French real-estate VAT rests on a technical framework built around a handful of key provisions of the French Tax Code: Article 257 (scope), Article 261, 5 (exemption for buildings completed more than 5 years ago), Article 260, 5° bis (election to charge VAT), Article 268 (VAT margin scheme), and Article 257 bis (transfer of a going concern). This guide summarises the rules applicable to the most common transactions: sale of a new building, sale of a building completed more than 5 years ago, application of the VAT margin scheme, and the specific case of the transfer of a going concern. Up to date with the Conseil d'État case law on the identity condition (CE 11 October 2022, no. 464561) and the Promialp ruling (CE 27 March 2020, no. 428234).
Real-estate VAT cannot be reduced to a rate to be applied. Before any computation, the transaction must be properly characterised: is the seller a taxable person acting as such? Is the building new or existing? Building land or built land? Which regime applies (VAT as of right, exemption, margin scheme, relief under art. 257 bis)? Each of these characterisations determines the VAT treatment and the registration duties.
The cost of a recharacterisation is high: VAT reassessment plus late-payment interest under art. 1727 of the French Tax Code (0.20% per month, i.e. 2.40% per year), a 40% or 80% surcharge in the event of deliberate breach or abuse of law (CGI art. 1729), adjustment of input VAT, and forfeiture of the commitment to resell or the commitment to build where applicable. The transaction is secured upstream, in the drafting of the preliminary agreement and the deed.
The firm secures the tax characterisation of every complex real-estate transaction and defends taxpayers against recharacterisations by the tax authorities.
Every real-estate transaction must be matched to a specific regime. The grid below structures the analysis.
A new building within the meaning of 2° of 2 of I of art. 257 of the French Tax Code (not completed more than 5 years ago, plus new construction or works that restored it to a new condition) sold by a taxable person acting as such is subject to VAT as of right at the rate of 20%. Registration duties are then limited to a fixed duty of EUR 125 (including land-registration tax) for the property dealer who has given a commitment to resell (CGI art. 1115).
Article 261, 5 of the French Tax Code exempts from VAT the sale of buildings completed more than 5 years ago. However, Article 260, 5° bis opens an election to charge VAT, which can be relevant where the seller wishes to avoid an adjustment of previously deducted VAT (in twentieths, CGI ann. II art. 207). The election must be clear and unequivocal in the deed of sale (recent case law).
The VAT margin scheme applies only under two cumulative conditions: (a) the acquisition did not give rise to a right to deduct; (b) an identity condition between the acquisition and the resale, covering both physical characteristics and legal characterisation. This second condition is of judicial origin: it is not drawn from the text of art. 268 itself, but was laid down by CE 27 March 2020 (Promialp), no. 428234 (converting built land into building land through demolition excludes the VAT margin scheme) and confirmed by CE 11 October 2022, no. 464561 (for building land carved out of built property, identity requires a separate parcel designation from the initial acquisition onwards).
Where the sale forms part of the transfer of a totality of assets or part thereof between two persons taxable for VAT, art. 257 bis provides that there is no supply for VAT purposes. Consequence: no VAT on the sale, and no adjustment of the input VAT previously deducted. The election under art. 260, 5° bis does not apply in this situation. The BOFiP administrative guidelines (BOI-TVA-IMM-10-10-10-30) require that the election to charge VAT, where exercised as an alternative, be explicit and unequivocal.
A sale carried out by a private individual not acting as a taxable person (within the meaning of art. 256 A of the French Tax Code) is in principle outside the scope of VAT. Caution, however: the CJEU case law Slaby/Kuć (15 September 2011, C-180/10 and C-181/10), followed by the Conseil d'État, established the concept of "active steps of land marketing", which can turn a private individual into an occasional taxable person for the sale of building land.
The firm secures complex real-estate transactions from the preliminary tax-analysis stage: characterisation of the seller and the purchaser (taxable / non-taxable person, acting as such), of the asset (new / existing, building land / built land, identity of characterisation), of the transaction (isolated sale / transfer of a going concern), and arbitration between the available elections (VAT / VAT margin scheme / art. 257 bis relief / combination with the commitment to resell or the commitment to build).
Our cross-disciplinary command of VAT, registration duties, corporate income tax, personal income tax and tax litigation allows the transaction to be considered as a whole. We coordinate directly with notarial offices to secure the drafting of preliminary agreements and notarial deeds, and we defend taxpayers when the transaction is challenged by the tax authorities.
Three main criteria: (1) the status of the seller (a person taxable for VAT within the meaning of art. 256 A of the French Tax Code, acting as such); (2) the nature of the asset (new building, meaning not completed more than 5 years ago plus construction or works restoring it to a new condition, versus existing building); (3) the nature of the transaction (isolated sale versus transfer of a going concern within the meaning of art. 257 bis). If one of these criteria is missing, VAT may not apply.
Article 257, I 2° of the French Tax Code defines the new building: not completed more than 5 years ago and resulting from new construction or from works that restored the building to a new condition. The structural-work criteria are alternative (a majority of the foundations OR of the elements other than foundations OR of the facades excluding cladding OR a vertical extension). The finishing-work criteria are cumulative and require at least two thirds of the elements to be renewed.
The election (CGI art. 260, 5° bis) is relevant where the seller has deducted input VAT (acquisition, works, expenses) and a sale under the exemption would trigger an adjustment in twentieths of the VAT deducted (CGI ann. II art. 207). The election neutralises that adjustment. It nonetheless assumes a purchaser who is itself a taxable person for VAT, failing which the seller must account for VAT on the price without charging it to the purchaser. The election must be clear and unequivocal in the deed.
The VAT margin scheme (CGI art. 268) requires two cumulative conditions: (1) the acquisition did not give rise to a right to deduct (sale between private individuals, exempt sale, etc.); (2) an identity condition between the acquisition and the resale, covering the physical characteristics and the legal characterisation of the asset. This second condition is of judicial origin (it does not appear in the text of art. 268): it was laid down by CE 27 March 2020, no. 428234 Promialp (converting built land into building land through demolition destroys the identity and excludes the VAT margin scheme) and then confirmed by CE 11 October 2022, no. 464561 (carving building land out of a larger property: the parcel distinction must exist from the initial acquisition onwards).
Where a totality of assets or part thereof is transferred between two persons taxable for VAT, art. 257 bis provides that there is no supply of goods or services for VAT purposes. The sale therefore triggers no VAT and no adjustment of the input VAT previously deducted. The benefit of this article is subject to the continuation of the activity by the transferee: the tax authorities verify that the asset remains allocated to the same economic activity.
Yes, in exceptional cases. The CJEU case law Slaby/Kuć (15 September 2011), followed by the Conseil d'État, established the concept of active steps of land marketing: a private individual who deploys means similar to those of a producer or a trader (servicing of the land, marketing, professional intermediation) becomes an occasional taxable person for the sale of building land. See our dedicated analysis: Active steps of land marketing.
The general rule: a transaction subject to VAT is not subject to proportional registration duties (5.80% / 6.40%). A land-registration tax at an overall rate of 0.715% (instead of 5.80%) remains due. The property dealer who gives a commitment to resell within 5 years (CGI art. 1115) additionally benefits from an extended relief. See our analysis: Commitment to resell & abuse of law.
Topics frequently connected with the real-estate VAT guide on transactions.
General framework of real-estate VAT: scope, regimes, elections, exemptions.
Voir la page VATThe regime of art. 268 of the French Tax Code and the Promialp / CE 11 October 2022 case law.
Voir la page VATHow the election to charge VAT works and the formal rules to comply with.
Voir la page Property dealerHow VAT interacts with the commitment to resell and the commitment to build.
Voir la pageA confidential initial discussion to characterise the transaction, weigh the available elections, secure the drafting of the deeds and defend your interests if the transaction is challenged.
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 is no substitute for personalised tax analysis.