Real estate VAT, building land

Building land: tax definition, VAT and transfer duties

For French tax purposes, building land (terrain à bâtir) is governed by an objective definition: building land is any land on which constructions may be authorised under a local urban plan (plan local d'urbanisme), another equivalent planning document, a communal map (carte communale) or article L. 111-3 of the French planning code (article 257, I, 2, 1° of the CGI). The parties' intentions are irrelevant. This classification determines the entire tax treatment of the sale: VAT applies as of right where the seller is a taxable person acting as such, charged on the full price or on the margin depending on whether the acquisition of the land carried a right to deduct input VAT, and transfer duties are modulated by the commitments given by the purchaser, a resale commitment at the reduced rate or a building commitment at the fixed duty. The firm secures the classification and the tax regime of each sale.

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— In brief
Definition
Land on which constructions may be authorised under a planning document (CGI, art. 257, I, 2, 1°); objective test, the parties' intentions are irrelevant
VAT
Applies as of right to a sale by a taxable person acting as such; exempt where the seller is not a taxable person
Taxable amount
Full price as a rule; margin-scheme VAT (art. 268 of the CGI) if the acquisition carried no right to deduct, subject to conditions
Transfer duties
Reduced rate with a resale commitment (art. 1115), fixed duty with a building commitment (art. 1594-0 G)
Borderline
A building unfit for any use is treated as building land
— 01

An objective definition that determines the entire tax treatment of the sale

Since the 2010 reform of French real estate VAT, building land is no longer defined by the purchaser's intention to build but by an objective planning-law test: article 257, I, 2, 1° of the CGI, as amended by the law of 16 August 2022, covers land on which constructions may be authorised under a local urban plan (plan local d'urbanisme), another equivalent planning document, a communal map (carte communale) or article L. 111-3 of the French planning code. Whether the purchaser intends to build, subdivide or simply hold the land is irrelevant: the classification follows from the land's status under the planning documents in force on the date of the sale.

This classification has cascading consequences. For VAT purposes, the sale of building land by a taxable person acting as such is taxable as of right, with no option and no way to escape it, whereas the sale of non-buildable land is exempt. The taxable amount then depends on the land's history: the full price as a rule, the margin where the acquisition carried no right to deduct input VAT (article 268 of the CGI), subject to conditions clarified by the case law.

For transfer duties, the classification opens two alternative preferential regimes to a taxable purchaser: the resale commitment within five years, which reduces the duties to the reduced rate of 0.715% (article 1115 of the CGI), and the building commitment within four years, which replaces the proportional duties with a mere fixed duty of 125 euros (article 1594-0 G of the CGI). The choice between these commitments, how they interact and how they are monitored over time are a significant lever on the overall cost of the transaction.

The firm deliberately takes on a limited number of engagements to guarantee the direct involvement of its partners in every matter, and systematically assesses whether its involvement adds value before accepting any engagement.

— 02

The building land regime, point by point

01

The tax definition and the borderline with built property

The classification follows solely from the land's zoning in a buildable area; it also absorbs certain plots carrying ruined constructions.

  • Building land means land on which constructions may be authorised under a local urban plan, another equivalent planning document, a communal map or article L. 111-3 of the French planning code (CGI, art. 257, I, 2, 1°)
  • An objective test: the purchaser's intention to build, the clauses of the deed or the intended use have no bearing on the classification
  • Land carrying a building unfit for any use (a ruin, a building whose condition makes any use impossible, an unfinished construction site) is treated as building land, according to the published position of the tax authorities
  • Conversely, land carrying a building that is still usable, even one earmarked for demolition, falls in principle within the regime for built property; the dividing line is assessed case by case and is worth documenting in the deed
02

VAT as of right on a sale by a taxable person

Where the seller is a taxable person acting as such, the sale of building land is subject to VAT with no available option.

  • The supply of building land by a taxable person acting as such is taxable as of right (CGI, art. 257): property dealers, land developers, site developers and property developers, but also any business selling land used for its economic activity
  • A private individual who sells building land as part of the management of personal assets does not act as a taxable person: the sale is outside the scope of VAT; the line can shift, however, where the seller takes active marketing steps or carries out development works
  • No option is required or available: taxation is not in question, only the taxable amount (full price or margin) varies
  • The VAT charged by the taxable seller is in principle deductible by the purchaser who uses the land for an activity carrying a right to deduct, which shifts the economic stakes to the transfer duties
03

Full price or margin: the role of deduction rights at acquisition

The taxable amount depends on the land's history in the seller's hands: this is the most heavily litigated point of the regime.

  • The rule: VAT charged on the full price of the sale where the acquisition of the land carried a right to deduct in the seller's hands
  • The exception: margin-scheme VAT (CGI, art. 268) where the acquisition carried no right to deduct, typically a purchase from a private individual; the tax is then charged on the difference between the sale price and the acquisition price
  • An identity condition laid down by the case law (CE, 27 mars 2020, n° 428234, Promialp): the margin scheme requires the property resold to be legally identical to the property acquired; land acquired as built property and resold as building land after division or demolition may be denied the margin scheme
  • The CJEU clarified the scope of the scheme in Icade Promotion (aff. C-299/20): the margin scheme targets acquisitions burdened with non-recoverable VAT, and its application to land whose characteristics have changed between purchase and resale calls for careful review; the position taken on each transaction must be checked against the most recent published guidance and case law
04

Transfer duties: resale commitment or building commitment

A taxable purchaser modulates the registration duties through the commitments given in the deed.

  • Resale commitment (CGI, art. 1115): a taxable purchaser who commits to resell within five years benefits from the reduced rate of 0.715% instead of the ordinary duties; the natural regime of the property dealer
  • Building commitment (CGI, art. 1594-0 G): a taxable purchaser who commits to build within four years pays a mere fixed duty of 125 euros (provided for in article 691 bis of the CGI); the natural regime of the property developer, with extensions available on request
  • The two commitments can be combined: a building commitment may be substituted for a resale commitment while the period is still running, notably where the purchaser's project evolves
  • Failure to honour the commitment within the period exposes the purchaser to payment of the duties from which the acquisition had been relieved, plus late-payment interest: monitoring the deadlines and formalising extension requests are decisive
— 03

Our approach

The firm acts upstream of the sale or the acquisition: analysis of the classification of the land under the planning documents and the condition of any constructions, determination of the applicable VAT regime (the seller's taxable status, full price or margin, verification of the identity condition), the choice between a resale commitment and a building commitment, drafting of the tax clauses of the deed and monitoring of the commitments over time. The firm also assists sellers and purchasers where the classification or the margin scheme is challenged in a tax audit.

  • Building land
  • Margin-scheme VAT
  • Article 268 of the CGI
  • Resale commitment
  • Building commitment
— FAQ

Building land: your questions

What is building land for French tax purposes?

It is land on which constructions may be authorised under a local urban plan (plan local d'urbanisme), another equivalent planning document, a communal map (carte communale) or article L. 111-3 of the French planning code (article 257, I, 2, 1° of the CGI, as amended by the law of 16 August 2022). The definition is purely objective: it depends on the land's status under the planning documents in force on the date of the sale, not on the purchaser's intention to build or on the terms of the deed. Land zoned in a buildable area is therefore building land even if the purchaser has no intention of building on it.

Is the sale of building land always subject to VAT?

No. VAT applies as of right only where the seller is a taxable person acting as such: a property dealer, land developer, site developer, property developer or a business selling land used for its activity. A private individual who sells building land as part of the management of personal assets does not act as a taxable person and the sale falls outside the scope of VAT. The line can nevertheless shift where the seller takes active marketing steps or carries out development works comparable to those of a professional; each situation deserves a specific review.

When is VAT charged on the margin rather than on the full price?

The margin scheme (article 268 of the CGI) applies where the seller's acquisition of the land carried no right to deduct input VAT, typically a purchase from a private individual. The tax is then charged on the difference between the sale price and the acquisition price, not on the full price. The case law has added an identity condition: the Conseil d'État held that the margin scheme requires the property resold to be legally identical to the property acquired (CE, 27 mars 2020, n° 428234, Promialp), and the CJEU clarified the scope of the scheme in Icade Promotion (aff. C-299/20). Land acquired as built property and resold as building land, or land divided between purchase and resale, may therefore be denied the margin scheme.

What is the resale commitment under article 1115 of the CGI?

It is the commitment, given in the deed by a taxable purchaser, to resell the property within five years. It reduces the taxation of the transfer to the overall reduced rate of 0.715% (land registration tax at the 0.70% rate provided for in article 1594 F quinquies of the CGI, plus assessment and collection costs), instead of the ordinary duties. It is the natural regime of the property dealer, who buys in order to resell. If the resale does not take place within the period, the purchaser becomes liable for the duties from which it had been relieved, plus late-payment interest, unless a building commitment is substituted while the period is still running.

What is the building commitment under article 1594-0 G of the CGI?

It is the commitment, given in the deed by a taxable purchaser, to erect a new building within four years. It replaces the proportional duties with a mere fixed duty of 125 euros (article 691 bis of the CGI), which makes it the most favourable regime for a developer or builder. The period may be extended on request to the tax authorities. Failure to honour the commitment, absent an extension, triggers liability for the duties from which the acquisition had been relieved, with late-payment interest.

Can a resale commitment be replaced by a building commitment?

Yes, the two regimes interact. A purchaser who has given a resale commitment may, before the five-year period expires, substitute a building commitment where its project evolves, for example where a property dealer ultimately decides to build itself. The reverse substitution is more constrained. These switches are subject to precise formal and time conditions: they must be carefully formalised in the deeds and with the tax authorities to preserve the benefit of the preferential regime.

Is land carrying a ruin building land?

Where the existing building is unfit for any use, a ruin, a building whose condition makes any use impossible, an unfinished construction site, the published position of the tax authorities treats the whole as building land: the sale then follows the building land regime, with VAT applying as of right if the seller is a taxable person. Conversely, a building that is still usable, even dilapidated or earmarked for demolition, in principle preserves the classification as built property. This factual borderline is a recurring source of tax reassessments: the condition of the building on the date of the sale must be documented precisely.

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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.

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