.
- Company ownership (SAS) : The company can choose to be subject to corporate tax (CI), which allows for a more favourable capital gains tax regime.
Legal basis : Articles 8 to 12 and article 206 of the General Tax Code
Take advantage of tax treaties between France and your home country
France has signed several tax treaties with many countries in order to avoid double taxation. In other words, the same income or gains of a resident from another country will not be taxed both in France and in the home country. The tax treaties therefore define the distribution of tax rights between the countries concerned. Indeed,
Plan for inheritance tax implications
Inheritance taxes in France are among the highest in Europe. For foreign investors, it is important to plan the transfer of their real estate assets in order to minimize inheritance taxes :
Donation of the property : Donation of the property prior to death to children is qualified for discounts on donation rights.
Use of SCI : Property owners can decide to donate their property through SCI shares in order to benefit from a more favourable tax treatment in terms of inheritance rights since they avoid the direct transfer of the property.
Legal basis : Articles 779 à 787 C of CGI of
Exemption for principal residence : The sale of the principal residence can be exempt from certain inheritance taxes when certain conditions are filled.
Legal basis : Articles 792-0 bis à 797 A of CGI
Time your property sale to benefit from capital gains reductions
The capital gains tax can be reduced or exempted depending on the length of ownership. To take advantage of this time reduction or exemption, it is essential for foreign investors to plan the sale strategically :
- Ownership for more than 5 years : capital gains tax is reduced to 6%.
- Ownership for more than 22 years : capital gains tax is completely exempt
Real estate may benefit from specific exemptions depending on its nature, including principal residences, which are exempt from capital gains tax, even if they are resold after a few years.
Regional Variations
In France, real estate tax rates and regulations vary by region due to local municipal, departmental, and regional policies:
- High-demand areas : it involves popular areas like Paris, the French Riviera, and Alpine regions.
- Property and housing tax : Their rates are relatively high due to the high demand for real estate and the high concentration of luxury properties and high-priced second homes.
- Notary fees : They are generally higher due to the high value of the properties.
- Rural areas : Tax rates are lower since these regions do not profit from economic advantages of big cities. Therefore, it also means lower rental yields due to lower demand for real estate.
Dense urban areas such as Paris or the Côte d’Azur attract high rental demand, which can allow landlords to generate high rental returns. However, this high demand can also lead to higher taxes, particularly due to increases in the rental value of properties.
For an example of tax disparities, you can refer to this article on Paris.
Recent Changes and Updates in Property Taxation
In 2024, several significant changes were made to property taxation in France, affecting both domestic and foreign owners. These changes reflect the government’s objectives to modernise the tax system and promote more sustainable real estate practices.
Continued phase-out of Housing Tax for primary residences : The housing tax reform was completely removed for main residence this year. This measure provides significant financial relief for households, including foreigners who reside mainly in France.
Legal basis : Article 16 ou Law on Finance 2020
Updated property value assessments affecting Property Tax calculations : France has updated the cadastral rental values used to calculate the property tax to adapt to the evolution of the real estate market. The reform has resulted in a potential increase in property tax rates for many property owners, particularly in major cities and tourist areas.
Modified regulations for energy efficiency requirements and related tax benefits : Landlords have to ensure their properties meet minimum standards for thermal insulation and energy performance to be rented. Homes rated G according to the Energy Performance Assessment (EPA) will be banned from renting from this year.
For more information on possible tax reforms in 2025, you can refer to this article.
Practical Tips for Foreign Buyers
To navigate French property taxes effectively:
- Maintain accurate records of all property-related expenses
- Set up a French bank account for tax payments
- Consider working with a French tax advisor
- Stay informed about annual filing deadlines
Conclusion
Understanding and planning for French property taxes is essential for foreign buyers. Proper preparation and expert guidance maximize investment and ensure tax compliance.
Important: Tax laws and rates are subject to change. Always consult with qualified tax professionals and legal advisors for the most current information and personalized advice.
Head office: 14th floor, HM Town Building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn
Email: miller@hmlf.vn
Leave a reply