The French 3% tax

The French 3% tax (articles 990 D to 990 G of the French Tax Code) is an annual French tax charged on the fair market value, as at 1 January, of real estate or real-estate rights located in France and held, directly or indirectly, by legal entities (companies, funds, trusts, foundations). Its purpose is to counteract the opacity of cross-border ownership chains by imposing a recurring cost on foreign entities that do not disclose their shareholder base.

All legal entities, whether French or foreign, that hold French real estate directly or through intermediaries are liable: companies (SCIs, SAS, foreign companies), funds (FCPI, FPCI, foreign funds), trusts (article 990 D para. 2 of the French Tax Code), private foundations, Stiftung entities and anstalts. Where there is a chain of holdings, the tax is payable by the entity or entities closest to the buildings that are not exempt under point d or e of 3° of article 990 E (article 990 F), and every entity interposed between them and the buildings is jointly liable for payment.

Article 990 E of the French Tax Code provides for three series: (1°) international organisations, sovereign States and the entities they control; (2°) entities whose French real estate represents less than 50% of their French assets (excluding property used for a non-real-estate business), or whose securities are listed on a regulated market; (3°) for entities with their seat in France, in the European Union, in a country or territory bound to France by an administrative assistance convention or in a State whose treaty gives them the same treatment as French entities: share in French real estate below EUR 100,000 or 5% of its value, bodies set up to manage pension schemes, bodies recognised as of public utility or run on a non-profit basis whose activity or funding justifies owning the property, SPPICAVs and certain real-estate investment funds (or equivalent foreign vehicles), and entities that file a return each year by 15 May showing their buildings and their shareholders holding more than 1% (point d requires the identity of all holders above 1%, point e that of the holders known to the entity, pro rata). Since the law of 25 June 2026, an undertaking to disclose that information on request is no longer enough.

Law no. 2026-534 on combating social and tax fraud removes the exemption obtained by an undertaking to disclose the shareholders to the tax authorities on request: the exemption now requires an actual annual return filed by 15 May. It also requires entities that must file and have no permanent establishment in France to appoint a representative in that return (article 990 FA); failing that, the entity closest to the buildings in the chain and known to the tax authorities, even if exempt, is deemed to receive the tax authorities' communications. In the absence of a transitional provision, and subject to administrative clarification, the new regime appears to apply for the first time at the 15 May 2027 deadline.

No. On 1 April 2026 (no. 25-10.605) the Cour de cassation held that the two means of supplying information in article 990 E, 3°, d, the annual return and the undertaking to disclose on request, are mutually exclusive: an entity that spontaneously sends annual returns can no longer rely on the procedural safeguards attached to the undertaking. Since the law of 25 June 2026, only the annual return remains.

Form 2746-SD is the annual return for the French 3% tax. It must be filed each year by 15 May at the latest, together with payment, at the office designated under article 121 K ter of Annex IV to the French Tax Code: the tax office of the principal establishment for entities seated or established in France; for other entities, the office competent for their other reporting obligations (taxes other than local taxes) or, failing that, the foreign companies tax office (SIEE) of the non-residents tax directorate (DINR). It is filed by the taxpayers and, since the law of 25 June 2026, by every entity claiming the declarative exemption of article 990 E, 3°, d or e: the undertaking to disclose on request no longer exists. Entities without a permanent establishment in France name in it a recipient of notifications domiciled or established in France (article 990 FA). Failure to file means loss of the exemption and assessment of the tax.

It may be. Article 990 D covers fiducies and "comparable institutions", a category to which a trust may belong depending on its characteristics. A trust that falls within article 990 D can invoke 3° of article 990 E only if it meets the seat condition of that provision; it must then satisfy the requirements of point d or e to be exempt: it then files a return each year by 15 May showing its buildings and its members above 1%; since the law of 25 June 2026 a mere undertaking is no longer enough. Failing that, the French 3% tax is due. Coordination with the reporting obligations of article 1649 AB of the French Tax Code (2181-Trust returns) is essential, as is coordination with administrative assistance agreements.

Jurisdiction lies with the civil court (the tax is treated as a registration duty). The taxpayer first files a preliminary claim with the tax authorities, then issues a summons before the civil court if the claim is rejected. Disputes frequently concern (i) compliance with the conditions of the declarative exemption of article 990 E, 3°, (ii) the qualification of the main asset under the asset test, and (iii) compliance with European Union law (free movement of capital). Appeals may reach the Cour de cassation, and even the CJEU.

The due diligence should cover (i) compliance with past filing obligations by all entities in the chain, (ii) the quantification of the latent tax liability (tax plus interest plus fines), and (iii) the negotiation of protections in the SPA (representations & warranties, indemnity mechanism). After completion, a simplification of the chain and the setting up of annual returns should be considered to limit the recurring risk.

Yes, because their scope differs. The French 3% tax is payable by the legal entity on the fair market value of French real estate as at 1 January. The IFI (real-estate wealth tax) is payable by individuals on the net value of their real-estate wealth (held directly or through predominantly real-estate companies). The two taxes can therefore apply cumulatively in a chain where the legal entity pays the French 3% tax and the individual shareholders are liable for the IFI on the value of their shares.