Real-estate taxation

Real-estate taxation covers all the tax rules applicable to transactions on buildings: real-estate VAT (VEFA, BEFA, land, works), transfer duties (notary fees, undertakings to build and to resell), corporate and personal income tax on rents and capital gains, IFI (real-estate wealth tax), the 3% tax (French Tax Code art. 990 D to H), local taxes (land tax, Paris-region office tax, TASCOM, vacant dwellings) and the flat-rate tax on land that has become building land.

A sale of a new building (completed less than 5 years ago) by a taxable person is subject to VAT on the full price. A sale of an existing building is in principle exempt, with a possible option to charge VAT (on the full price or on the margin depending on the situation). Sales of building land follow a specific regime. The qualification — new, existing, building land — and the seller's status (taxable person or not) determine the applicable regime, the taxable base and deductibility.

The undertaking to resell (article 1115 of the French Tax Code) allows property dealers to acquire buildings while benefiting from a reduced transfer duty (€125), provided the building is resold within a 5-year period. Otherwise, the duties are reclaimed with interest. The undertaking may be transferred to a new purchaser or replaced by an undertaking to build (article 1594-0 G, A) subject to conditions. See our article on property-dealer notary fees.

The 3% tax (French Tax Code art. 990 D to 990 H) is payable each year by legal entities (companies, funds, trusts) that hold — directly or indirectly — buildings located in France, on their market value. It is intended to neutralise the opacity of ownership chains. Numerous exemptions exist (listed entities, State bodies, entities under agreement that report their shareholders). Litigation on this tax is frequent — it is a central issue in the real-estate taxation of non-residents.

Optimisation runs through: (i) the choice of the applicable regime for each flow (sale, letting, re-invoicing); (ii) the structuring of vehicles (VAT group, sectorisation); (iii) the option policy for VAT on commercial leases; (iv) careful drafting of the VAT clauses in the deeds; (v) proactive management of VAT credits and refunds. Securing matters in advance avoids later reassessments on transactions that are often high-stakes.

A non-resident's real-estate capital gain (French Tax Code art. 244 bis A) is subject to a withholding levy of 19% for income tax + 17.2% of social levies (unless a social exemption applies to EU/EEA/Swiss residents affiliated to a foreign scheme). Holding-period allowances apply (full income-tax exemption after 22 years, social-levy exemption after 30 years). Non-residents outside the EU/EEA must generally appoint an accredited fiscal representative. See also our page on non-resident taxation.

The real-estate wealth tax (IFI) applies to net taxable real-estate wealth above €1.3m, whether held directly or through companies (units, shares). French tax residents are taxable on their worldwide real-estate wealth; non-residents are taxed only on their assets located in France (unless a more favourable tax treaty applies). The IFI requires an annual valuation, the application of allowances (main residence, business assets) and the deduction of debts allocated to the real-estate wealth.

The real-estate fiducie allows the ownership of a building to be transferred temporarily to a fiduciary for a purpose of security or management. Taxation is largely neutralised: no transfer duties for consideration on set-up in most cases, transparency for VAT and corporate income tax, accounting ring-fencing within the fiduciary estate. This neutrality makes the fiducie a powerful tool for structured financing and warehousing transactions.