Hotel industry — VAT & structuring

Hotel & VAT:
the risks of structuring

The classic structure for hotel operations, a property SCI that owns the building and leases it to an operating company (SARL/SAS), raises technical VAT questions. The operating company is automatically a taxable person for VAT on its accommodation services (reduced rate 10%, Tax Code art. 279 a) and enjoys an extended right of deduction. But the commercial lease between the SCI and the operator involves structuring choices: election for VAT or exemption? Is the SCI a taxable person or not? What is the VAT regime on the acquisition of the building? How does this interact with the para-hotel services of article 261 D, 4° of the Tax Code? The Conseil d'État ruling of 12 November 2025 (n° 498267) has reframed the doctrine and requires a re-audit of existing structures.

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— In brief
Hotel VAT framework
Tax Code art. 261 D, 4° — automatic liability to VAT
Applicable rate
10% (Tax Code art. 279, a — accommodation services)
Common structure
Property SCI + operating company (SARL/SAS)
Structuring choice
VAT election on the commercial lease — the SCI's right of deduction
Key decision
Conseil d'État 12 November 2025, n° 498267 — para-hotel reframing
— 01

Hotel structuring, a multi-layered VAT terrain

Hotel operation is automatically a taxable activity for VAT on its accommodation services. Point b of the 4° of article 261 D of the Tax Code expressly excludes from the general exemption for furnished lettings the services falling within the hotel sector or sectors with a similar function. The applicable rate is 10% (Tax Code art. 279, a). Correspondingly, the operator has a right of deduction on its purchases and investments.

The most common structure isolates the asset in a property SCI and the operation in a commercial company (SARL/SAS) that takes the building on lease. This separation of assets and operation raises a cascade of VAT questions: must the SCI elect for VAT on the commercial lease? Does this election allow the recovery of the VAT on acquisition or construction? How does it interact with para-hotel operations?

The Conseil d'État ruling of 12 November 2025 (n° 498267) adds a layer of analysis for structures halfway between hotel activity and seasonal furnished letting: the strict reading of the para-hotel criteria (regular cleaning, provision of linen) now requires precise documentation of how the services are organised. Many long-standing hotel structures require a compliance audit.

— 02

5 structuring risks to anticipate

Each risk opens a contractual and tax point of vigilance. Their interaction determines the real profitability of the structure.

1. VAT election on the SCI to operator commercial lease

Where the SCI leases the bare building to an operating company, the lease is in principle a letting of bare premises for professional use, exempt from VAT (Tax Code art. 261 D, 2°). The SCI may elect for VAT on the basis of article 260, 2° of the Tax Code, but this election is available only if the lessee is itself a taxable person for VAT (or if the lease expressly provides for this status, failing which the election cannot be validly exercised). The election allows the recovery of VAT on acquisition and works; it is irrevocable until 31 December of the 9th year following the year in which it is made (BOI-TVA-CHAMP-50-10). A strategic choice to be settled from the outset of the structure.

2. Recovery of VAT on the acquisition of the building

On an acquisition of a new building or off-plan (VEFA), the VAT on acquisition is substantial (up to 20%). Its recovery by the SCI presupposes: (a) that the SCI is a taxable person for VAT (lease election); (b) that the building is assigned to a taxable activity giving rise to a right of deduction (letting with VAT, para-hotel services, etc.); (c) that the coherence of the structure is maintained over time. A break in the structure may trigger an adjustment of the deducted VAT.

3. Re-invoicing between the SCI and the operator

The re-invoicing of charges, works or services between the SCI and the operator must follow precise rules. In VAT terms, re-invoicing may generate friction (VAT collected by the SCI vs limited deduction for the lessee) or raise a question of economic coherence of the operation (re-invoicing at cost, internal margin, mandates). Rigorous documentation of the nature of the operations (intra-group services, ancillary lettings, mandates) is indispensable to secure the applicable VAT regime and preserve the deduction chain.

4. Shift to para-hotel activity: self-supply of services

Where the SCI itself provides the ancillary services (breakfast, cleaning, linen, reception) rather than leaving them to the operator, the risk is that it shifts into a para-hotel activity itself, with consequences for its characterisation (automatic taxable person), its legal regime and its reporting obligations. The Conseil d'État ruling of 12 November 2025 requires rigorous documentation of who assumes what.

5. Exit from the structure: VAT adjustment

On a disposal of the building or a termination of the lease, the VAT deduction coefficient may be called into question. A disposal of a building exempt from VAT after recovery of the VAT on acquisition triggers an adjustment by twentieths over the residual depreciation period (Tax Code, annex II, art. 207). Anticipation is indispensable on exit.

— 03

Our method at the firm

The firm advises hotel operators, property companies and investors throughout the life cycle of a hotel operation: initial structuring (choice of SCI/SARL/SAS, VAT election, recovery of VAT on acquisition), operational follow-up (re-invoicing, BOFIP updates, para-hotel audit), exit operations (disposal, termination, VAT adjustments).

Our cross-cutting command of VAT, CIT, income tax, registration duties and BIC allows us to structure schemes as a whole rather than in tax silos. The contractual documentation (commercial lease, mandates, intra-group agreements) is secured to withstand audits.

— Frequently asked questions

Everything you need to know before structuring a hotel operation

Is a hotel operation always a taxable person for VAT?

Yes, automatically. Point b of the 4° of article 261 D of the Tax Code excludes services falling within the hotel sector from the general exemption for furnished lettings. The operator charges VAT at 10% (Tax Code art. 279, a) on its accommodation services and enjoys a right of deduction on its purchases and investments.

Why separate the property SCI and the operating company?

For asset-protection reasons (isolating the real-estate asset from any difficulties of the operation), tax reasons (flexibility on the applicable regime, choice of the VAT election, CIT / income-tax optimisation) and operational reasons (separate disposal of the property or the business, transmission, partnerships). In return, the separation creates a commercial lease between the two entities, whose VAT regime must be settled (election or exemption).

Can the SCI recover the VAT on acquisition or construction?

Yes, provided it elects for VAT on the commercial lease entered into with the operating company (Tax Code art. 260, 2°). This election makes the SCI a taxable person for VAT, which gives rise to the right to deduct input VAT (acquisition, works, charges). The election must be made from the outset of the structure and is irrevocable until 31 December of the 9th year following the year in which it is made (BOI-TVA-CHAMP-50-10).

What are the pitfalls of re-invoicing between the SCI and the operator?

Three classic pitfalls: (1) re-invoicing at cost without margin, which raises the economic coherence of the structure and may be called into question on CIT grounds, independently of the VAT issue; (2) re-invoicing of ancillary services (cleaning, management), which may shift the SCI itself into para-hotel activity; (3) re-invoicing of works, where the interaction of collected VAT and deductible VAT must be documented precisely. A well-drafted intra-group agreement secures these operations.

How should one position after the Conseil d'État ruling of 12 November 2025?

The ruling n° 498267 of 12 November 2025 imposes a strict reading of the para-hotel criteria (regular cleaning, provision of linen). The practical consequence for tourist residences, aparthotels and hotels with reduced services: the organisation of the services must be re-audited, the service-provider contracts documented, and the reception arrangement (in particular digital) formalised. The firm offers a dedicated compliance kit.

What happens on a disposal of the building?

If the SCI has recovered the VAT on acquisition and disposes of the building exempt from VAT (Tax Code art. 261, 5 for buildings completed more than 5 years earlier), it must carry out an adjustment of the VAT initially deducted, by twentieths over the residual period (Tax Code, annex II, art. 207). Electing for VAT on the disposal (Tax Code art. 260, 5° bis) may neutralise the adjustment, a choice to be settled in light of the acquirer's position.

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A hotel structure to set up, optimise or defend?

A confidential first exchange to analyse the SCI/operator scheme, secure the VAT on acquisition and the lease elections, and anticipate the adjustments on exit.

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François Ouairy, avocat associé

Written by

Me François Ouairy, avocat associé en charge du bureau de Paris, expert en fiscalité immobilière, fiducie et fiscalité financière.

© BENSAID Avocats — The information on this site does not constitute legal advice and cannot replace a personalised tax analysis.