A building is new for VAT purposes, and therefore taxable as of right where it is transferred by a taxable person, when two cumulative conditions are met: it has not been completed for more than 5 years and it results from new construction or from works that have restored it to a state as new. The grid of works that restore a building to a state as new is precisely defined by article 257, I 2° of the French Tax Code and by BOFIP doctrine: the structural (shell) works criteria (alternative — meeting a single one is enough) and the fitting-out (second-fix) works criterion (all six listed items must be restored to a state as new, each of them to a proportion of at least two-thirds). This qualification governs the VAT regime of the transfer (VAT as of right or exemption), the self-supply, and the interaction with the undertakings to build or to resell. A wrong qualification exposes the taxpayer to heavy reassessments.
The qualification of a new building for VAT purposes is not a matter of taste or appearance; it is a technical qualification resting on quantifiable criteria. The legislature has retained two families of criteria, which are set out in article 257, I 2° of the French Tax Code: the structural (shell) works criteria (alternative: a single one suffices) and the fitting-out (second-fix) works criterion, which requires all six items listed in article 245 A of annex II to the French Tax Code to be restored to a state as new, each of them to a proportion of at least two-thirds. Reaching two-thirds on only some of those items is not enough.
The stakes are economically significant. On a major renovation, the qualification of the building as "new" shifts the VAT regime of the subsequent transfer: VAT as of right at 20% (with a right to deduct input VAT on the works) instead of the ordinary exemption (with adjustment by twentieths on a later transfer). Conversely, the "existing" qualification requires the transferor to opt for VAT (French Tax Code art. 260, 5° bis) in order to preserve the right to deduct.
The self-supply (LASM) is often misdescribed, and the 2010 reform is frequently misread. The direct taxation of the sale did not begin in 2010: under the former article 257, 7°, the sale of a recently completed building was already taxed in its own right, so the reform did not create the principle of taxing the sale. What the amending Finance Act of 9 March 2010 actually changed is different: supplies of buildings entered the ordinary VAT regime, which turns on whether the seller is a taxable person acting as such, in place of the former self-contained regime that caught operations merely because they fell within the old 7°, including civil ones; the criterion of the first transfer within five years of completion gave way to the autonomous notion of the new building; and the self-supply was not abolished but recast and broadened. It was article 32 of Act no. 2014-1545 of 20 December 2014 that removed the general self-supply on new buildings left unsold two years after completion — an obligation that had applied even to builders entitled to deduct in full. A transfer by a taxable person acting as such is taxed to VAT as of right. But a self-supply remains for the builder's own use where the builder cannot fully deduct the input VAT: a typical case is the partial taxable person (mixing taxable and exempt activities) or an allocation to an exempt activity (social housing, unfurnished residential letting without option). The self-supply then acts as a reverse-charge mechanism that restores VAT neutrality according to the builder's actual right to deduct. The technical grid for qualifying a new building is set out at BOI-TVA-IMM-10-10-10-20, § 130 et seq.; operations taxed by assimilation, including self-supplies, are commented on at BOI-TVA-IMM-10-10-20.
The qualification calls for an item-by-item analysis, based on the building permit and the technical documents.
The first criterion, independent of the nature of the works: the building must not have been completed for more than 5 years. The completion date is assessed as at the date of the declaration of completion of works (DAT) filed with the town hall. Beyond 5 years from that date, the building is regarded as "existing" even if it has been the subject of substantial works.
The building is new where the works have affected the majority of the foundations. This criterion is typically satisfied in heavy-reconstruction operations following partial demolition. Note: this criterion is alternative to the other structural-works criteria; meeting a single one suffices to reach a state as new.
The building is new where the works have affected the majority of the items above the foundations that determine the strength and rigidity of the structure (floors, load-bearing walls, framework), or the majority of the substance of the façades excluding refurbishment. A mere façade-refurbishment operation never shifts a building into the new category; a thorough transformation of the structure is required.
A vertical extension is, in itself, qualified as a new building for the purposes of the French Tax Code: the creation of new storeys on an existing building constitutes the production of a new building. It does not, however, make the existing volume new: the works carried out on that volume are assessed separately, and the transfer of the whole must allocate the price between the new fraction and the existing fraction, each following its own regime (BOI-TVA-IMM-10-10-10-20, § 210 and § 310). This qualification opens a right to deduct the input VAT on the vertical-extension works.
Where no structural-works criterion is satisfied, the building may nevertheless be qualified as new by meeting the fitting-out criterion, which is cumulative and more demanding. All six fitting-out items must be restored to a state as new, each of them to a proportion of at least two-thirds: reaching two-thirds on only some of those items is not enough. The fitting-out items listed by BOFIP are: non-load-bearing floors, external joinery, internal partitions, sanitary installations and plumbing, electrical systems, heating. Evidence is provided item by item, on the basis of the works contracts and invoices.
The firm secures major renovation operations from the planning stage: pre-works analysis of the intended qualification (new or existing building), a technical mapping of the works item by item (structural / fitting-out), an economic trade-off between the regimes, contractual security (works contracts, certificates, detailed quotations), and defence where the tax authorities call the position into question.
On complex operations combining renovation and the acquisition of existing buildings, we coordinate the VAT qualification with the undertaking to build (French Tax Code art. 1594-0 G A) and the undertaking to resell (French Tax Code art. 1115) so as to optimise the overall taxation of the transaction.
Article 257, I 2° of the French Tax Code qualifies a building as new subject to two cumulative conditions: (1) not completed for more than 5 years; (2) it results from new construction or from works that have restored it to a state as new according to the technical criteria: the structural-works criteria are alternative, a single one being enough; the fitting-out criterion is cumulative and requires all six fitting-out items to be restored to a state as new, each of them to a proportion of at least two-thirds. The qualification is assessed as at the date of the declaration of completion of works.
The structural-works criteria are alternative: meeting a single one suffices to qualify the building as new. These criteria: majority of the foundations OR items above the foundations determining strength OR substance of the façades excluding refurbishment OR vertical extension. The fitting-out criterion is cumulative: all six listed items must be restored to a state as new, each of them to a proportion of at least two-thirds. Reaching two-thirds on only some of those items is not enough. Typical items: non-load-bearing floors, external joinery, partitions, sanitary installations, electrical systems, heating.
Not in principle. A standard renovation (paintwork, floors, kitchen and bathroom equipment, façade refurbishment) does not shift the building into the new category. A thorough transformation of the structure (structural works) is required, or the restoration to a state as new of all six fitting-out items, each of them to a proportion of at least two-thirds. The distinction is a fine one and evidence must be provided item by item on the basis of the works contracts and invoices.
For a VAT-taxable person: (a) the subsequent transfer is subject to VAT as of right at 20%; (b) the right to deduct input VAT on the works is available; (c) an acquisition made under an undertaking to build (French Tax Code, art. 1594-0 G, A) gives rise to a fixed charge of €125 (French Tax Code, art. 691 bis), whereas an acquisition made under an undertaking to resell (French Tax Code, art. 1115) is exempt from transfer duties but remains subject to the land registration tax of 0.70% (French Tax Code, art. 1020). In the absence of qualification, the transfer is in principle exempt (art. 261, 5), with adjustment by twentieths of the deducted VAT (French Tax Code annex II art. 207).
Two cases must be distinguished. (1) For the sale of a new building to a third party: the sale is directly subject to VAT as of right where it is made by a taxable person acting as such. Contrary to a widespread account, that direct taxation was not introduced in 2010 — the former article 257, 7° already taxed the sale itself. The amending Finance Act of 9 March 2010 brought supplies of buildings into the ordinary VAT regime and replaced the criterion of the first transfer within five years of completion with the notion of the new building; it did not abolish the self-supply, which it recast and broadened. It was article 32 of Act no. 2014-1545 of 20 December 2014 that removed the general self-supply on new buildings left unsold two years after completion, an obligation that had applied even to builders entitled to deduct in full. (2) For the builder's own use: the self-supply is retained where the builder cannot fully deduct the input VAT; this is notably the case of the partial taxable person (mixing taxable and exempt activities) or of an allocation to an exempt activity (social housing, unfurnished residential letting without the option under art. 260, 2°). The self-supply then acts as a reverse-charge mechanism that restores VAT neutrality according to the actual right to deduct. BOFIP doctrine BOI-TVA-IMM-10-10-20, in its version published on 2 August 2017, sets out the cases of application.
Where a property dealer acquires an existing building under an undertaking to build (French Tax Code art. 1594-0 G A), it undertakes to carry out, within 4 years, works leading to the production of a new building within the meaning of art. 257 of the French Tax Code. Compliance with this undertaking requires the works actually to satisfy the criteria of art. 257; the technical qualification is crucial in order not to lose the exemption from transfer duties. See our analysis: Extension of the undertaking to build.
Three lines of action: (1) a technical specification ahead of the works, listing the items concerned and their aggregate; (2) detailed contracts and invoices allowing item-by-item traceability; (3) a certificate from the architect or project manager certifying compliance with the criteria of the French Tax Code. This documentation is essential in the event of an audit, which often occurs several years after completion.
Topics frequently articulated with the qualification of a new building.
The general framework of real-estate VAT: scope, regimes, options, exemptions.
Voir la page VATA synthesis of the regimes applicable to real-estate transactions.
Voir la page VATThe regime of art. 268 of the French Tax Code and the impact of works on identity.
Voir la page Property dealerInteraction between VAT works and the undertaking to build (French Tax Code 1594-0 G A).
Voir la pageA confidential first exchange to analyse the intended qualification, secure the works specification and defend your interests in the event of a challenge.
© BENSAID Avocats — The information on this site does not constitute legal advice and cannot replace a personalised tax analysis.
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