Bilateral France-Israel Axis

Investing in France from Israel: real estate, dividends, structuring

A tax resident of Israel investing in France is taxed in France on income from French sources only, under the convention of 31 July 1995. Rental income is subject to income tax at a minimum rate of 20%, rising to 30% above the upper threshold of the second tax bracket (French Tax Code article 197 A), plus 17.2% in social levies, since Israel is neither an EU member nor part of the European Economic Area. Sale proceeds are subject to a 19% levy under article 244 bis A of the French Tax Code, increased by social levies, with an accredited tax representative required in most cases. Dividends from French sources are subject to a 12.8% withholding for individuals, subject to conventional rate caps of 5% or 15%. Our firm structures French investments for Israeli residents and, conversely, advises French residents investing in Israel.

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Rental income
Minimum rate of 20% or 30% (CGI art. 197 A) and social levies of 17.2%, unless election for average rate if more favorable
Sale
19% levy (CGI art. 244 bis A) and social levies of 17.2%; accredited tax representative mandatory above 150,000 euros
Dividends
Domestic withholding of 12.8% (individuals), conventional rate caps of 5% or 15% (1995 convention, art. 10)
Wealth Tax
Tax applies from 1.3 million euros of net French real estate, including indirect holdings through real estate companies (CGI art. 964 and 965)
Pitfalls
3% tax if ownership chain is opaque (CGI art. 990 D); undeclared French accounts in Israel; undeclared Israeli accounts when returning to France
01

A clear conventional framework, French taxation to be anticipated point by point

The Franco-Israeli Convention of 31 July 1995 divides taxing rights between the two states. For an Israeli resident investor, the central rule is simple: real estate income is taxable only in the country where the property is located (article 6 of the convention), that is, in France for a French asset, and real estate gains are also taxable there (article 13). For these gains, Israel retains a taxing right as the country of residence, with double taxation eliminated by a foreign tax credit (article 23), subject to the new immigrant regime which, under current Israeli law, exempts foreign-source income for ten years, a point to confirm with local counsel.

On financial income, the convention caps French withholding: 5% or 15% on dividends depending on participation (article 10), 10% on interest, reduced to 5% for certain bank loans (article 11). French domestic law is sometimes more favorable than the conventional cap: withholding on dividends paid to a non-resident individual is 12.8% (articles 119 bis, 2 and 187 of the French Tax Code), and France generally imposes no withholding on interest paid to non-residents outside non-cooperative jurisdictions.

Planning focuses less on rates, which are known, than on structuring: direct ownership or through a real estate company (SCI), bank financing and deductibility for wealth tax purposes, exposure to the 3% tax if foreign entities are interposed, and coordination with the six-year-in-ten rule of article 750 ter, 3° of the French Tax Code when the investor's children reside in France. A recent firm matter illustrates this: for a Tel Aviv family acquiring a 2.4 million euro Paris apartment, the choice between direct ownership and a family SCI, combined with financing calibration, materially altered annual wealth tax and French succession treatment.

The firm advises on French tax law. For the Israeli side, notably the new immigrant status and local obligations, we work with regular Israeli correspondents, lawyers and accountants, to ensure a coherent reading across both jurisdictions.

02

Investment: point by point

01

Real estate acquisition: financing and ownership structure

The choice between direct ownership and a real estate company is made before closing, not after.

  • Direct ownership: simplicity, individual capital gains treatment on resale, but spousal property and application of French succession law to real estate
  • Family real estate company taxed as a partnership: flexibility of transfer via unit donations, governance by bylaws; tax transparency preserves individual capital gains treatment
  • Real estate company taxed as a corporation or Israeli entity interposed: amortization possible but business capital gains on exit and exposure to 3% tax; to be avoided unless specific analysis supports it
  • Bank financing: French and private banks lend to Israeli residents under conditions; acquisition debt reduces wealth tax base within the limits of articles 973 and 974 of the French Tax Code
02

Rental income, sale, wealth tax: holding taxation

Three separate taxes apply to the same asset, each with its own rules.

  • Rental income: taxation at marginal rates with minimum rate of 20%, rising to 30% above the upper threshold of the second bracket (CGI art. 197 A), unless election for average rate from worldwide income if more favorable
  • Social levies of 17.2% on real estate income and gains: the reduced rate of 7.5% is reserved for those affiliated with an EU, EEA, or Swiss social security regime, excluding Israeli residents
  • Sale: 19% levy (CGI art. 244 bis A) and social levies, holding-period reductions (tax exemption after 22 years, social levy exemption after 30 years), surtax on gains over 50,000 euros
  • Accredited tax representative mandatory for a seller resident in Israel, exemption reserved to EU and EEA, unless sale does not exceed 150,000 euros or property held over 30 years
  • Wealth tax: taxation of French real estate only from 1.3 million euros of net taxable value, including units in companies with predominantly real estate holdings (CGI art. 964 and 965)
03

Dividends and interest from French sources

French domestic law and the 1995 convention combine to the investor's advantage.

  • Dividends paid to an individual resident in Israel: domestic withholding of 12.8%, below the 15% conventional cap (convention, art. 10)
  • Dividends paid to an Israeli corporation holding at least 10% of capital: withholding capped at 5% by the convention versus 25% under domestic law; conventional forms (forms 5000 and 5001) must be filed to obtain the reduced rate or claim a refund
  • Interest: conventional cap of 10% (5% for certain bank loans), but France generally imposes no domestic withholding on interest paid to non-residents
  • Under Israeli law, these French-source revenues are generally taxable in Israel as the country of residence, subject to the ten-year exemption for new immigrants on foreign-source income; Israeli analysis is handled by the firm's regular Israeli correspondents
04

Conducting business in France: permanent establishment or subsidiary

An Israeli corporation developing business in France must choose its vehicle before the tax administration chooses for it.

  • Permanent establishment (convention, art. 5 and 7): fixed place of business or dependent agent habitually concluding contracts; attributable profits are taxable under French corporate tax at 25%
  • The main risk is an undeclared permanent establishment: profit reconstruction, VAT, penalties reaching 80% for concealed activity, and extended audit period to ten years
  • French subsidiary: standard taxation, dividend remittance to Israeli parent capped at 5% withholding if participation reaches 10% (convention, art. 10)
  • The choice between branch and subsidiary is calibrated by expected cash flows, management fees, transfer pricing, and local substance; the firm secures the qualification upfront, if necessary by ruling
05

Pitfalls and the reverse case: investing in Israel from France

Difficulties rarely stem from rates; they stem from overlooked reporting obligations.

  • 3% tax on fair value of real property (CGI art. 990 D et seq.): any ownership chain including foreign entities must be disclosed annually (form 2746 or undertaking to report), exemption open to Israeli entities under the convention; omission costs 3% of fair value per year
  • French resident investing in Israel: disclosure of Israeli bank accounts (form 3916, CGI art. 1649 A) and life insurance or investment contracts (3916 bis); penalty of 1,500 euros per account per year, 80% increase on back taxes if undeclared assets are discovered
  • Israeli income of a French resident: taxable in France on a worldwide basis, double taxation eliminated by foreign tax credit under article 23 of the convention, equal by income type to Israeli tax capped or French tax
  • Return to France after Israeli residency: accounts and contracts opened during expatriation become reportable starting the first year of French residence; voluntary disclosure before any audit is less costly than suffered adjustment
  • Departure from France to Israel to manage investments: exit tax under article 167 bis of the French Tax Code may apply and, since Israel is outside the EU and EEA, payment deferral is not automatic; it requires a prior request, designation of a representative, and generally guarantees
03

Our approach

The firm advises across the full cycle of investment between France and Israel: structuring real estate acquisition (direct, SCI, financing and wealth tax), securing dividend and interest flows under the 1995 convention, qualifying French business activity (permanent establishment, subsidiary), compliance across both jurisdictions (3% tax, forms 3916 and 3916 bis), and succession planning under article 750 ter of the French Tax Code. The firm advises on French tax law and works with Israeli correspondents for the local side, notably the new immigrant regime.

  • France-Israel Convention
  • Real estate investment
  • CGI art. 244 bis A
  • Wealth tax on non-residents
  • 3% tax
FAQ

Investing in France from Israel: your questions

What tax does an Israeli resident pay on rental income from French property?

Rental income from French sources is taxable only in France, the 1995 convention granting exclusive taxing rights to the country where the property is located (article 6). Rental income is subject to income tax at a minimum rate of 20%, rising to 30% on income above the upper threshold of the second tax bracket (article 197 A of the French Tax Code), unless the taxpayer elects the average rate from worldwide income when more favorable, which requires disclosure of all household income. Add social levies of 17.2%, the reduced rate of 7.5% being reserved for those affiliated with an EU, EEA, or Swiss social security scheme.

Is a tax representative required to sell French real estate?

As a rule, yes. The levy under article 244 bis A of the French Tax Code (19%, plus social levies) is administered by an accredited tax representative, exemption being limited to EU and certain EEA residents. An Israeli resident seller is exempt only if the sale price does not exceed 150,000 euros per seller or if the property has been held over 30 years, a holding period that carries full exemption. The cost of the representative, usually proportional to the price, must be built into return calculations from acquisition.

Is it better to buy directly or through a real estate company?

Direct ownership offers simplicity and individual capital gains treatment. A family real estate company taxed as a partnership facilitates transfer via unit donations and provides governance, without degrading capital gains treatment; it remains within wealth tax and, for non-resident partners, within the 3% tax if the ownership chain is not disclosed. Interposing an Israeli corporation or a corporation taxed as a business fundamentally changes exit taxation and should be avoided unless specific analysis supports it. The choice depends on family structure, intended holding period, and heirs' residence.

What withholding applies to French dividends paid to Israel?

For an individual resident in Israel, French withholding is 12.8% (articles 119 bis, 2 and 187 of the French Tax Code), below the 15% conventional cap: domestic law applies directly. For an Israeli corporation holding at least 10% of the distributing company's capital, the convention caps withholding at 5% (article 10) versus 25% under domestic law: the conventional rate requires compliance with procedural requirements (forms 5000 and 5001), before payment or via claim. Interest paid to an Israeli resident is generally not subject to French withholding.

Must a French resident investing in Israel declare Israeli accounts?

Yes, invariably. Every bank account opened, held, used, or closed in Israel must be disclosed annually with the tax return (form 3916, article 1649 A of the French Tax Code), as must life insurance or investment contracts with Israeli providers (3916 bis). Omission triggers a penalty of 1,500 euros per account per year, and back taxes for undeclared assets may be increased by 80%. Israel practices automatic exchange of information with France since 2019, so the French tax authority receives this data without effort. Israeli-source income remains taxable in France, with a credit under article 23 of the convention.

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